Greetings, welcome to the PROS Holdings’ First Quarter 2020 Earnings Conference Call. [Operator instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Shannon Tatz, Vice President of Investor Relations..

Thank you, operator. Good afternoon, everyone, and thank you for joining us. Our earnings press release, SEC filings and a replay of today's call can be found on the Investor Relations section of our website at pros.com. With me on today's call is Andres Reiner, President and Chief Executive Officer; and Stefan Schulz, Chief Financial Officer.

Consistent with how our global team is operating today, the three of us are hosting this call from our homes. 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 in our forecast.

In particular, there is significant uncertainty around the duration and impact of the COVID-19 pandemic This means that results could change at any time and the contemplated impact of COVID-19 on the company's business results and outlook is a best estimate based on the information available as of today.

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..

first, ensuring the safety and well-being of our people; second, driving strong business execution virtually; third, continuing to support our customers and markets; and fourth, accelerating strategic innovation to help companies shift to digital selling.

First and foremost, our priority is the safety and well-being of our people, customers, partners and communities. In mid-March, we moved our global team to a virtual work environment in a matter of days and ahead of our local government mandates. Our business continuity team led the effort flawlessly, and Stefan will share more on this later.

Today, I'm so thankful to share that our team is safe, thriving and relentlessly committed to continuing to execute on our mission of helping people and companies outperform, even if they balance supporting their families and loved ones. Second, I'm proud to share that teams across our business are executing well in a virtual environment.

One of our strategic focus areas has been driving a more virtual sales motion, so our go-to-market team was well prepared to adapt to today's environment and continue to serve new companies. In the first quarter, we welcomed new customers across industries and kicked off many new projects virtually.

For example, in Q1, Nestle selected our platform to modernize our go-to-market strategy and navigate their incredibly complex demand environment. We also welcomed thyssenkrupp Materials Services as a new customer, after they selected our full commerce platform to power their digitization strategy.

And one last example of how we're helping companies sell is a digital payments and financial solution provider that selected PROS in Q1 to help deliver a winning customer experience online. Our smart CPQ e-commerce capabilities will empower them to personalize their offers as their marketplace rapidly shifts online.

We're excited to partner with Nestle, thyssenkrupp and other new customers on their digital selling journeys. While we continue to welcome new customers and expand our relationships with existing customers, we've experienced some sales headwind as a result of the current pandemic.

As you'd expect, we've seen our travel sales activity slow significantly due to the unprecedented challenges facing the airline industry. We also saw some lengthening of our B2B sales cycles as prospects pause to focus on their own COVID-19 response plans.

We're confident that we'll ultimately convert this opportunity since our team is continuing to do an excellent job of engaging with these companies and highlighting how our solutions help them sell in a digital-first world. Our customer-facing teams are also doing a great job of engaging and supporting our existing customers.

Our implementations, training, customer success and support teams are fully equipped to serve our customers remotely, and they're doing so today. For example, we just recently delivered a fully virtual go-live with ANA, Japan's largest airline, as they migrated to our next-generation revenue management cloud solution.

ANA now has our most advanced forecasting capabilities so that they can be at the forefront of adapting to the newly emerging traveler demand patterns.

Since we're exceptionally well-positioned to operate virtually across our business, we're able to lean in to the third part of our COVID-19 response strategy, which is helping our customers and markets.

We have a deep bench of industry experts, pricing and selling thought leaders and data scientists, and they've come together to share their domain expertise.

Over the past several weeks, we've launched free consulting services and hosted webinars to help companies sell digitally in the marketplaces that look totally different than they did just a few weeks ago.

We've had a very positive response with over 1,000 people participating, and I'm so proud to see our team truly leading the way to recovery for so many companies. For some of our customers, supporting them and being a good partner today requires more.

As many of you know, PROS has been delivering mission-critical solutions to travel customers for more than 30 years. We've supported our customers through previous challenges like SARS and the horrible events of 9/11. But the current pandemic is having an unprecedented impact on the industry.

Therefore, we're providing temporary relief to some of our customers struggling the most through one-time payment deferrals or short-term subscription price reductions. We are confident that helping these customers now when they need it the most will inspire their continued loyalty for decades to come.

Today's reality is creating an extraordinary challenges for companies across industries, and I'm proud of the role our solutions are playing in helping our customers adapt. Our solutions are now more important than ever as companies have to respond to environments that are dramatically different from just a few weeks ago.

