PRO - NYSE

Greetings. Welcome to PROS Holdings Third Quarter 2024 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 over to Belinda Overdeput, Senior Director of Investor Relations. Please go ahead.

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 are also available on our website 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 and guidance. Actual results could 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. This guidance presented in today’s earnings release, and which we’ll discuss during the call, assumes the external environment doesn’t significantly change. 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 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. We delivered a strong third quarter, exceeding the high end of our guidance ranges across all metrics. We grew subscription revenue by 12% and delivered $9.3 million in adjusted EBITDA in the quarter. 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. I’m incredibly proud of our team for how we’re 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. We’re well-positioned to continue to capture our market opportunity as key themes converge across the industries we serve. B2B businesses are increasingly prioritizing digital and self-serve experiences, 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. AI remains a strategic priority across all sectors. These three trends reinforce the unique value of the PROS Platform, where innovations are focused on helping all industries we serve attract demand digitally, drive digital collaboration between buyers and sellers, and win business. 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. One AI model analyzes the trend of clicks in average cost per click, while another estimates the probability of conversion. These insights inform the AI agent that recommends optimized bid proposals, helping marketing teams achieve better search engine performance and maximize ROI. 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. By integrating pricing, discounts, promotions and rebates, sellers gain a holistic view of how economic levers interact with each other, empowering them to present more tailored optimal offers to their buyers. Our platform will power the execution of rebate-inclusive offers across all sales channels. 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, and the results only get stronger. Our Customer Adoption Program now shows that using PROS price recommendation leads to an average margin uplift of over 650 basis points. Our team is executing well against our market opportunity. Todd and our go-to-market leadership team have been instrumental in scaling our go-to-market operations. 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. I’ll share a few examples. One of the world’s top five telecommunication providers selected PROS to harmonize pricing across their portfolio. By leveraging AI to optimize strategies for promotions and device launches, PROS will play a pivotal role in transforming their pricing capabilities, enabling them to drive greater efficiency, profitability and growth. This partnership underscores the trust that leading enterprises place in PROS to be at the heart of their commercial strategy. Similarly, Vallen, 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, empowering them to bring winning offers to market and fuel profitable growth. Twist Bioscience, a company at the forefront of synthetic DNA manufacturing, adopted PROS Smart CPQ to accelerate and simplify quoting for big DNA products, using critical fields such as cancer research. 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. In addition to our amazing new customer wins, we’re continuing to see strong expansions within our existing base. Lufthansa is continuing to expand request-specific pricing to new markets, while BASF continues its rollout of Smart POM and CPQ across its business units. This highlights the value of our platform in continuously driving growth for our customers. I’m incredibly proud of where we are as a business. Our strategy, platform and people are well positioned to lead the market and continue driving growth. 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. It is with this confidence that today I announce my intentions to retire from PROS. 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. I will remain in my role until my successor is named and I will stay at PROS as an advisor for one year after to ensure a seamless succession. In closing to our exceptional global team, thank you for your unwavering dedication to PROS, our customers and our communities. 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.

