Greetings. Welcome to PROS Holdings' Second 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. You may 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 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 teams 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 limitations, 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..

Thank you, Shannon. Good afternoon, everyone, and thank you for joining us on today's call. I hope that you and your families are healthy and safe. And on behalf of PROS, we want to thank the courageous essential workers for their continued service to our communities. Pleased to share that we beat our revenue and profitability guidance last quarter.

Our strong performance is a testament to the strength of our people and how they've continued to support one another and our customers during these challenging times. Our mission is to help people and companies outperform. And I'm so proud of how we're delivering on this today. Customers are relying on our solutions to rapidly shift to digital selling.

And we're helping them quickly adapt to this new reality, so they can sell and win in their markets. In the energy space, our technology is helping our customers navigate the recent volatility and pricing pressures in their markets. And CHS is a great example.

The global agribusiness and energy companies leveraging our AI power solutions to make strategic fuels purchasing decisions and respond more quickly to market shares. We're forecasting science and real-time pricing engine have enabled an automated and optimized pricing process for more than 3 billion gallons of fuels marketed by CHS annually.

According to CHS, our technology and science have provided an immediate ROI. And we're proud to be their digital selling partner. In the airline space, our solutions are core to helping customers adapt their strategies in this fluid environment.

For example, revenue management capabilities enable airlines to optimize their revenue, while promoting new health and safety practices, such as the preservation of middle seats.

Additionally, our demand forecasting capabilities are helping airlines predict their recovery rates in their markets they serve to harmonize their operations from network planning to pricing. These are just two of many examples of how our solutions are making an impact today. But we're not stopping there.

I believe we have amongst the best data scientists in the world at PROS, and we're innovating to help our customers in the markets we serve, adjust to the new normal.

Our data science team is developing new algorithms that combine customer data with external data sources, such as epidemic data and government response data to help our customers model product demand recovery. The flexibility of our platform allows customers to ingest these new models and enhance their demand forecasting when they need it the most.

We believe these insights will give our customers a competitive advantage that will help them better capture market share as demand returns. The exceptional value and innovation that we deliver to our customers has helped us maintain a strong gross revenue retention rate above 93% through Q2.

While we're proud of how we're continuing to serve our customers, we have felt the impact of the pandemic on our business. Airlines are not in a position to invest in technology right now. So we expect minimal travel sales bookings through the end of 2020.

Despite this current headwind, our customer engagement is at an all-time high, and we're further strengthening our customer partnerships. We believe we're well positioned to grow our travel business as airlines strive towards recovery.

In our B2B business, we're experiencing some sales cycle lengthening as enterprise buyers increase their scrutiny in the current environment. In spite of this, our B2B sales pipeline remains strong, and our partner-driven sales activities continuing to increase.

We're confident our value propositioning is resonating in the market, and we're continuing to welcome amazing new customers to the PROS family. For example, Hempel, a global coatings company selected our Smart CPQ to power their digital sales motion and help achieve their ambitious goal of doubling the revenue with a stronger customer focus.

I'm proud to share that Hempel selected PROS based upon the strength of our technology in the alignment of our culture and values. Hempel selection process was completely virtual and is an excellent example of how our go-to-market teams have successfully shifted to virtual selling.

Last quarter, we also welcomed Novelis, the global leader in aluminum rolling and recycling, and Graybar, a Fortune 500 distributor of electrical and communication products, among other new customers. We look forward to partnering with all of our amazing new customers under digital selling journey.

I'm also excited to welcome Les Rechan as our Chief Operating Officer, after serving on our Board of Directors for the past five years. He leads our full go-to-market team, including sales, marketing, customer experience and engagement and partners. I'm thrilled to be working even closer with Les to further grow and scale our business.

His vision and passion are already making a huge impact on our people, partners and customers. Before closing, I'd like to touch on how we're aligning our strategy based on the current environment. Like many companies, we've learned a lot from this virtual experiment we find ourselves in today.

We're continually collecting and integrating feedback to ensure people feel supported. And I'm proud to share that our team is thriving. Our people feel they have the resources and flexibility they need to be successful. And we're seeing this translate into our customers' continued success.

We will continue to embrace new ways of working virtually to broaden our access to talent and give our people even more flexibility, which, we believe, will drive long-term growth and scale. The past few months have also elevated the importance of equality and allyship.