For example, our pricing and guidance solutions are helping B2B companies dynamically react to extraordinary changes in their channel and product demand mix. And our digital selling solutions are helping our customers across industries as their typical go-to-market motions have been completely disrupted.

One such case is Saint-Gobain, one of the largest glass manufacturing and building companies globally. Before the onset of COVID-19, Saint-Gobain did about 10% of their orders online. Now over 80% of the orders are done through their online platform powered by PROS' Smart CPQ.

The reality of today only highlights the mission-critical nature and value that our solutions provide. Now more than ever, our customers and the industries we serve recognize that digital selling is essential.

Our solutions are at the heart of powering digital selling transformations, and this fundamental driver helped us achieve our first-quarter revenue growth targets. This is why the last part of our strategy is focused on accelerating innovation.

Focusing on this area creates a strong opportunity for us to further advance our market adoption, broaden our market reach and fuel our long-term growth. Thank you to our global team for your incredible passion toward our vision and inspirational support of your families, our customers and each other during this time.

Finally, thank you to our customers, partners and shareholders for your ongoing support of PROS. With that, I'll turn the call over to Stefan to cover our financial performance..

Thank you, Andres. I too would like to extend my best wishes to everyone on today's call and to all of your families. I'm proud of how the PROS team around the world responded to the abrupt challenge caused by the COVID-19 pandemic. In mid-March, we shifted to a 100% virtual work environment.

While we never wanted to experience a situation like this pandemic, our solutions have always been mission-critical for our customers, and we developed a formal plan for this type of event many years ago. Our plan has been tested and improved over time as we experienced a couple of Houston-related natural disasters, like Hurricane Harvey.

And these events provided us with valuable insights about working in a virtual environment. Our human resources team began regular communications, preparing our employees for the changes to our workplaces and our travel expectations well in advance of our shift to a 100% virtual environment.

After shifting to a virtual environment, we adopted programs to help our people remain connected with employee town halls and a virtual hub where our global team members are contributing daily.

Our infrastructure teams, including IT, security and office services, also engaged their components of the business continuity plan to support our now virtual workforce. They have ensured our people have the technology, tools and services needed to progress our business and support our customers globally.

At the same time, we have increased our focus on the integrity and security of data. The combination of our infrastructure, strong business continuity planning and global team collaboration has ensured the uninterrupted and secure service of our mission-critical solutions for our customers. Now for some comments on our first-quarter results.

Our subscription revenue increased 40% year over year to $43.2 million, which was the main driver of our total revenue growth of 18% year over year. Our recurring revenue as a percent of total revenue for the quarter was 84%.

Our maintenance revenue was $12.5 million for the quarter, down 18% year over year as we continue to drive migrations to our cloud products. Our services revenue was $10.6 million for the quarter, which was up 7% year over year.

The recurring portion of our deferred revenue was $125 million, up 13% year over year, and our trailing 12-month calculated billings were up 18% year over year. Now moving on to the profitability metrics. Our non-GAAP subscription gross margins were 72% in the quarter, which is up from 71% in the first quarter last year.

Our Q1 services margins were a negative 18%, which was in line with our expectations. Our adjusted EBITDA loss was $11.4 million for the quarter, exceeding our expectations. We reported a free cash flow burn of $25.5 million in the first quarter.

This burn was higher than anticipated as customer collections toward the end of the quarter slowed down considerably. As a reminder, Q1 is our highest seasonal cash burn quarter due to the impact of annual incentive payments, payroll taxes and our company kickoff.

From a balance sheet perspective, we have over $250 million in cash on our balance sheet, and we are well-positioned from a capital structure perspective at this time.

Overall, our first quarter was largely in line with the expectations we set at the beginning of the quarter, which demonstrated our team's resiliency in moving to a virtual environment during the quarter.

Before I turn to our outlook, I want to first comment on how this pandemic has impacted some of our customers and then what actions we're taking as a company. We can all see that COVID-19 has had a swift and unprecedented impact on travel businesses. We're strongly committed to supporting our travel customers today as we've done in the past.

So as Andres mentioned, we're offering financial assistance to some severely impacted customers despite having multiyear contracts in place that require full payment and service at full capacity. In these cases, we are also limiting our service obligations and/or expanding services in future years.

