Greetings. Welcome to the PROS Holdings Fourth Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded.

I would now like to turn the conference call over to Belinda Overdeput, Director of Investor Relations..

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 also will be available on our website immediately following the call and will be replaced by the official transcript, which includes participant questions once available. With me on today's call is Andres Reiner, President and Chief Executive Officer; and Stefan Schulz, Chief Financial Officer.

Please note that some of the commentary today will include forward-looking statements including, without limitation, those about our strategy, future business prospects and market opportunities, and our financial projections and guidance. Actual results could differ materially from such statements and our forecast.

For more information, please refer to the Risk Factors described in our SEC filings. PROS assumes no obligation to update any forward-looking statements to reflect future events or circumstances. As a reminder, during the call, we will discuss non-GAAP metrics.

Reconciliations between each non-GAAP measure and the most directly comparable GAAP measure, to the extent to which available without unreasonable effort, are available in our earnings press release.

Before I turn the call over, I'd like to remind investors and analysts of our upcoming 2024 Outperform with Pros Conference, which will take place May 20 to 22 in Orlando, Florida. Outperform with Pros is one of the world's preeminent AI conferences, where you will hear from experts across industries on how to use AI to drive business forward.

We will also host a panel for investors and analysts on the 22. Registration is open on our website. With that, I'll turn the call over to you, Andres..

Thank you, Belinda. Good afternoon, everyone, and thank you for joining us on today's call. I'm so proud of what our team accomplished in 2023. We had an incredible year. Last year, we delivered 14% subscription AR growth year-over-year, significantly outperforming the high end of our guidance range.

We grew our total revenue by 10% and subscription revenue by 15%, while generating $11.4 million in free cash flow, an outstanding improvement of over $33 million year-over-year. We set a goal to get to a rule of 10 in 2023 and we outperformed that goal by reaching rule of 40.

We continue to be laser focused on delivering to our long-term goal of being a rule of 40 company. The PROS value proposition has never been more relevant, as businesses continue to lean into digitization, automation and AI to drive operational efficiencies and fuel revenue growth.

We continue to launch groundbreaking AI innovations that are captivating the market. We are an innovation company at our core. Every year, we provide new innovations to inspire our customers and last year was no different.

We added over 400 new features across the PROS platform in 2023, including revolutionary industry first innovations such as capacity aware optimization, collaborative quoting and dynamic ancillary pricing to name a few. We're constantly innovate to drive even more value to our customers and help them thrive in the era of AI.

The strategic changes we made in late 2021 with the launch of the PROS platform made our market leading AI innovations easier than ever to adopt through our land, realize and expand strategy. The ongoing success of these changes was evident again in 2023 and in Q4 as we experienced a record-breaking quarter for deal volumes.

In Q4, we drove incredible wins in new customer acquisition and expansions across B2B and travel. Now highlight a few of our amazing Q4 wins starting with new customers. Schneider Electric and Castrol both selected the PROS platform to fuel their growth strategies.

Schneider Electric, a global leader in energy technology, chose to activate our price optimization and management solution to drive winning prices in real time that continuously adjust to market changes.

Castrol, a leading manufacturer of industrial lubricants chose to activate our optimization, price management and CPQ solutions to drive a superior customer experience by optimizing and automating their global sales process.

In travel, we're winning new customers around the globe, from world class airlines to brand new startups, all of whom want to lead the travel industry in innovation. For example, Saudia, the flight carrier of Saudi Arabia and Really Cool Airlines, a new start up set to take flight this year, both selected the PROS platform in Q4.

Saudia is activating our revenue management and group sales optimizer solutions to power profitable growth with dynamic market relevant offers and a seamless sales experience. Really Cool Airlines is activating our revenue management solution to offer a personalized and seamless integrated travel experience to their customers.

Now on to some of our incredible expansions in Q4. Thanks to our continuous focus on innovation and value realization, we're seeing customers such as Smith & Nephew, Air Canada and Japan Airlines among many others continue to expand on the PROS platform.

Smith & Nephew, a global medical technology company continues to expand CPQ across moregeographies and business units to drive even more value by powering a seamless sales experience across their global enterprise. Japan Airlines and Air Canada have been customers of PROS for 2 and 3 decades, respectively.