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 PROS is in a strong position and our results in the third quarter demonstrate this strength. 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. 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. These efficiencies can also be seen in our marginal profit this year. For example, we have delivered $0.81 of every incremental revenue dollar to adjusted EBITDA on a year-to-date basis. Now for some more details on our results. 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. 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. 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. Looking forward, we expect the full year growth rate for calculated billings to approximate total revenue growth. Non-GAAP subscription margin was 80% in the third quarter, an improvement of over 190 basis points year-over-year. Our overall non-GAAP 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 SaaS company. We delivered adjusted EBITDA of $9.3 million in the third quarter and achieved double-digit adjusted EBITDA margin. This significantly exceeded guidance and was an improvement of 65% year-over-year. We generated free cash flow of $1.4 million in the third quarter, resulting in $2.6 million of free cash flow generated year-to-date and an improvement of 217% year-over-year. We exited the third quarter with $150.6 million in cash and investments and our third quarter non-GAAP earnings per share was $0.14 per share, also exceeding guidance. Now turning to guidance, I’ll first update our annual guidance ranges, then provide the implied guidance ranges for the fourth quarter. We are raising our subscription revenue range for the year and now expect subscription revenue to be between $265.5 million to $266 million, representing 14% growth at the midpoint. 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. 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. We are reiterating the guidance midpoint for total revenue. 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. We are reiterating the same guidance range for subscription ARR of $280 million and $284 million, representing 9% growth at the midpoint. The fourth quarter is typically the largest booking quarter for PROS and we anticipate that to be the case this fourth quarter. Shifting to guidance for the fourth quarter, we expect subscription revenue to be in the range of between $68.5 million and $69 million, representing 13% growth at the midpoint. We expect total revenue to be in the range of between $84.1 million and $85.1 million, representing 9% growth at the midpoint. We expect adjusted EBITDA of between $8.4 million and $9.4 million, an improvement of 254% year-over-year at the midpoint. Using a non-GAAP estimated tax rate of 22%, we anticipate fourth quarter non-GAAP earnings per share between $0.12 per share and $0.14 per share, based on an estimated $47.5 million diluted weighted average share is outstanding. In closing, I would like to thank our global team and our customers for their continued support of PROS. We also thank you, our shareholders, for your support 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. [Operator Instructions] Our first question is from Scott Berg with Needham & Company. Please proceed.

Hi, everyone. Thanks for taking my question. I guess I’ll start with the super easy question, Andres. Why now? Why is the right time to step down after what I think is 14 years of the CEO position, especially with the company seemingly having a really strong product set today? Then as you think about who the potential replacement is in the CEO, President’s role, what’s maybe the right profile, right fit that you all are looking for?

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 is incredible and I think I could not be more proud of the team that we have in this strength that we have at all levels. 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. It’s something I’m very passionate about. So it’s a very personal decision, but it’s because of my confidence in the business and the amazing team that we have. And I feel that our competitive position is at an all-time high. The way we’re executing 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. We’re going to take our time to find the right person. And obviously, we want somebody that can build on the strong foundation that we built and really help us capitalize on this large market opportunity. So 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 the most well-defined transition plan that we could ever create and I’m very committed to making sure that it all happens smoothly and that’s it.

Well, we will certainly miss your passion. On to the quarter. Andres, you mentioned looks like an expansion deal with Lufthansa. I know you all commented 90 days ago about the environment, the buying environment or demand environment within travel is weak and relative to your expectations. 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?

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’ve talked about, Dan Air and South African Airways as example. We are continuing the strategy on the new ones, finding easy ways to get started in driving value, and then we had some great expansions. And Lufthansa is an example of that, Asiana, Etihad. And those 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 that drives immense value for them. So they want to accelerate the rollout across all markets. 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.

Very helpful. I will jump back in the queue. Thank you again.

Great. Thank you, Scott.

Our next question is from Parker Lane with Stifel. Please proceed.

Hi, guys. Thanks for taking the question, and Andres, congrats on retirement. Best of luck going forward. The first one is for Stefan. Some pretty nice leverage in the business here in the third quarter across a couple of different lines and clearly a nice outlook for adjusted EBITDA. Can you just speak to some of the different areas where you’re seeing that leverage today and 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 of quarters here?

Hey, Parker. Yeah. I’m incredibly happy with the progress we’re making and really it’s across the Board from a leverage and efficiency standpoint. One of the things that Andres has talked about now for the last year has been how we can gain more efficiencies by leveraging AI in 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, automate tasks or make big tasks more efficient and it’s all the way from how we implement our products to how we respond to internal inquiries or even respond to external inquiries. There’s so many things we’ve been able to do more efficiently than we would have before, and like I said, it’s across the Board. 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. 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 $0.81 of EBITDA for every dollar of revenue, 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.

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 leveraging your AI features and expertise, bringing new things to the fore like embedded AI agents in the search process. Can you just sort of assess where we are relative to two years ago, one year ago, in terms of, how much the AI boom is benefiting your business, top of the funnel or is this sparking a lot of conversations? Is it something that people are in the discovery phase of like, how actionable is the public awareness of AI in your sales process?

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, AI is 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, that now embeds AI to really optimize the ad spend. 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 have always had embedded AI at the core. And that drives very differentiated value. I think every company’s, and I’ve been saying this for a long time, it’s really focused on digitizing, automating and embedding AI to be continuously learning, and that theme is really resonating in the market. 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.