We view this as an appropriate response that reflects our strong commitment to long-term customer partnerships and customer success. In addition, we have applied a revenue reserve for certain customers that have been the hardest hit from this pandemic.

We estimate a negative impact from the financial assistance and revenue reserve to be approximately $3.5 million in the second quarter, with most of the impact affecting subscription revenue. Turning to the impact on our sales, we now expect much lower new bookings from our travel customers in 2020 as the industry recovers.

In our B2B business, we have seen a few purchasing delays by some of our B2B prospects as they weigh the impact of COVID-19 on their businesses. We remain confident in our vision of providing our customers mission-critical solutions necessary to sell and win in the digital economy and the long-term market opportunity this vision represents.

As Andres noted, we will continue to invest in programs and strategic innovations to capitalize on this opportunity, but we are being measured in our investments.

We've identified cost savings of as much as $13 million for the last three quarters of 2020, and the portion applicable to the second quarter is included within our profitability guidance ranges. These expense savings have largely come from programs and deferring lower priority initiatives.

Some of the cost reductions are a natural byproduct of our virtual work environment, like business travel expenses. Also, while we have slowed down hiring for new personnel, we are continuing to hire key positions and have not reduced our staff positions.

Quota-carrying personnel additions were slower in the first quarter, but we plan to add to our quota-carrying personnel throughout the year, assuming we see signs that the macro environment is improving. Now I'll move on to share how we're thinking about our outlook. The global economy has been significantly impacted by COVID-19.

And as a result, establishing annual guidance is significantly more difficult in this environment. We cannot predict how long this pandemic will affect our customers, and we cannot predict how our customers and prospects will respond to this pandemic in the coming weeks and months.

Because of these uncertainties, we are withdrawing our annual guidance for 2020. Now while we're not providing annual guidance at this time, we are providing guidance for our second quarter. For total revenue, we anticipate a range between $60 million and $61 million in the second quarter.

We expect subscription revenue to be in the range of $39.5 million to $40.5 million, up 14% year over year at the midpoint.

In addition to the approximately $3.5 million impact from the temporary relief and revenue reserves I mentioned earlier, we anticipate our Q2 revenues will be further negatively impacted by another $1 million due to the impact on our owned business from COVID-19.

Examples of this include delayed project implementations and lower passenger volumes driving lower revenues on a small portion of our travel products. We expect our adjusted EBITDA loss for the second quarter to be in the range of $10.5 million to $11.5 million.

And finally, with an estimated non-GAAP tax rate of 22% in the second quarter, we anticipate a non-GAAP loss per share between $0.20 and $0.22 per share based on an estimated 43.3 million basic shares outstanding.

Overall, we are well-positioned financially and strategically to execute through this current environment and become even stronger in the future. Thank you for your support of PROS, and we look forward to speaking with you at our upcoming events. So with that, let me turn the call back over to the operator for questions.

Operator?.

Thank you. [Operator instructions] Our first question comes from the line of Scott Berg with Needham & Company. Please proceed with your question..

Hi, Andres and Stefan. Congrats on being able to successfully move to the virtual environment, and thanks for taking my questions..

Thank you, Scott..

Thanks, Scott..

I guess, let's start on the travel segment. And Stefan, I certainly understand the desire to give some forbearance in the short term to some of your travel customers, and the $3.5 million probably makes sense.

I guess the question I have there is, with the expectation that travel returns in the second half, how should we think about – on the snapback of those revenues? And I assume there's a lot of variance in that kind of question there.

But is this something that we can see snap back to those same levels as passenger traffic at the, I don't know, 25%, 50%, 75%? Or is there some other kind of way that you guys are thinking about it?.

Yes, Scott, that's a good question. What we've done over the last quarter is we spent a lot of time talking to all of our customers, both in the travel and in the B2B space. And what we did with the $3.5 million is we made an assessment on, one, what customers around the world are at risk of potentially being in a bankruptcy situation.

And that's probably the biggest component of the $3.5 million, to be totally honest, is that element there. And then the secondary component gets to the question you're raising which is, okay, we've offered some of these relief to some of the most impacted customers.

And as you've probably seen in the news, a lot of airlines have been impacted to as much as 90%. And so it was something that we collectively, as a management team, decided to do based on what we see today.