And because of the innovation and success they drive with PROS, they continue to expand adoption of the PROS platform. Japan Airlines expanded their use of our digital offer marketing solution and upgraded to our ultimate addition of Group Sales Optimizer.

Japan Airlines also added their cargo business on our platform with the adoption of our price optimization and management solution in Capacity Aware Optimization AI. These expansions enhance Japan Airlines' ability to drive winning offers across their passenger group and cargo businesses.

Air Canada chose to activate our corporate sales solution and upgrade to the ultimate addition of our real time dynamic pricing solution. PROS corporate sales enables Air Canada to drive a frictionless sales experience for their corporate contracts business.

With RTDP Ultimate, Air Canada drives even more value through our latest AI innovations for continuous pricing, empowering them to price fares across the spectrum with the best willingness to pay AI to date. As I said before, we are an innovation company. We're committed to continuously innovating to provide even more value to our customers.

This commitment extends beyond what our customers need now to address what they will need to drive success for decades to come. This is why we have immense pride in seeing longstanding customers like Japan Airlines and Air Canada continue to expand their partnership with PROS by adopting our latest innovations.

Where innovations are not only driving expansions, but are also inspiring customers to migrate to the cloud, like we saw in Q4 with Hewlett Packard Enterprise.

HPE has been a valued PROS customer for a decade, and now they're transitioning to the PROS platform to take advantage of our latest innovations in price optimization and management, including our industry leading real time pricing engine in our Gen 4 AI. This is such an exciting time at PROS.

Today more businesses are focused on how they can use digitization, automation and AI to drive profitable growth than ever before, and we are well positioned to capitalize on this market opportunity. And as I said before, we are laser focused on our goal to achieve a rule of 40.

This means we must continue to innovate to expand our growth and drive greater efficiency every year, which brings me to our strategic focus areas for 2024. First, we'll continue focusing on our land, realize and expand strategy.

In 2023, this strategy continued to help us drive accelerated deal velocity, improve rep productivity by nearly 20%, and reduce customer time to value. We achieved a notable 28% reduction in B2B new logo sales cycle times year-over-year.

We also achieved a 20% reduction in time to value across our core offerings year-over-year, while simultaneously driving significant expansion of our services gross margin, an outstanding achievement.

In 2024, we will continue to innovate to extend our market leadership position, bringing even more solutions to market further expanding the value realization potential for our customers. Second, we will continue to expand our platform by expanding our marketplace.

Our marketplace currently holds over 140 solutions, over half of which are developed by partners. In 2024, we will introduce more of our offerings and extend access to a wider ecosystem of partners, driving even more value to our customers and the market.

Finally, we will continue our legacy of being a pioneer and leader in AI by infusing AI into every aspect of our business. Not only we will continue to innovate to deliver market-leading AI innovations through our platform, but we're embracing AI innovation to drive efficiency across every aspect of our business.

Organization aims not only to transform how we operate, but establish a new standard for how enterprises should use AI to power their operations moving forward.

Before I close, I want to say how proud I'm of our amazing team for their unwavering dedication to our mission of helping people and companies outperform, where employees embody our core values of ownership, innovation and care for each other for customers and our communities.

I want to thank our global team for making PROS an exceptional company and congratulate all of them for their great achievements. I'd also like to thank our customers, partners and shareholders for their ongoing support of PROS. With that, I'd like to turn the call over to Stefan to XHOVR financial performance and outlook..

Thank you, Andres, and good afternoon, everyone. I am very happy with the results our team posted in 2023 and how everyone on our team contributed to our success. On a year-over-year basis, our total revenue grew $27.6 million while our EBITDA improved by $20.9 million and free cash flow improved by $33.1 million.

To further emphasize this point, in 2023, we added $0.76 for every incremental revenue dollar to our EBITDA and added $1.20 for every incremental revenue dollar to our free cash flow.

Additionally, we continued to improve our subscription gross margin and turned our services gross margin from a negative percentage in 2022 to a positive percentage in 2023. All of this was accomplished while continuing to grow our business. We delivered subscription ARR that was $5 million higher than the high end of our guidance.