Understood. Thanks, Andres.

Yeah. Thank you.

Our next question is from Rob Oliver with Baird. Please proceed.

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. My question is around, 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 airline -- 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 FY 2025 and if that has been a contributor to any of the operating leverage that you’ve seen to-date or if that’s that would be more impactful in 2025.

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 with an industry expertise layer and 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 in the next year. 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 believer that AI is going to transform every role 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. 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.

Got it. Helpful. That’s great. And then I just wanted to return to Scott’s question earlier around just the state of the airline industry because you guys sort of pointed out last quarter kind of a perfect storm between the Boeing issues and the CrowdStrike, and the fact that the travel numbers that we’re seeing, we’re not seeing the pull-through in terms of travel IT spent. Did you see some data around domestic tourism improving in China? And I just was curious, Stefan, from your perspective and I know you said it was as expected, which I can appreciate. What -- how should we expect or how are you guys thinking about this travel industry headed into 2025, now coming through a few years of not having invested in IT? 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.

Yeah. 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. 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. 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. 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 continued to be strong. In my belief, 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.

And I think, Rob, our outlook, and almost to kind of repeat what Andres was saying, our outlook is very consistent today as it was, say, 90 days ago. I think you pointed out the risks like with Boeing, et cetera. I mean, that’s certainly out there. There’s other things like the geopolitical escalations that we’ve seen. But 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 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.

I appreciate the color and context. Thank you guys both very much.

Thank you.

Our next question is from Jason Celino with KeyBanc Capital Markets. Please proceed.

Great. Thank you. This is

Great question. No. 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. 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, and I think that’s translating to strong results. I think we’ve definitely leveled up for execution in our scene overall from a deal cycle, a 15% improvement from an average deal size. It remained constant with last year.

Okay. Great. Thank you. And then a quick one on Smart Rebate Management. Nice to see that rolled out this quarter. 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?

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 rebate, we can really help an organization. And this applies to all industries, whether you’re B2B or travel, in defining contracts to drive more volume and revenue. So we think this is very strategic. We expect 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. In my opinion, automation just helps you get bad deals out faster. In my opinion, I think you need AI and I think our focus on embedding AI to help our customers drive the best business outcomes that drive revenue and margin is what’s critical. And being the only company that has a point to end platform with embedded AI, I think it’s a big differentiator. What we expect is to increase our wallet share within our accounts.

Perfect. Thank you very much. And Andres, congratulations on the planned retirement.

Thank you very much.

Our next question is from Brian Schwartz with Oppenheimer & Company. Please proceed.

Yeah. 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?

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 that new and expansions. And that’s really in the zip code we want to be. So we’re very pleased with that mix.

Thank you. And then, Stefan, 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. 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.

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. Mainly, we had a good level of linearity. And as Andres commented, we had a really strong B2B 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, the fourth quarter is our largest quarter, typically from a booking standpoint. And there’s still, as I like to say, a lot of wood chop between here and getting 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 there is a number of things happening in the world these days. We talked about the Boeing strike. We talked about some geopolitical tensions. And so we wanted to make sure that we had that in our mind as well, not to get ahead of ourselves. And so the guidance we established is essentially consistent with how we were viewing the second half of the year the last 90 days ago and so that’s how we’re thinking about our guidance at this point in time.

Thank you for taking my questions.

Thank you.

Thank you.

Our next question is from Nehal Chokshi with Northland Capital Markets. Please proceed.

Yeah. My congrats to the company on the improved profitability, as well as Andres, your retirement. You will be missed. So I recognize…

Thank you.

… you’ll be with us for quite still another year, probably. I want to turn to the acquisition, the M&A stat. It’s been few and far between, but you are coming close to a three-year anniversary of the EveryMundo acquisition. So we’d love to get a review of the synergies that you’ve been able to realize with this acquisition?