So to your point, assuming things do come back, yes, we could certainly see these types of things be relieved and not see that same kind of impact in the future quarters. I will also indicate that these relief programs that we're talking about, it's not a – I use the word program, but it's not a program.

It's something that we work with each individual customer based on their unique sets of circumstances. And we also – as I made a comment in my prepared remarks, we were also adjusting business models, as well as a result of that.

So yes, so I think, to the nature of your question, this could be more short term or, call it, a temporary type of situation..

Got it, helpful.

And then as you look at your conversion business today for – your legacy product customers moving to the cloud, do you see any change to those projects, whether there's a difference on B2B customers or travel customers and, not their desire, but their ability in the short term to complete transactions that were signed over the prior several quarters..

Yes, Scott, this is Andres. Yes, I would say that from migrations, we don't see a major shift. If anything, we see an opportunity for companies to use this opportunity to move to the cloud, especially if they think of – on the B2B side, to power more of a digital selling motion. Those are opportunities.

Obviously, on the travel, I think, is where you would see more of a pause short term just because a lot of the people on the customer side are not there to support a migration. So there, I would expect some. But on the B2B side, I wouldn't expect any slowdown..

Got it. Helpful. I have several more but I'll throw it back to the queue. Thanks for taking my questions..

Thank you. Our next question comes from the line of Tom Roderick with Stifel. Please proceed with your question..

Hi, Andres. Hi, Stefan. First and foremost, glad to hear that you're both healthy and the team is healthy and you're staying productive as can be in this environment. So well done on that. Maybe I'll just build off of Scott's question just relative to the airline exposure.

And perhaps you could kind of take a quick step back and remind us what that exposure looks like today. I think, historically, it's been in the 35% to 40% of revenue, ballpark, but perhaps an update on that would be great.

But as you kind of stress test that and play with the numbers and talk to your customers, take us through just a little bit on how the different levers move in the model, in particular, the transactional element or the components of it that are tied to passenger levels. Would love to hear how much variability there is in the revenue stream there.

And then, Stefan, a good one for you as a follow-up to that is just, as we think about this $3.5 million reserve and sort of downtick related to potential bankruptcies and things that you're being cautious on, should we think about the way the cadence flows through the revenue stream as being – second quarter is the low watermark, assuming that passenger levels start to come back and bankruptcies don't get worse from here? Or is there a further trickle through in the model that we just need to be aware of?.

Yes – no – so a lot in there, Tom, but thank you for the comments. And we feel the same back to you in terms of your health and – related to this exposure. But I think the first question you asked was the percentage of roughly our travel versus our B2B. And I think the most recent time we disclosed that, it was roughly about 45%.

But one of the things that we've been talking about historically is that our B2B businesses has been a higher growth component to our business. And so over time, that percentage has been shifting to where it's little less travel and a little more on the B2B side. So that's been relatively the mix.

And I think that was going to be trending more and more to B2B, i.e., less and less travel, more and more to B2B. And then I think your question around the $3.5 million and whether we see that as a kind of representing the low watermark or not, honestly, it's difficult to tell.

Based on what we see today, we feel very good about the reserve that we put in place. And it's based on, like I said earlier, our observations of not only talking to our customers but reading what's going on in the press and what's happening in the industry. And we feel very good about where we are today.

And then to Scott's point, could it be less in the future if things start to come back in the second half of the year? The answer is absolutely yes. But it's hard to say whether this is absolutely the low watermark from an impact perspective or not. And yes, it's difficult to make that call right now..

Yes, and a couple of things that I would add is, to your question on how much is variable, very little of the impact is due to variable, I would say it's less than $1 million, so it's very, very little. Most airlines really don't like a variable model and tend to prefer our type of model.

Obviously, when there's a downside, we have a lot of protection in this model. For them, when there's an upside, there's not a significant cost increase. And that's why the model has worked for us long term.

And I would say the areas where we're doing short-term support is more in the spirit of some of these relationships that we've had for three decades in supporting them but not related to the variability in the particular contract. And we think, look, travel – while there's a passenger demand issue now, travel will come back.

And our technology is as important as ever because, with our technology, they can start to monitor long-term forecast and start to plan their recovery. We also think that our innovation around digital selling and digital retail in the travel industry and offer optimization are going to be areas that they continue to push forward as they come back.