During our Analyst Day in May of 2023, we discussed our long-term financial goals for total revenue growth and free cash flow margin, including our target of reaching a Rule of 40 in 2026. At that time, our most recent fiscal year was a Rule of 2, and our first goal was to achieve a Rule of 10 in 2023.

As a result of our strong performance in 2023, we actually achieved a Rule of 14. We are really pleased with our 2023 results and are focused on making further progress towards our long-term goal in 2024. Now I'll cover our results in a little more detail.

Subscription revenue in the fourth quarter was $60.8 million increasing 14% year-over-year and $234 million for the full year, increasing 15% year-over-year. Total revenue in the fourth quarter was $77.5 million increasing 9% year-over-year and $303.7 million for the full year, increasing 10% year-over-year.

Recurring revenue for the fourth quarter the full year was 84% of total revenue, and our trailing 12-month gross revenue retention rate continued to be better than 93%. Our subscription ARR was $259 million or $257.9 million on a constant currency basis, increasing 14% year-over-year and significantly exceeding guidance.

As Andres mentioned, our team also drove a strong fourth quarter and full year of customer wins, welcoming both new customers and expanding our existing partnerships. Our fourth quarter recurring calculated billings increased 22% year-over-year and 9% for the trailing 12 months.

Our non-GAAP subscription gross margins were 78% for both the fourth quarter and the full year, increasing from 77% in 2022. We delivered 5% non-GAAP services gross margin in the fourth quarter, getting us to a year-end non-GAAP services gross margin of also 5%, which is a significant improvement from a loss of 1% in 2022.

Collaborative innovation between our professional services and product teams drove the impressive 20% year-over-year reduction in time to value that Andres mentioned, while simultaneously driving higher efficiency in how we deliver our offerings.

Our services margin expansion is a result of this collaboration, and I want to congratulate our teams for their achievements in this area. Non-GAAP total gross margins were 66% in the fourth quarter and 65% for the year, improving from 64% in 2022. We generated $13.6 million in free cash flow in the fourth quarter.

As a result, we generated $11.4 million in free cash flow for the year, significantly outperforming our guidance. We typically experience stronger cash flow results in the fourth quarter, and this year our results were even better than expected as the percentage of on time collections improved.

We generated adjusted EBITDA of $2.5 million in the fourth quarter, which puts our adjusted EBITDA for the full year at $6 million an impressive improvement from our loss of $14.9 million in 2022.

We fell just short of our adjusted EBITDA guidance in the fourth quarter and the full year because of an increase in our incentives due to our outperformance on revenue and free cash flow for the year. From a balance sheet perspective, we exited the year with $178.7 million of cash and investments.

We also finalized the convertible debt exchange transaction we announced in Q3, which pushed the maturity of most of our debt out to 2027. Our non-GAAP earnings per share for the fourth quarter was $0.02 per share, bringing us to a non-GAAP earnings per share for 2023 of $0.05 per share.

Turning now to our guidance with stated growth rates and amounts at the midpoint of the ranges. For the full year, we expect subscription ARR of $289 million000 to $292 million representing 12% growth year-over-year.

We anticipate full year subscription revenue to be in the range of $263 million to $265 million representing 13% growth year-over-year and total revenue to be in the range of $332 million to $334 million representing 10% growth year-over-year.

We anticipate full year adjusted EBITDA of between $16 million and $19 million representing an improvement of $11.5 million year-over-year and free cash flow in the range of $22 million to $26 million an improvement of $12.6 million year-over-year. Turning now to guidance for the first quarter of 2024.

We expect subscription revenue to be in the range of $63 million to $63.5 million representing a 13% increase year-over-year and total revenue to be in the range of $79 million to $80 million representing a 9% increase year-over-year.

We expect first quarter adjusted EBITDA of between $700,000 and $1.7 million, which is an improvement of $3.5 million over the first quarter last year. And as a reminder, it is typical for our business to have higher expenses in the first quarter.

Using an estimated non-GAAP tax rate of 22%, we anticipate first quarter non-GAAP earnings per share at breakeven to $0.02 per share based on an estimated 48.1 million diluted weighted average shares outstanding In closing, I would like to thank all of our employees around the world for their continued hard work and dedication to PROS.