Yeah. I would say we’re very pleased with the EveryMundo acquisition. It’s a key part of our product offering. Andres talked a lot about some of the things that we’re doing to address the travel market. And the Offer Marketing product suite that the EveryMundo team brings to the table 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 airlines. And we highlighted, I think, in Andres’ prepared remarks, a couple of wins with Dan Air and South Africa. 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. I’d say we’re in the very early innings of how we’re going to be able to benefit that. But 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. So I would say it’s been a tremendous acquisition. The people have, their culture that the EveryMundo team had was a very nice fit with PROS and it’s really been a hand-in-glove type of relationship for the last three years.

Yeah. I would just echo that. It’s an amazing team. I’m extremely proud of them. The innovation that they brought 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 is going to move more and more to digital channels. As B2B companies move to digital channels, they’re going to have to power marketplaces. They’re going to have to power digital offers. We’re going to be ready. So if you think about our innovation strategy is really future-proving a lot of the B2B businesses in bringing the technology they’re going to need to compete in the future. So as I’ve always said, travel is probably a decade ahead of any industry in the levels of sophistication 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 it’s performed very well.

And then just to follow up, with the company now generating a nice amount of free cash flow, will the intention be to pay down debt or will you guys continue to be opportunistic with acquisitions?

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 that we have in the leadership position we have in the marketplace and the efficiencies that we just talked about earlier to expand that and generate more cash flow and build up a bigger amount of capital to actually make those decisions. It’s hard to say right now how much we’re going to be looking at, whether it’s a debt repayment or whether it’s M&A, but we remain open to M&A opportunities that are fit with what we want to execute from a strategic perspective and that’s consistent with how we’ve done in the past and we’re fairly selective in the process we go through and that’ll continue to be the case as we go forward.

Yeah. As Stefan said, we’re in a great position like from a competitive mode and competitive position, we’re at the strongest we’ve ever been. So we really don’t need to do M&A for -- to achieve our growth projections. But where we see strategic opportunities in adjacencies, obviously, we would look at them like we looked at them in the past. Think of more tuck-ins, but very strategic assets and 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.

Great. Thank you.

Thank you.

Our final question is from Jeff Van Reeve with Craig-Hallum Capital Group. You may proceed.

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.

Thank you.

Several questions for me, maybe starting more from a numbers perspective. Thoughts on the professional services line. Obviously, big disconnect this year between the growth rates between PS and subscriptions prior years, a little closer tie. I know you’re not giving any formal guides on 2025, but based on what’s in the pipeline, how do you think about the relationship of subscription and PS growth in 2025?

Yeah. I would say this is really part of a longer term plan and what you’re seeing fall out in 2024. 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. And we’ve actually moved the needle from a percentage of our services to total revenues actually coming down a percentage point. So pretty much in line. I would say we expect that to continue into 2025 while we’re not necessarily given any specific guidance on 2025. Although I would say, I think, it’ll probably grow a bit more than it did between 2023 and 2024, because a lot of the moves and some of the product shifts that occurred in between 2023 and 2024. I don’t know that we’re going to get that same step function benefit in 2025. So just a little color there.

Yeah. Got it. Very helpful. And then as you think about 2025 with respect to the ARR growth, the 9% growth this year, I know you don’t want to give a formal number for 2025, 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?

Yeah. I think a lot of it’s going to be continued execution of the things that you were saying in 2024. So as you point out, we’ll be given 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 and 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. I think we got a similar question last quarter on this, and that is, is that how we should be thinking about subscription revenue growth? And it’s not always a one-for-one relationship. So I would tell you that subscription ARR is certainly a good indicator of what’s to come in subscription revenue, but a lot of things such as timing on the times that the deals are booked and then timing on the recognition. 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.

And just maybe if I could follow up on that last piece. You had nice outperformance on the subscription versus ARR this year and when you look at the things that you just referenced, timing on billings, recognition, et cetera. Is that -- 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?

Yeah. I’ll get 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 I’ll wrap up.

Yeah.

On the B2B side, any differences in the demand environment as it relates to the CPQ versus Price Optimization products?

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. 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.

Super. Okay. Great. Thank you.

Great. Thank you.

Thank you.

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.

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 Conference on November 7th in Chicago, the Needham Virtual SaaS One-on-One Conference on November 21st, and the Northland Virtual Growth Conference on December 12th. If you have any questions following today’s call, please contact us at [email protected]. Thank you and good-bye.