So we believe that there's opportunities. And we talk to many of these airlines about the continued innovation and their desire to rethink what that recovery looks like. So while, short term, they are seeing a big demand change, we think there's a very strong opportunity long term..

Yes, and Andres, that kind of gets to my second question, just on the B2B side. As you're having conversations with senior executives of B2B-based companies, I understand there's a pause near term as they just sort of assess what their balance sheets look like, what they can spend.

But are you having conversations that lead you to believe that there will be an acceleration in this theme of digital transformation? And then how does that inform where your staffing heads as you look to add sales heads on the go-forward here?.

No, that's a great question. Look, my belief is, while there was a small pause in March and we did see that – and frankly, I think a lot of companies – for us to move to virtual, and I would say I commend my whole team because it was pretty spectacular, the move, we didn't see an impact whatsoever, I think for our customers, it wasn't an easy move.

And I don't believe they were as prepared and that slowed things down. We did see some of the deals that pushed out of March, closed in early April, the intentions. We do believe that, in B2B, a lot of companies really weren't prepared for a virtual world. And we think that a lot more companies are going to want an action plan around this.

I talked about Saint-Gobain, and they were one of the fortunate ones that had implemented a digital strategy. While only 10% of their business was done online, during COVID, 80% of their business has been done online. And we have many stories of customers that frankly had invested ahead of the curve that are capitalizing.

But we think in this time being, when the mix and the channel shift is happening pretty dramatic across food industries, across really all of our target industries, we think our technology is even more important. And I would say, the activity, from a sales perspective, B2B is very high.

So definitely, I would say, look, a lot of companies are trying to understand what it means to them. But we haven't seen any impact in terms of the activity and the interest. And if anything, I do believe that more and more companies are going to lean in to digital transformations around sales because it's as important now or more than ever..

Yes, outstanding, that's really good color. Thank you. Appreciate it. I'll jump back in the queue..

Thank you. Our next question comes from the line of Jason Celino with KeyBanc Capital Markets. Please proceed with your question..

Hey, guys. Thanks for taking my questions. Good to hear from everyone.

But as I think about the B2B business, building off Tom's question, can you maybe talk about the different segments within it? Specifically, what industries did you see where you saw more impact? And maybe what industries may have seen some positive trends?.

Yes, I would say, look, on the B2B segment, obviously, you've seen some impact in industries like automotive. But overall, I would tell you, look, across B2B, the interests are moving forward and initiatives around digital transformation remained strong.

I think a lot of companies were facing kind of their crisis of moving everyone virtual and addressing their business operations. But overall, we see good demand. Some areas of uptick have been around B2B cargo, for example, logistics, that's been an area that we're seeing more demand.

And in fact, to one of the questions on allocating sales resources, we have put some of our travel sales resources into B2B opportunities as well, in areas like cargo and logistics, where we're selling our B2B platform and see potential of opportunities given that a lot of passenger airlines that were carrying cargo are no longer carrying cargo on their bellies, which is giving an opportunity for pure air cargo players in the market..

Okay, great. And I appreciated your comments around ANA deal.

Can you maybe talk about how – if maybe that was implemented earlier in the quarter? Or was it – I mean, any color around kind of when that was completed?.

Yes – no, it was completed mid to late quarter, and it's continuing. So overall, we feel – look, they are a flagship carrier for us and a long-term relationship. And this next-generation cloud solution was very strategic for them. And they're ongoing and moving forward, continuing to innovate on that platform..

Great. I'll get back in queue. Thanks a lot..

Thank you. Our next question comes from the line of Nick Mattiacci with Craig-Hallum Capital Group. Please proceed with your question..

Hi. This is Nick on for Chad Bennett. I just had one question on the subscription gross margin. I see it tick down a little bit sequentially from Q4 to Q1.

Any commentary on that and how we should think about subscription gross margin throughout the rest of the year?.

Yes – no, the subscription gross margins did have a tick down, to your point, sequentially from Q4, although up year over year mainly because we did make an investment on a new data center in the Middle East, actually.

And so that's the reason we made a good portion of the investment to build that out in the first quarter, and that's what impacted us. But I think to your point, going forward, as we look into the second quarter and maybe even beyond, the impact of the $3.5 million that we talked about will have an impact on our margins a bit.