I'd also like to thank you, our shareholders, for your continued support PROS, and we look forward to speaking with you at our upcoming events. I will now turn the call back over to the operator for questions.

Operator?.

[Operator Instructions] Our first question comes from Brian Schwartz with Oppenheimer..

Maybe starting there, the upside that you saw in the billings of the CRPL, was it driven more by net new logos or from expansion activity?.

So overall, we saw very good momentum both in new logo acquisitions and expansion. I would tell you for the year, we ended pretty similar to every year about 50% net new and 50 expansions, so it's a really, really strong balance between new logo wins and great expansion opportunities within the customer base.

And we did see great strength across all industries in all geographies, frankly. It was a very strong quarter..

And then the follow-up question that I had, Andreas, it's about the new generative AI functionality and the embedded AI functionality. Are you starting to see that at the customers, are they starting to experience improvements and productivity and conversions.

And then if so, can you talk about the monetization path for PROS to be able to capture some of the increasing benefits that your customers are likely seeing from all this new generative AI and embedded AI functionality in the products? Thanks..

Yes. Brian, great question.

I would tell you, AI now is a very important area for many of our customers and we're seeing our latest generation, for example, our Gen 4 technology in all of our new AI models drive significant revenue and margin uplift, because historically, we've always put a focus on value realization, measuring the uplift that our models drive.

We're seeing that drive faster expansions and adoption. And one of the things that PROS that's been different than many other tech companies is, we've always monetized AI because we're an AI first company from the very beginning.

All of our solutions incorporated AI and they're seeing the value of the more, the newer algorithms drive even better results on their business and better revenue uplift both in the travel industry and in the B2B industries.

And I would tell you that now what we're seeing is, many companies have mandates from Board down, executive team down to deploy AI technology and we believe the area of commerce and the future of digital retail playing a key role in how B2B companies and the travel industry will win.

So definitely, our solutions are resonating quite strong in the market. .

Yes. I think one thing to add to that, Linda did a really wonderful job of kind of predicting that question in our investor deck, which is just posted on Page 13. There is a quote in there that speaks directly to that point about the value they're getting from AI..

Our next question comes from Chad Bennett with Craig-Hallum Capital Group. .

Great. Kudos also on the sales performance in the quarter, on subscription ARR and billing specifically.

Maybe for Stefan, I mean, the outperformance there was, I think, you talked about the billing’s growth being 22%, if that's correct, year-over-year, which I think was quite a bit better at least from what I was thinking and I think and maybe kind of the directional narrative going into the quarter, that you gave on last quarter and the $5 million, outperformance on your subscription ARR, exiting the year.

I guess the question is, was there anything from a timing standpoint or I don't know, I don't want to call it unnatural where maybe you kind of pulled in some business into this year that maybe could have flipped into Q1 or was targeted for Q1 and it makes that kind of ARR comp a little more difficult when you at least initially guide for this year?.

Yes, Chad, I don't think so. When we sat here 90 days ago and had the conversation and to your point set the guidance. We're looking at several paths of how we think the quarter can work out and we don't assume that every scenario is going to play out.

I will say our teams in the fields executed extremely well on the opportunities we had and many of those paths actually came together, as we went through the quarter, which is really what drove the outperformance, if you will, on our bookings metrics.

I feel, as we look into 2024 now and we look at our pipeline and we look at the opportunities we have, we still feel good that a lot of that momentum can carry forward into 2024. .

And then, just looking at the GEO split, EMEA performed really well year-over-year. I think it was up something like 30% year-over-year by my math.

Is that a function of travel bookings Coming back and maybe Andres, can you just speak to the strength of travel bookings in the quarter and then how you're thinking about the travel business heading into this year?.

Yes, great question, Chad. I would tell you that the strength in Europe is both the B2B business performed very well last year in Europe and our travel business. I talked about Q3 being a better quarter and I talked about Q4, we expected travel to do better and I would tell you that, that played out probably even better than what I expected.

And I would say in the quarter, both B2B and travel outperform our expectations. And if we think about Europe, Europe definitely has been performing very well over the last year, pretty consistent on both B2B and travel..