Diversity and inclusion and belonging are core to our culture and something we care deeply at PROS. We're supporting our black community by listening and taking responsibility to speak up against injustice and inequality. We're also celebrating equality in the workplace with our LGBTQ IA plus community with the recent U.S. Supreme Court ruling.

We at PROS want a better world for all, where differences are celebrated and our voices are heard. We're committed to doing our part to make this better world a reality with continued investment, education and transparency.

In closing, thank you to our incredible team for your inspiring support of one another and your relentless commitment to helping our customers outperform. Finally, thank you to our customers, partners and shareholders for your ongoing support of PROS. With that, I'd like to 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 has continued to thrive and support our customers today.

I'd also like to highlight two particular PROS teams that have championed our core values of ownership and care this past quarter. First, I want to thank our Global Facilities teams around the world. They have continued to support our essential business processes on-site, while most of our teams work virtually during these difficult times.

I'd also like to thank our Implementation teams who shifted into this virtual environment and delivered over 20 go-lives last quarter without missing a beat. The market environment since the onset of COVID-19 has not changed significantly over the last few months.

And we continue to partner with our customers in many ways to support them through this time. A few of our hardest hit customers have approached us for some form of financial relief, and in some instances, we've granted deferred payment terms. In rare cases, we have agreed to restructure existing contracts.

In exchange for these concessions, we have provided some near-term relief, while either relaxing our service obligations under the contract or increasing fees in future years. The impact of these concessions on our second quarter financials was largely in line with our expectations.

In addition, several of our customers in travel-related industries have declared bankruptcy. We made some assumptions last quarter related to the potential impact these bankruptcies might have on our revenues in the second quarter. We did not fully utilize this portion of the contingency in Q2.

However, the impact of bankruptcy risk still exists with some customers going forward. As a result, we've once again, applied a revenue contingency to our Q3 forecast, which I will discuss in greater detail during my comments on guidance. Now turning to our second quarter results.

Our subscription revenue increased 21%, and our total revenue remained flat year-over-year, both exceeding the high end of our guidance.

As I mentioned earlier, we didn't need the full $4.5 million revenue contingency we put in place, which was comprised of an estimated $3.5 million in contract restructurings and bankruptcies plus another $1 million in estimated loss reimbursement revenues and an assumption for lower travelers in our shopping and merchandising solutions.

The lower contingency utilization contributed to our revenue outperformance, along with consistent customer retention rates. Our recurring revenue as a percent of total revenue for the second quarter was 85%, our highest quarterly mark to-date.

The recurring portion of our deferred revenue was $105 million, down 5% year-over-year, and our trailing 12-month calculated billings were up 5% year-over-year.

Our calculated billings were impacted by the bookings delays that Andres mentioned in his prepared remarks, in addition to some COVID-19-induced contract restructures and several customers declaring bankruptcy, which had a direct impact on our deferred revenue and calculated billings.

Moving on to our profitability metrics, non-GAAP subscription gross margins were 73%, up 1 percentage point sequentially. Non-GAAP total gross margins were 62%, up 3 percentage points sequentially, largely driven by improvements to our services gross margins as we continue to roll-off higher cost third-party contractors.

Our adjusted EBITDA loss was $5.7 million for the quarter exceeding our expectations, largely due to strong revenue and $6 million in cost savings we identified and realized in the quarter. This is $2 million better than our estimate from last quarter.

These savings came from a program we implemented in the second quarter, which included several cost-saving initiatives such as reduced hiring, reduced program spend and some natural byproducts of our current virtual work environment. This cost saving initiative has also identified another $12 million in cost savings in the back half of the year.

Our estimated spend reductions in 2020 now total $18 million, which is higher than our $13 million target from last quarter. We're continuing to look for opportunities to spend less, while also continuing to strengthen our core to capitalize on our market opportunity.

Our free cash flow burn in the second quarter was $23.5 million, which reflects the impact from payment delays offered to certain customers. Delayed customer payments due to COVID-19 accounted for approximately $17 million at the end of the second quarter.

While we do expect a free cash flow burn in Q3, we also expect free cash flow to approach breakeven in the back half of the year as we collect receivables that were deferred from the first half of the year and as we take steps to further reduce our spend. From a balance sheet perspective, we ended the quarter with a cash balance of $220.2 million.

Now moving on to our outlook, due to the continued significant uncertainty created by this pandemic, we are only providing guidance for the third quarter at this time.

We anticipate subscription revenue to be in the range of $39 million to $41 million, up 4% year-over-year at the midpoint, and we expect total revenue to be between $59 million and $61 million. The sequential decline in total revenue is largely driven by recurring revenue as we expect services revenue to be roughly flat.

Our recurring revenue and total revenue outlook are affected by COVID-19-related factors. We've applied a revenue contingency of approximately $5 million based on contract restructurings and current customer bankruptcies as well as potential customer bankruptcies.

This contingency is based on our updated analysis of the financial risk our customers face as a result of the prolonged impact of the pandemic. We expect adjusted EBITDA loss to be between $9.5 million and $11.5 million in Q3.

Lastly, with an estimated non-GAAP tax rate of 22% in the third quarter, we anticipate a non-GAAP loss per share of between $0.18 and $0.22 per share based on an estimated 43.4 million basic shares outstanding.

The pandemic has significantly impacted many of our customers, and we are very pleased with our team's response to the challenges our customers are facing.

We have always prioritized our customers' outperformance, and we remain confident in our vision to provide our customers with mission-critical solutions to power digital selling and the attractive long-term market opportunity this presents. 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?.

[Operator Instructions] Our first question comes from the line of Jackson Ader with JPMorgan. Please proceed with your questions..

Great. Thanks for taking my questions. First one, Andres, on the restructuring of contracts and your comment on airline booking. So second half of the year, you mentioned not expecting much, if any, kind of new airline bookings.

But I'm curious what you are seeing in terms of airline customers coming up for renewal? And then when we talk about either restructuring some of these contracts where more payments or higher fees are going to be paid in later years, what assumptions are baked into these restructuring contracts? Are customers and you guys are assuming we are back to business as usual by the end of these contracts or has everything kind of been shifted down?.

Yes, Jackson. Great question. So first of all, what we're trying to do is look at each customer individually as we've spent quite a bit of time engaging with our customers, especially our full travel customers around the world, and really restructured the contract based on how we see the volume continuing.

So in some of these tends to be an impact usually within the first year and then getting back to a more normal.

As I had explained in the past, from our technology perspective, we're still driving a similar level of consumption because we're still forecasting the same number of flights in O&Ds for a year into the future and in giving them a view into when demand is going to come back up.

So they understand that from a consumption, we're still providing an immense value to them and giving them abilities to see how demand is trending, say, 30 days out, 60, 90 and beyond. But we're trying to be flexible with them and giving them some short-term bricks. So we haven't made any major changes to those contracts long term..

Great. And then Stefan, maybe for you on the billings number. I mean, if we normalize for the $17 million impact of some of these payment deferrals or contract restructuring, then it looks like kind of the trailing 12 months recurring billings, actually, looks like it grew in the mid-teens again, roughly.

Is that the right kind of, call it COVID-adjusted growth rate that we should be expecting for from the underlying business?.

Yes. So Jackson, I understand the thought process that you're putting to it, and it's a logical one. I think, though, the – think of it in terms of two buckets of activity. First of all, there's the bucket that you talked about with Andres in terms of restructuring the contracts, that's one category.

And by the way, that's the one that impacts calculated billings a bit more in the near term. The other bucket that we're talking about that led to the delayed collections, which is kind of the deferral of payments, we've actually invoiced those. And so we've invoiced them, but we've given them longer times to – in which they can pay.

So that is captured in the calculated billings number. But the other bucket that we – that I mentioned first, that's the bucket where it is – it has not been billed yet, primarily, because we restructured, and to Andres' point, the overall contract didn't change.

So the benefit of what we've done this year will come in future years, right? So this is – think of this as more of a temporary impact to calculated billings, which is giving some relief today in exchange for billing those transactions in the future. But your – the estimate that you have is not too far off. Those two buckets are somewhat similar..

Okay. Alright. Great. Thank you..

Thank you..

Our next question comes from the line of Scott Berg with Needham & Company. Please proceed with your questions..

Andres and Stefan, thanks for taking my questions.

I guess, a couple of them, Stefan, just for clarification, the $5 million of revenue that you reserved in the quarter, is 100% of that coming from airlines customers? Or is any of that from your B2B customer set?.

Yes, Scott, I'd say the lion's share of it is from travel related, right? So there are – we do have some B2B companies that are in this travel-related business industry. But certainly, most of that is going to be either airlines or travel-related businesses..

Got it. Helpful.

And then Andres, on the B2B segment in the quarter, and I jumped on a couple of minutes late, and maybe I missed it, but any color or commentary on what you're seeing there through maybe different segments or geographies around the world? Does that business return to kind of a normalized sales cadence here do you think by the end of the year? Or are you kind of confident in that trajectory, so kind of wait and see how maybe the next 90 days have trended?.

Yes, that's a great question. So what we're seeing is that, that segment of the business has improved over since from March, and we're seeing a lot more activity in the pipeline. Then we had – you probably remember, Scott, but we talked about, from a demand gen in Q1, we had seen a significant drop.

I would say that picked up in Q2 in a good way and in fact, in the number of RFPs coming in. We're still seeing some delay on the deal. So I would say that while we're seeing selections go through, we're seeing some customers kind of pause and want to wait a little bit. But overall, it has improved industries that seem to be doing well.

It seems to be like chemicals. We've seen distribution as well. But there are certain industries that definitely are pushing harder towards digital selling. E-commerce is becoming a more important component, and we're seeing good success there..

Got it. And I'll squeeze one quick one in, Stefan, the additional cost cuts in the second half.

How much of that is coming from sales and sales and marketing? And does that limit your ability to kind of attack some of these opportunities as they start to come up maybe early next year?.

Yes, Scott, I would not say an unusual portion is going to sales and marketing. It's mostly going to be variable costs associated with the activity on sales. There is some limitations in terms of how much we're adding, but most of the sales – the impact to the sales and marketing area is going to come around.

We're traveling less, we're paying a little less in commissions, obviously, because of the impact of travel, especially. And so that's going to be the lion's share of it.

But I would say, think in terms of the other types of activities and sales being minimizing the growth, if you will, and really trying to get as much as we can out of the assets we have, and focusing more on productivity with the existing resources we have..

Great, thanks guys..

Our next question comes from the line of Alex Zukin with RBC. Please go with your question..

Hi, this is Robert Simmons, on for Alex. Thanks for taking the questions. So you talked about churn being pretty stable, and that more than 93% – sorry, retention more than 93% in 2Q.

Can you talk about how it's trended in a month since then?.

Yes. Sofar, we feel very good. We feel that our customer connection and our customer success team is doing a great job in engaging with our customers. So, so far, I would say, look – or we feel very good about our customers and in the success they're having and the value they're getting from our solutions.

I mean, just recently, we had Union Pacific, as an example, the CEO spoke on the Q2 call about the value that our solution is driving; talked about CHS, the value they're getting from our solutions. So overall, we feel good that, that's trending well. Obviously, we're cautious about the back half, but we feel good so far..

Got it. And then can you talk to what you're thinking about in terms of bookings for the rest of the year? I think before you're talking maybe down 30-ish percent, I think, overall.

Is that still kind of more or less the thought process or any updates there?.

Yes. That's a good question. So what I would tell you is that initially, we were saying that travel, we expect it to be down about 70%, and we think now it's more likely that it's going to be in the 90% range. So that will bring down the overall bookings for the business, but predominantly travel-oriented, which, we believe, will pick back up in 2021..

Got it. Thank you very much..

Yes..

Our next question comes from the line of Tom Roderick with Stifel. Please do with your question..

Hi, thanks. This is Max Osnowitz, on the line for Tom. I just wanted to go back to the part that you talked about the services margin. And I know you said that your restructuring as well as hiring freeze.

The restructuring of contracts, is that something that we can kind of expect to be for the rest of the year and into 2021? Or is it going to be more short-term?.

So the – yes, I think of the restructurings is really working alongside some of the heaviest hit customers, specifically in the airline space and working with them to deal with the realities of how hard their business was hit and kind of match our contract to, and their obligations under that contract to the issues they're seeing and then later on, getting that benefit.

To the comment Andres made, just a few minutes ago, it still remains to be seen how this is all going to play out and what customers are going to come forward as we go forward. But we feel like we've been through our customer success team, we've been very engaged with our customers.

We feel like we have a pretty good pulse on what they're – how they're doing and how they're operating their businesses. So we feel good about the, I guess, the status of where we are. It's just hard to tell how that's going to play out over the next couple of quarters.

But yes, I think to answer your question, the bulk of this restructured benefit, if you will, that's going to come back to PROS, is going to happen over the course of the next several years. So starting next year and then the year after is when you should start seeing those benefits come back to PROS..

And one area that I would say that I think has helped us is that our customer success team from early March reached out directly to customers. So through this process, we didn't go dark on them and waited for them to reach out.

We actually proactively reached out and made sure we're supporting them as many of them, as you would imagine, have furloughed people and have less staff to run and operate.

And we've provided a lot of support through the process, which since has helped improve our partnership and relationship with those customers, which, I think, is definitely going to help us not just short-term, but long term..

Great. Thanks..

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

Hi, this is Melissa Dunn, on for Stan. So you talked about this a little bit in terms of retention, but maybe a little bit more broadly so far in Q3.

Have you been seeing any changes in customer behavior over the last months, either on the B2B or travel side?.

No real changes. I would say, look, the customer engagement overall has been very, very strong, and we're seeing customers continue to invest in expanding their usage on the solutions. And then overall, from demand and environment, especially on the B2B side, we continue to see a lot of activity.

In terms of the sales perspective, we're seeing a lot of the new business still be heavily weighted towards net new accounts, about 70% has been net new. So we see good balance on net new, and we're seeing good activity on the existing side as well..

Okay. That's helpful.

And then one more for me, just in terms of customer migration to the cloud, has the current environment at all changed the appetite to do that or their behavior there?.

I wouldn't say that there's going to be a broad change, I would say, in the B2B. I wouldn't expect a change in behavior, I would say, in travel, at this point, I would say, it's going to slow down near term. And it's predominantly because a lot of airlines have furloughed staff and a lot of staff are not actively working.

And it's not conducive for them to drive a migration at this time. So I would say, but broadly, I don't see a big change in migrations..

Okay, got it. Thank you so much..

Thank you..

Our next question comes from the line of Rob Oliver with Baird. Please do with your questions..

Great. Thank you very much. My question is on the – I have two, one on the B2B sales cycles lengthening. Andres, I was wondering if you could just touch a little bit upon what you're hearing from customers there? And a little bit more color? Obviously, we are seeing across industries, some pull-in, in digital transformation type of initiatives.

And it does sound from your prepared remarks as if there are some industries, such as, I think, you mentioned dynamic pricing commodity industries, like energy, where clearly, there's a big benefit to having your software.

But maybe if you could talk a little bit about those lengthening sales cycles and kind of how – what you're hearing from customers and how you see that playing out over the next few quarters and into next year as people prioritize recovery?.

Yes. No. So definitely, I would say the theme of digital selling and empowering e-commerce and bringing dynamic pricing algorithms, that's very prevalent across.

And there's definitely all the – as you would imagine, all commodity-driven industries like food, energy and industry-size distribution, we're seeing that a big theme and indefinitely good activity.

In terms of the delays, I would say, there's definitely a lot more scrutiny on budgets, where deals get to black lines, contract ready for signature and a lot more reviews, especially by finance organizations and then when to begin, it's what we're seeing. More, we have all of our teams are still remote. And we – well, PROS, we feel very confident.

Stefan talked about, we had 20 go-lives in the quarter about leading implementations virtually, but some customers feeling that they're not as comfortable on their side. But that's been predominantly what we're hearing..

Great, okay. That's helpful color. And then just – I just wanted to ask on Les Rechan's addition. Obviously, he knows the company extremely well from his Board seat, and you guys obviously have a strong relationship and tremendous deep software experience, joining at an unprecedented time.

So maybe if you could just share a little bit of his priorities, perhaps it's a little early, but maybe some of the things that are on his agenda? Thank you guys..

Yes, yes. No, that's a great question. So I'm truly excited to have Les onboard. I've worked with him for five years. And in his experience from Cognos and IBM in scaling large organizations are going to greatly benefit us. We have great alignment on our strategy. And I think both he and I believe that a digital-first world is critical.

So a lot of the initiatives that we're launching are around – from demand gen all the way to sales, all the way to delivery. How do we lean in to strong – to a virtual model, because we believe that in that virtual model, we can drive, one, more scalability, repeatability; two, we can drive faster performance and scale.

So a lot of the initiatives that we're launching are more on how we drive that digital-first strategy across all aspects of the go-to-market team from demand gen all the way through customer success..

Great, thank you again..

Thank you..

Our next question comes from the line of Chad Bennett with Craig-Hallum. Please do with your questions..

Great. Thanks for taking my questions. So Stefan, just on the payment term changes and also the restructuring of some deals.

Just from a point of clarification, would any of that have an impact on RPO and – other than maybe moving it from current to long term? Is there any impact from RPO from any of the stuff you mentioned?.

Well, you're right. Moving it from current to long-term would not have a huge impact, but it certainly does have an impact on the current, yes..

Okay. So the RPO performance, so to speak, in the quarter, is indicative of really what happened.

Is that fair characterization?.

Well, the current is being impacted by the restructurings. So the current component. The total component, not as much, but I also want – but one – I'm sorry, just to add to that. There's also an impact in terms of any bankruptcy.

So there are some – as there are some impacts of dollars that are, especially in terms of any prepetition amounts that we were in line to be paid, those have been taken out of the RPO calculation, because, right now, we're waiting to see how the bankruptcy process plays itself out and when we might collect that money.

So that would be an area where it would come out. And so that would affect both current and long term. So just, I just wanted to give you that caveat..

And one other thing in some of these concessions, there were also services that we had with travel customers that we basically allowed them to get out of professional services projects that were for this year, that also had an impact on the RPO, Chad..

That's right. That's right. Yes. I think to Andres' point, just not to beat a dead horse here, but the RPO, if you looked at it on a recurring basis, looks far better than it does in total because of the phenomenon, as Andres just mentioned, as it relates to services..

Yes. And then just in terms of, again, on the payment negotiations and contract restructurings, I understand it was mainly travel.

But was it mostly cloud-based activity? Or was maintenance a healthy portion of it also?.

Well, it was both, okay, because we do have still some airlines that are on the on-prem solution that have not migrated over. So it's both. But I would say it's – if you looked at the balance, it's probably still – it's a little tilted more towards subscription, just given where we are in terms of our maturity in the SaaS model.

So yes, it's going to tilt a little more to subscription..

Got it. And then last one, maybe for Andres. Just on the B2B side of the business.

Just anything in terms of the competitive and pricing environment? And if you're having to – on a kind of net new basis, not on a renewal, but on a net new basis, if you're having to do anything in terms of kind of deal ramps, rev ramps, where maybe it's a three-year deal, first year, you're kind of a little lower than the next couple..

Yes. No, Chad, I'm glad you asked that. I would say, yes. We're being fairly flexible on how to start. So I would say the ramps tend to be more skewed lower year one, more steep into year two and three. So that's definitely playing into it.

And I would say that, that's a very common theme that we're hearing in the market, which taps down a little bit the ACV because you have a lower year one. We're trying to be very flexible to land great accounts and get them to value quickly and that's driving year one a little lower than typical..

And was that mainly this quarter, Andres, where you saw most of that?.

Yes. So I would say, definitely, we put a program in Q2. So definitely a bit more in Q2. In Q3, you're going to see similar. But the good thing is then into next year, we should get into more than normal level as they're live in driving value..

Yes, absolutely makes sense in current time. Alright, thank you..

Thank you..

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

Hi, this is actually Devin, on for Jason. Thanks for taking my questions. Just one quick one on competition.

With this environment being really challenging for everyone, just wondering if you have seen any changes in the competitive dynamics, either in B2B side and in the travel side?.

Yes. So I would say no real changes across the board. I would say the real big change that I would say is more the deal structure oriented and how companies want to get started, is what we're seeing, where companies want to start in narrower cases and the ramp is a bit more steeper, but no big changes.

I will say that and I talked about this last quarter as well, we're seeing more of customers wanting both CPQ and guidance and that being a bigger theme and more wanting not just to power direct sales, but in their mind of how they're going to power B2B commerce.

And in travel, what I would say is the themes that are resonating there are more around group sales in some of the areas where they're trying to move processes that they used to be more deal desk oriented or B2B like into full e-commerce base. So merchandising in DSO or areas..

Great that was helpful. That’s all I have. Thank you..

Ladies and gentlemen, we have reached the end of our question-and-answer session. And now I would like to turn the call back over to Shannon Tatz 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 virtual conferences hosted by Oppenheimer and KeyBanc in August. We will also be marketing with Morgan Stanley virtually on September 9.

Finally, please save the date for our 2020 PROS Outperform Conference on October 7 and 8. We'll be providing more updates on this event and recommendations for our investor and analyst community over the next several weeks. If you have any questions following today's call, please contact us at ir@pros.com. Thank you, and goodbye..

This concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation, and have a wonderful day..