And so I do think that they will be slightly down from where they were, say, a year ago. And so I think that's a – at least, during this temporary period of time, where we're dealing with the full effects of COVID-19, I think you can expect to see our margins come down 100 or 200 basis points or so..

Thank you. Our next question comes from the line of Robert Simmons with RBC Capital Markets. Please proceed with your question..

Hi. Thanks for taking my questions. How has churn trended so far this year at a lower level? Last year, it's a little bit challenged, and you're talking about trying to get it back up to kind of more historical range.

I'm just kind of wondering by cloud versus maintenance or by geography, by vertical, how does it look so far?.

No, overall, our churn rate continues to improve. We saw an improvement – slight improvement over last year but still within our best-in-class, better than 93% and didn't see any risk on that perspective..

Okay, and can you give any color on the kind of different segments? Or are there any areas that have gotten better, any areas gotten worse? Do you think, overall, it's more or less the same?.

I think it's pretty broad across. And I would say, look, a lot right now – more customers would need us now more than ever. If you think about if you're – whether you're in B2B or travel, understanding what's happening to your demand pattern is as critical as ever.

And when there's changes, whether it be in your product mix, your channel mix, having the ability to make real-time prices, I would say, if anything, our support of our customers has increased pretty dramatically.

And a lot of our efforts has been on how do we help our customers with what actions they should take now to mitigate the risk or to bring opportunities to them. So I would say, look, our customer success continues to be best-in-class. We're even closer to our customers.

I talked about that being one of our strategic focus areas was getting closer to our customers first and being there for them to support them. So given the mission-critical need of our technology and how we lean in as an organization to support them, attrition is not an area that we're concerned at this point..

Yes, and to add to Andres' comments, anything related to a temporary relief is not viewed as a churn, right? This is something that we're doing from a temporary perspective, and that's not something we consider churn given that we'll be back to the contract norms in a while..

Got it. That makes sense.

Can you talk to – what is the average life of your contracts in cloud and – this is annual, correct?.

Well, historically….

Yes, go ahead, Stefan..

Historically – sorry, we're not in the same place as you can tell, so our coordination, we'll work on that. But historically, we've seen on average deals between two and three years for B2B and as much as three to five years for travel. And that was certainly the case when we started selling cloud solutions.

I'd say here, recently, we've seen some more in the one- to two-year range. Still see three-year deals as well. And then on the travel side, we still see little longer terms as they like to lock in terms for a longer period of time.

But the reason our contract terms have come down a bit is, as we've gotten better and quicker in our implementations, it's allowed us to be more flexible in terms of the contract duration and length. So yes. I'd say new deals now are – it can be anywhere from one to three years, but I'd still say they're somewhere between two and three years..

Got it. Great. Thanks..

Thank you. Our next question comes from the line of Tyler Wood with Northland Securities. Please proceed with your question..

Hi, thanks for taking our question. I think in the past, you've talked about the mix of the new business being kind of like 60-40 between existing and new customers.

Kind of with the new operating environment that we're seeing, could you kind of talk about where you see that shaping out short term and then if you see any potential for that mix to kind of shift longer term? Thank you..

Yes – no, that's a great question. Right now, what we're seeing is about 70% new, 30% existing. And part of that why it's more net new is because, typically, as we talked in the past, travel has been predominantly existing-oriented. And as we shift to sell more B2B, it tends to be more net new.

There's a lot of great opportunities to expand but there's a lot of new market opportunity for us. And I would say I expect this year to stay in that 70, 30 range, net new being 70% and existing 30%..

All right. Thanks. That's all for me..

Thank you. Our next question comes from the line of Stan Zlotsky with Morgan Stanley. Please proceed with your question..

Perfect. Thank you so much, guys. And glad everybody is okay on your end. So maybe a couple from my end. Just following up on the question a second ago on new versus existing.

When you mentioned that you're seeing kind of like the push out, the longer sales cycles, are you seeing that both across new and existing? Or is it more skewed to one or the other? And then as far as just overall activity that you're seeing globally, are there certain geographies where you're seeing more of an impact than others? And then I have a quick follow-up..

Yes – no, that's a great question. So first on the pushout, frankly, look, we had deals in March that pushed to April and some that were new and some that were existing. Look, I think some of the pushes in March were a lot of companies just were scrambling. And I don't think that new versus existing really was what tilted one to move forward or not.