Our next question comes from Jason Celino with KeyBanc Capital Markets..

Similar line of questioning, sorry, that's modeling related and hopefully you can follow along. But when I look at the 2024 subscription ARR guidance, if you look at it from an incremental dollar to be added perspective, it looks like it will be flat or the same number of incremental dollars added in '24 as it was in '23.

Are you kind of assuming that sales efficiency and maybe the macro for travel and B2B to remain the same, at least initially?.

Yes. As we always do at the beginning of the year, there's a number of things we take into consideration, Jason. And if you go back to last year, it was a very similar approach that we took.

And we have pretty good visibility to what we see happening in the first 6 months, not as good visibility to the back half of the year, and that is certainly factored into our guidance. And as you know from working with us over the last several years, we definitely have strong seasonality that trends to be biased towards the back half of the year.

So, I would say that a lot of that seasonality we have while we've taken into consideration to some degree not completely because of your point around things that are going on with the macro and just not having as good a visibility to the back half of the year.

We've taken that into consideration in our guidance, and obviously, we'll be providing updates to that as we go throughout the year. .

Okay. And then just the follow-up and to clarify Chad's prior question.

So, if I think about the travel business in '23, did it grow? And then directionally, are you expecting travel to continue I guess, what are you expecting for '24?.

Yes. So our travel business definitely grew. We talked about it last quarter. We started to see a turning of the corner in terms of the momentum in that industry, at least as it relates to their willingness to invest in IT and we do, we saw that again happening in the fourth quarter, as Andres mentioned.

And we do, we do have a lot of optimism that, that will continue as we go through 2024 as well..

Yes, Jason. The only thing I'll add is, as we talked about the back half of the year was very strong for travel, especially Q4. And I expect travel to me travels back to a more normal year and the travel team is executing really well. A lot of the innovations that we did during COVID is what the travel industry needs.

And I think what's exciting for me is seeing a lot of the innovations that we've worked on during COVID and our investments in innovation paying off now in the examples of Japan Airlines or Air Canada or Air Europa, all of them in winning Saudia, we're seeing strong success in new lands and we're seeing success in customers continuing to expand to the latest generation innovations, and as I look at this year, I feel very good.

We obviously it's early in the year. We don't want to get ahead of ourselves, but we feel very good..

Our next question comes from Scott Berg with Needham and Company..

This is [indiscernible] on for Scott Berg. Thanks for taking the question. Congratulations on the quarter. A little bit of an expanded question based on what was already asked. But you noted some noteworthy expansions in your remarks, particularly in the travel sector.

Heading into 2024, how should we think about the mix between expansions and that new logos, No, it's particularly in the travel sector given the land and expand initiative we put in place in 2023?.

So think about for all of PROS combined think of the same 50/50 split. As we look at the year, we're seeing it play out pretty similar 50% net new 50/50.

Think of travel being geared more to 30 new, 70 existing or 40/60 split between new and existing in that zip code, we still see new logo acquisitions opportunities, but we see a lot of expansion, paths in the travel industry within our customer base.

There's a lot of innovation that we've done over the last 2 to 3 years, and we're seeing airlines want to adopt those latest generations. So we see a lot of opportunity within the existing base..

And then turning my attention to the guide, it looks like 2024 revenue estimates came in slightly below some expectations.

Can you provide some insight into what's potentially driving this? Is it less services revenue, services going more to partners, license revenues, any sort of color would be appreciated?.

Yes. Actually, we're continuing to expect services to skewed the same way it did in 2023. We do leverage partners, but I don't think you're going to see us leverage partners to a much greater degree. So fairly consistent is how we're modeling it.

I think it really comes down to how we look at our guidance at the beginning of the year, both from a bookings and from a revenue perspective.

We're taking into consideration to a much greater degree what we see happening in the first half, not nearly as much in the second half, mainly because of our own visibility, but secondly because of the market conditions and a little bit of uncertainty there, especially what's going on internationally, we're taking that into consideration as well..

And our next question comes from Rob Oliver with Baird..

Andres, one for you to start. Just any color you could provide, on ACBs and I know you guys have been making a concerted effort over the last year or two as part of this go-to-market change to really bring those down to more of a land and expand motion.

And it seems to be working, but would love to know where you guys are with that relative to kind of your thought of getting down to that 200,000 level? And then I had a quick follow-up..

Yes, Rob. Great question. I'm glad you asked. From an average sale, we're now in that average of 200,000. We really are excited about that and I think that's why we really like the results in Q4 because our average continues to be in that zone. We did have record deals in Q4.

We are seeing the motion of the land realize and expand strategy really play out. We wanted to build that consistency scaling model and we're getting better and better. We're not done. There's work that we need to do to continue to improve, but we're seeing that play out.

Our ASP has remained fairly consistent and we're seeing this is the right ASP that we expect in this year as well..

And then, Stefan, for you, I guess I'm going to ask the guidance question a different way and limited to subscription and subscription ARR guide. You're loud and clear about the conservatism relative to how you guys have visibility in the first half versus the second half and totally get that.

Just be curious to know maybe what sort of macro or industry factors you guys have factored into that number. It was a bit below our number and just say for example with travel, it really seems like after a period of not seeing spend or you're starting to see that spend come back.

Has that been factored forward on the B2B side and then what sort of macro industry thoughts you have relative to that guidance any color would be helpful. .

Yes, Rob. I would say kind of expanding on a comment I made on the last question. Really, a lot of what's happening from a worldwide perspective, especially with the Ukraine and Russia and Palestine and Israel and how that escalation is taking place and the impact that it's having on some airlines.

There are some airlines that are feeling the impact of that whether they've lost routes they can take or they haven't diverted because they can't go over certain airspace, especially in Europe and in the Middle East and Far East for that matter.

While that hasn't directly impacted us to date, it is something that, we see could have its potential down the road. I would also say there's still a little nervous about the impact of inflation or whether we're out of the wood’s year. They're an honor and that certainly was a part of our thinking as well.

The last thing I would say is, when we look at the year, our first half of the year versus our second half of the year, we historically have a very strong second half of the year.

And so we did take a little bit of the macro factors and apply that to the second half of the year, probably a little more so, which has a bigger impact on subscription ARR to your point and that is certainly factored into our guidance ranges. Hopefully that helps.

Is there anything else we can help you there, or Andres, you have anything to add?.

Yes. Maybe the only thing that I will add is, look, we're pleased where we started to guide for the year. We're guiding two Rule of 17, coming off of a Rule 14. If you look at historically, the way that we guide, it has not changed. You can go look a year ago, two years ago.

We never want to let down and we want to make sure we're guiding based on the same approach every year. So we're pleased where we are. We're not seeing any impact in terms of deal delays, if anything. We're seeing our sales cycles are improving, our rep productivity is improving, or deal growth is improving.

So we're not seeing any effect across any industry at this point, but we have to be cognizant with what we're hearing from other companies reporting about concerns in the economy. So, we want to make sure we're setting the right expectations, but sitting here at the very beginning of the year got into a rule of 17.

We're really pleased with that and really excited about executing towards the year. .

Our next question comes from Parker Lane with Stifel..

Hi, guys. Thanks for taking the question. Congrats on the quarter and the improvement in the rule of 40. Stefan, staying on that rule of 40, I think your expectations for 2026 are around 16% to 21% growth and with the benefit of this guide for next year.

I was wondering if you can help characterize what the path looks like from 2024 to 2026 and what's the two or three things that you guys need to do most in order to achieve that target for '26?.

Yes. So that's a great question. And as we look out from a, to your point going from the 10% guide that we had for 24% going into the 16% to 21%, there's a couple of things that are going to play on that. One, we want to continue to leverage the land, realize and expand motion that we've had.

We've been very happy with what's going on in the last couple of years. That's going to have to be a motion that we continue to execute upon. I don't think it's going to change anytime soon people's willingness to spend money on large ticket items.

And so being able to get in, sell a value and then go back and expand on that the next month or next quarter later, I think it's going to continue to be a very important part of what we're doing.

I think similarly, a lot of the innovation that Andres was talking about, especially in some of the new capabilities that we've done with our AI is also going to be something that's going to be very important for us, as companies look more and more to AI to grow their business and make themselves more efficient, they're going to be looking for different capabilities that can do that.

And our engineering team has done a great job to date and they've got several other things that they have lined up to do that as well.

So I mean, it's pretty basic, right? It's basically build products that you think customers are going to get value from and then package it and sell it in a way that they can consume it and get value from it and then expand from it..

And then Andres, one for you. I think the second focus area you talked about for '24 was the expansion of the marketplace.

Can you talk a little bit about how widespread the adoption of those 140 solutions are amongst your client base today? And with the expansion of that marketplace, what sort of impact do you expect that to have on the top line in the coming years?.

Yes, great question, Parker. So I would tell you, today, little, impact of the current customer base because we're launching that marketplace and we're adding more and more solutions. If you think about our platform transition in 2021, which first layout the platform strategy and the marketplace is a key component.

And you're seeing now we're going to continue to add new packages on our platform that are easy to activate for customers that bring more value. So we see that as a key component of our strategy of getting to the rule of 40 and driving accelerated growth into 2026.

The other component that I wanted to add that I think is very strategic for us to get there is our focus on AI, not just providing AI for our customers, but infusing AI into every aspect of our business. We're really looking at setting the standard for how AI is using the enterprise from every area.

Think about from marketing, from sales, legal, all the way into implementations, customer success and across every aspect of the organization, we want to equip our teams to really thrive in the generation of AI.

And I think you're going to continue to see us lean in to drive efficiencies, while we're driving the latest innovations in AI for our customers with easier adoption that's going to help to drive growth. At the same time, we're driving process and automation internally to make us more scalable for the future.

So I think those are the two key strategic components that get us to the rule of 40..

And our next question comes from Nehal Chokshi with Northland Capital Markets..

Zero in subscription revenue growth here for Q1 guiding at 13% year-over-year growth, for full year guidance 13% year-over-year growth, which then implies relatively flat year-over-year growth profile as you go across quarters. Yes, Stefan, you talked about how typically, you don't have great visibility beyond six quarters.

And so what gives you confidence to guide effectively to still 13% year-over-year growth on the subscription revenue on the back half?.

Yes. One of the major benefits to seeing our travel industry start to see a better result is the fact that we get longer visibility into the future because, as you know, we don't always get to recognize that revenue upon execution.

So we have a much longer tail and a better vision into the future when we have those types of contracts because the revenue recognition gets delayed and we kind of have a vision of when that's going to happen. So that's really the biggest reason for it is lining up deals that we can see coming online as we go throughout the year..

And then just going back to this rule 40 guidance for counter 26, which is consistent with what you guys talked about from your May 2023 Investor Day. The cadence with which you index up the rule 40 score per year needs to accelerate significantly from '24, '25 to '26.

Do you remain confident that acceleration and that cadence of the incremental rule 40 score can indeed transpire?.

We do. I would say there is a buy in the organization about what we want to become as a company in building to that rule of 40. We're not necessarily thinking and focusing on rule of 40. We're thinking about how we become more efficient.

Andres talked about infusing AI in everything we do, how we can leverage that type of capability to be more efficient in just about every aspect of our business. And then at the same time, like we as mentioned earlier, on the earlier question about our growth rate accelerating from today to 2026.

How we can also leverage AI to provide more and better value for our customers. At the same time, we're being more efficient. We want to leverage a lot of that into how we can help our customers get more value as well.

Our organization is 100% bought into driving that type of a benefit and yes we do acknowledge that every year we've got to make progress in order to achieve that Rule of 40. But I'm with Andres. I feel very good about what we accomplished in the first year with that objective and even in the second year.

Achieving a Rule of 20, we said we would do a fairly linear progression and we're pretty close to that at a Rule of 17. I feel very good about progress we will have made with this type of guidance for 2024. I feel like we're on the right path to get where we need to be in 2025 and then ultimately 2026..

And ladies and gentlemen, we have reached the end of the question-and-answer session. I would like to turn the call back to Belinda Overdeput for closing remarks..

Thank you for listening to today's call. We look forward to speaking with you at conferences and events this quarter. We will be attending the Wolfe Research March Madness Conference on February 27th in New York City. If you have any questions following today's call, please contact us at ir@pros.com. Thank you and good bye..