I think it was more of them just not getting – being able to push it through in time. But in general, obviously, existing opportunities tend to be more timely as most of the time they've already selected you. They're moving forward on another phase of implementation, so they're sometimes more predictable.

But I would say at this point, that wasn't a big change that we saw between new and existing..

Got it.

And as far as like the geographic impact? If there's any bifurcation?.

In geographic, I would say, look, EMEA did very well in the first quarter, and we saw a lot of activity out of EMEA. I would say North America was an area that impacted us a bit more in the – especially March was an area where we saw a slight impact. But overall, I would say we're seeing improvement trends as we're looking forward..

Got it. And then just as far as like, looking at – it's all about the second derivative these days.

And thank you for providing us with Q2 guidance, but just maybe qualitatively, right, what are you seeing in the first month of Q2 as far as demand trends and how things are maybe turning around or maybe even improving of the sales cycles for the deals that pushed out of the March quarter.

Are they coming back into the pipeline? Are they picking up those conversations?.

Yes, I would say that, look, activity levels continue to be very strong. And we've seen probably a little bit of improvement, especially in the last two weeks. I would say, early April was harder, even though we did have some deals that closed, but they were predominantly last quarter deals.

But I would say April was much more where companies weren't as accessible, even though we're very accessible from a virtual perspective. And we've seen an improvement now. And definitely a lot of activity across – quite a bit of opportunities on the B2B front.

Obviously, travel is an area where we don't expect a lot of opportunity in Q2 or Q3, expect most of the business to push to the fourth quarter..

Got it. And just on the B2B side, maybe some of the deals that you – they were very – getting very close or you were expecting to close in the month of March, right, to close out Q1 and they subsequently slipped out of the quarter.

Did you close any of them in Q2? Or that's still in the pipeline to be determined?.

Yes I gave a couple of examples. One net new that we closed in early April and then existing as well that we closed within the first two weeks of the quarter. So we did see some. We saw others that are still planned for this quarter. And we did see some that pushed out to Q3..

Got it. Perfect. Thank you so much..

Thank you. Our final question this afternoon comes from the line of Jackson Ader with JP Morgan. Please proceed with your question..

Great. Thanks for taking my questions, guys.

Just one quick clarifying question for you, Stefan, the $3.5 million of the impact – the temporary impact, is that an annual number that you'll just be taking as a charge in the second quarter? Or is the annual impact something closer to $12 million to $15 million of these temporary reductions?.

Yes, so the $3.5 million is specifically for Q2. But I would not extrapolate that for the full year. So for example, to your point of – say, applying, say, $12 million for the year, I wouldn't do that because there's going to be changes to our estimates as time goes on.

Hopefully, some of those companies that we've identified are not going to be in as much trouble as they appear to be now. Or maybe they are and maybe the reserve is appropriate. So it's just really hard to gauge how we should be thinking about a reserve in the third and fourth quarter.

And it's one of the reasons why we withdrew our guidance for the full year. But yes, I would not assume that. It's really geared toward a Q2 estimate only at this point..

Okay, all right. Great, thanks for that. And then I just want to follow up. I know there's been a lot of questions on the B2B segment. But I think the one – chemicals and energy, I mean, that's a pretty wide commodity price swings here in the first few months of the year.

So I guess, we're just curious, did you see any actual pickup in demand from that specific vertical, just given this would probably be a good time to try and grab a new tool to forecast demand in that sector?.

Yes, so we did see in the energy space. We did see opportunities that have closed in that area in projects, and it's been mostly existing accounts continuing to expand in our areas. I would say that's an industry that, right now, having access to our technology is as important as ever.

Anywhere where you see a lot of fluctuation, whether it be demand, channel, price, commodity shifts, that's when the need to technology is more important and technology like PROS..

Makes sense. Thank you..

Yes, thank you..

Ladies and gentlemen, this concludes our question-and-answer session. I'll turn the floor back to Shannon Tatz for closing comments..

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 virtual conferences hosted by J.P. Morgan, Needham, Craig-Hallum, Bank of America, Baird and Stifel over the course of May and June. We will also be marketing with RBC virtually on May 28.

Finally, please save the date for our 2020 outperform customer conference which will be held virtually from October 7 through October 8. If you have questions following today's call, please contact us at ir@pros.com. Thank you, and goodbye..

Thank you. This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation..