PROS Holdings, Inc. (PRO) Earnings Call Transcript & Summary

Yes.

Well, yesterday, I was in a breakout session and wrote down a quote from one of the Ernst & Young consultants. And he said, we come into companies and sometimes we have to remind them what they bought. And I've been talking to some of our PROS colleagues and friends and saying, "I need a little help reminding me of some of the features that we bought that maybe we aren't using yet." And so where we got so much support at implementation and it's, I'm forgetting a few features that we could turn on and things like that. So -- but that's what's great about the partnership, is coming and speaking to that, and already, there's been some features where we think, "Well shouldn't it able to do this?" And as soon as we ask the question, they said, "Oh, that's in the next release. That's in the next quarterly release. You're not the only customer to have brought that up." And so they seem -- everything seems very responsive to our suggestions.

Thank you.

And maybe bouncing off of that, and this goes with any relationship following your metaphor. It's like you also have to invest as a customer in the relationship. So you need to develop your support team, you need to develop your own analysis infrastructure. So if you're a reporting platform, if you're -- supporting for the organization is not there, it makes it very hard for you to translate those needs into actual improvements. So customers can sometimes be disappointed if they didn't really invest that time in developing their own internal processes, because if you're dealing with a very complex system, you have to be able to articulate your needs, and that takes some time for customers to do, and it takes a dedicated team to do so.

Helpful. Rob, do you have a question?

Great. Yes, Rob Morelli here with Needham & Company. I've got 2 here. Question for Julia, as you implemented the Gen IV price optimization with 4 ERPs, can you just touch on how complex or difficult the implementation was versus your expectations?

Well, my expectations were that it would not be able to be done. I mean, I really didn't know how they were going to do it. The ERPs are very old, and -- but what -- they were able to work with our team and it really didn't seem to take an extreme amount of time to figure out. They really knew what to do and they told me they'd be able to do it, but it's just API connections. And so -- where before the pricing team, we worked in 4 silos to do pricing for 4 ERPs. And now just all the ERPs come in to PROS. We still have different SKUs for the same material. So for example, we may manufacture DEF, and that comes up in the one ERP as DEF, and it has a different SKU for the same product in the other ERP. But PROS aligns all of that. We can quickly see that filter that. Again, it's easy to explain to the new analysts who come in, where, I mean, before, you would need a decoder ring to figure it all out of where things were coming from. But no, they use the API calls to pull from the 4 ERPs. It goes into PROS. We apply a change on thousands of SKUs at onetime, and it goes back out to the 4 ERPs and we're able to do that twice a day. So we change prices in the middle of the day. And, I mean, I just didn't think it'd be able to be done. So I've been really impressed.

Got it. That's helpful. And then a question for Lucio. How do you think about expanding your relationship with PROS? Are there any other features or capabilities that could be a good fit for your organization? And then what are your thoughts on increasing revenue through adjacencies?

So, unfortunately, I cannot speak about future plans so much, but we definitely keep a very keen eye on PROS offerings, especially now that airlines are going through the offer and order transformation. So, that's a really massive transformation for the airline industry. So it's a full stack rebuild. So you have essentially the servicing system, transactional systems, analytical systems and even the system of records that need to be restacked to be able to deliver the kind of experience that the retail space has been able to deliver to customers for a very long time. So, definitely, PROS is a very relevant player in the area of offer science, and that's probably the one that is, for the airlines, the most attractive of being able to construct a product that fits -- that's fit with the need of our customers and is relevant to the context and is built dynamically, because as airlines, we've been able to, let's say, over the years, develop a system that is very easy to get a price out of, but it's not very easy to get a customized product out of. So something that is built in, let's say, outside of the pre-built products that you have. So let's say that, that is the space where PROS is probably one of the most interesting players for the airline space, and this is where the industry is going. So we're renewing our stack. So definitely, that's an area that we keenly look at for PROS. And some synergies, of course, with the B2B side when it comes to corporate systems and so on, which are much closer to the retailing experience that we want to deliver to the customers.

Thank you Lucio. And I do have to, unfortunately, end it there because we have to get to the second half of this presentation. But, first of all, I just want to say thank you all so much. I appreciate it. It's been amazing to hear from you. How about a round of applause for our customers. And at this point, we're going to transition. So we'll have you guys on mic, and then I'm going to bring up our management team for the second part of the presentation. Thank you again.

Thank you.

So I have the pleasure now of having some of our executive team up here with me. We're going to give a quick update. We'll start with a couple of slides, and then we'll just go right into Q&A. There's not a lot of content. So first, I'm going to hand it to, of course, Andres, who will talk a little bit about our strategy for this year.

Thank you Belinda, and thank you for being here. For us, it's an incredible pleasure to have you here with our customers. It goes without saying that we have the most amazing customers in the world and for you to be able to talk to them directly is really great. I did want to give a brief update on the strategic pillars. So, our land, realize, expand. We had set a pretty bold goal of going from 400 average ACV -- $400,000 average ACV to $200,000 and really accelerate our momentum. We wanted to make it easier to sell our solutions faster to get to value in real quantifiable realizing value. And I could tell you, we're now at $200,000 average ACV. We've increased dramatically or deal velocity. In Q4, we gave the example. We closed as many deals in Q4 than we did in all of 2021 in Q4 of last year, and that goes to the testament. While we're doing that, our subscription gross margin last quarter was 79%. So we're making improvement to our subscription gross margin while we're driving much higher volume at a lower average ACV. We've also improved the time to value 20% the last 2 years. We're making it easier to get customers to adopt our technology. You could take, for example Gen IV guidance today and adopted in less than 2 months to be live. And we have examples of that. That is really transformational for our customers because as you heard today in the panel, it is very complex. Pricing is not easy, but a lot of innovation on the product to make it easier to get to value. The next pillar is establishing PROS as a core platform powering profitable growth. We made the shift to becoming a cloud company, and now we're making the shift to be a platform. Our belief is that having a micro service architecture and an expandable solution, composable architecture is part of the future. As you heard today from our panel, we're integrating our technology to every possible sales motion that could exist. Obviously, direct sales, e-commerce, marketplaces, any channel where a company wants to begin a sales transaction, we're embedding our technology. And I could tell you the launch of our marketplace, if you haven't seen it, go to marketplace.pros.com, we have over 150 applications now in the marketplace. There's a big focus on every one of our innovations or customers being able to activate faster and allowing customers to expand our solutions in -- or dynamic ancillary pricing is a perfect example. airBaltic talked about a 6% revenue uplift. You can get that solution up in weeks and get to value, measurable value for an airline. That is part of our platform strategy of making it easier. A lot of our new innovations, whether you look at Gen IV guidance or new capacity of where if a B2B company wants to include real-time inventory and drive a level of optimization, those solutions, we can activate faster than ever and get to value, or request specific pricing is another example of willingness to pay forecasting and travel. So, if you look at how we're driving innovations, we're driving fine grained innovations to allow both B2B customers and airlines to drive new algorithms, get them to value very quickly. And you heard from Lucio, that's what airlines want and that's what they love about collaborating with PROS. They would want it even faster, which we all want to innovate more, but that is part of our platform strategy, and making it composable and extensible is a great component. And the last one, infusing AI in everything that we do, I talked about that in my keynote. I would say this is the most strategic pillar in terms of getting us to the Rule of 40. As you see in the Rule of 40, as we accelerate sales, we want to drive leverage in the business. And to me, infusing AI into everything we do, we've always been an AI company. I can tell you, we believe in AI deeply, and we believe every part of PROS can leverage AI to drive digitization, automation in AI. And now we're applying broadly into every organization. And we think this is important in twofold. One, to prepare our employees for the future, they have to be very, very knowledgeable in AI. It's going to transform their careers and their growth opportunities. Also, from our business, we want to automate every aspect. So I'll share a couple of examples like in our SDR team today, we can grab social signals through demand base and grab company information through ZoomInfo and apply AI to that to get an SDR to be able to create an e-mail that's contextual to what the customer is doing in a digital experience. That company's specific information could be the last earnings release, earnings reports, financial reports as well as all the knowledge about PROS. And that's a process that before used to be manual. They had the tools, they would have to do the investigation. It could take them 8 days to craft the right message to send out. Now they can do that in an hour, in minutes, be able to use it -- using AI. It's really transforming their performance. I can tell you, year-over-year, their quotas are gone up 50% and that's all efficiency gain from them being able to be quicker in what they do, less manual, tedious work in making them more successful. So think about, that's just one example on the SDR, we're applying it to every aspect of sales or RFP is another area, we've applied it. We had Damian Olthoff, our General Counsel, talked in my keynote, where we can now take an RFP, apply generative AI and get a response automatically. So think about the investment in time when an RFP comes in for different parts of the organization to answer, from the security team, to the product team, to the implementation team. Now, we don't have to do any of that. You get one more consistent response, and much faster response. What do customers want is speed. What does it help you to drive sales momentum? It's actually being quicker to respond and accelerate the sales cycle, so everything that we're doing across every aspect. Lyndsey Valin, who leads our Professional Services, talked about a couple of areas that we're applying AI. One is we're using now generative AI algorithms to do data ingestion. As you heard from our panel, data ingestion into a platform when you're bringing from multiple ERPs can be very complex. We have, over time, built a lot of connectors to facilitate that and make it easier. Now we're applying generative AI to make it even easier to do and to automate. We're also looking at areas around quality assurance, so using generative AI to automatically create test cases, as you heard from our panel quality in our response is really critical. We said our mission is to help people and companies outperform. We care deeply about the results we drive. Our solution cannot produce bad results because we're responsible for driving revenue growth and margin to our customers. The accuracy of our results are important, auto-generating test cases helps facilitate the validation as well. And these are just examples. It goes all the way to our security team who's using generative AI to do automated pin testing in addition to all the pin testing that we do using third parties and/or ethical hackers within our security organization is another level. But every part of PROS and every team, their goal is to look at how are they going to drive efficiencies and how are they going to drive scale in how we leverage AI. And to me, this is critical so that as we accelerate our growth, the mindset from our team is not that if we grow 20%, we need to add 20% more staff to drive growth is how we're thinking of scaling by driving more automation, and this is helping our people grow, is helping to drive a better customer experience. So I can tell, we're very excited about that. That gives you a brief overview of what we're doing and look forward to the Q&A.

Thank you, Andres. So, Stefan, I think everybody wants to hear from you. I'll have you give a quick update as well, and I'll give you power of the clicker. Careful because the back comes off easily, so it may drop. So, just hold on with your life.

All right, clicker. The dreaded clicker.

Yes.

So, thank you. Thank you, Anders and Belinda. So what I wanted to do today is kind of go back a bit and go back to last year when we had the opportunity to set forth our goal, our long-term financial goal for our business over the next 3 years. And if you look at the left part of that slide, we talked about getting to a Rule of 40, and we set a range of 16% to 21% of total revenue growth and we set a range of 19% to 24% in terms of our free cash flow margin. And so, obviously, that's a range of roughly 35% to 45% in terms of that Rule of 40. And at the time, it was a very bold goal for us to set because up until that point, we had largely been a negative free cash flow business. And when you put together the growth rate we had and the negative free cash flow, we were a Rule of 3 business. So you think about, we were going from a Rule of 3 to we're talking about being a Rule of 40 in a little over 3 years, pretty bold goal. And what I'm here to say is, we're not changing that goal. That goal is still our goal for now. It's to be at that level in the year 2026. So what I thought I would do is, since that was a year ago, just to give you a little bit of an update, and if you look to the right hand side of that chart, you can see the progress we made in 2023, and you can see the progress we continue to make as we look at guiding to the full year of 2024. But more specifically, we laid out some things that we felt like were going to happen. So we didn't just say, "Hey, here's the goal." We said, "Here's how we're going to get there." And so, you could see we talked about our services gross margin, our subscription gross margin and our overall gross margin. And as you can see, there was -- we had a little bit of work to do on our services side. We had made a lot of progress on our subscription. But as I like to point out, going from 77% to somewhere between 80% and 82% is a significant move because you have to think in terms of the reverse. So don't think of it in terms of an improvement on 77%. Actually think about it an improvement on a 23% cost. So, when you think of it that way, we need to expand our costs 4% on [ 23% ] cost. So that's a significant move that we would need to make in order to be successful there. And then lastly, on our overall gross margins, it's a similar story. We need both of those 2; the services and subscription to work together. The good news is, we've made a lot of progress since then. So if you look at what we've done with our services gross margins, we've actually improved those all the way to 9%. We're almost at our goal in just 1 year. Similarly, we have made a percentage point improvement or we've made that 1 percentage point on the cost base of '23 on our path to getting to the 4%. So we're well on our way. And if you look at our most recent quarter, as Andres just pointed out, we actually achieved 79%. So the direction is in the right -- going in the right direction. And if you look at our trend there, I feel like that's a very achievable goal. And then lastly, the combination of all that, you can see we've made 2 percentage point improvements on our overall gross margin in just a year. So, tremendous progress on our gross margin side. And as I said and as the title talks about, our success really depends on the success there. As long as we're continuing to make improvements there, we have a much better chance of making our goal from a profitability perspective. The second thing I talked about was our subscription growth and our operating expense profile. And obviously, we had a profile in 2022 at the time we presented this. We had goals that we wanted to achieve by 2026. And here's where we are on a trailing 12-month basis. Now at the time, we were a negative 7% free cash flow margin. And one of the things that we talked about was our biggest challenge, was going to go from that negative 7% to our range of 19% to 24%. We knew that was an area we had to get started on very quickly, and we have. So, if you look at our research and development costs, we're at 26% of revenue where we were at 29%. So we made a significant improvement there. Sales and marketing, we're already at the range there of 24% versus the 28% we were sitting at. And we've made the little move in G&A that we were expecting to make. So we're really on track from that standpoint as well. So all along the way, when you look at the steps that we needed to take as a business, we've made those steps happen. But I want to be clear, we're not finished. We still have work to do. There's still things that we need to accomplish in order to get to our goals. And as I said earlier, I'm not here to change that. Our goal is still to be there in the year 2026. Now, let me say this, it's a goal. It's a bold goal. And there are some things that we may decide over the next 2.5 years, we need to tweak. We may decide, no, we need to spend a little bit more on R&D than we were thinking because of some opportunities and some innovation that we want to have based on what our customers are saying, we may make that decision. We may decide that we need to take G&A down a little more. We may decide we need to invest a little bit more in sales and marketing. There's things that may need to happen. So, as I know a lot of us do, myself included, I have my own model, I have the things that I think need to happen in order for us to be there. But I will say that there are going to be some things likely that will tweak over time. I'll also say this. It's possible that we get there a quarter early. It's possible we get there a quarter or 2 late. That's possible. But one thing I will tell you is, we're going to be at Rule of 40 one way or another in that time line, in that rough time line. We're committed to delivering to that. We're committed on achieving this objective. It's something that we did when we became a cloud-first company. We set a bold goal for ourselves of what we wanted to achieve, and we did achieve it. And so, we look at this the very same way. And so, I come back to this overall target. This is what we are focused on as a business. And I'll turn it over to questions at this point. And Belinda, I'll let you have the clicker back here.

Yes, thank you. Before we open it up to the room. I do quickly have questions for our 2 other panelists here. So we do have Sunil John, our Chief Product Officer and then Dr. Michael Wu, our Chief AI Strategist, who is probably arguably the hottest ticket at Outperform right now. So I've secured...

By far.

Yes. I've secured him here, no offense to our other panelists, you were also very desired. But I do want to make sure that we give some time as well. So, Sunil, it is Outperform. Well, there's a lot of unveiling that we've done around our product features and things that we're bringing to market. And so I would love if you could share with investors some of the things we've talked about over the last few days that you're excited about and our customers are excited about.

Yes. Thank you Belinda, and thank you all for being here. It's been an amazing conference, starting with Monday when we had our customer advisory boards for all of our B2B industries as well as our travel customers. The richness of the conversation and when we share with them some of the innovations that they've helped inspire over time have been amazing. Strating with our Gen IV price optimization and all the explainability and the quick time to value that's resulted in tremendous value for their business. If you think about what Lucio said earlier, the model was about 15%. The change management was about 60% and then the integration. So we focused a lot on these quick time to value. We focused a lot on the explainability of the algorithms, and that's led to a high degree of trust in our AI solution that they don't experience with other AI exploratory kind of things that are happening right now in the market. Our capacity aware optimization. So, when you think about a business and some of the constraints on that business for them to grow, sometimes, it's not manufacturing capacity, it's not demand. It could be the fleet of delivery vehicles that you have to get your product to market. And so now, we've unveiled a solution that helps these customers price appropriately based on the opportunity cost. As an example, we've got a cement manufacturer that's really interested in finding ways to shift demand from the morning periods when cement, everybody wants cement delivered in the mornings and how they can shift that into other time periods? Or similarly, if you have window repairs, and window repairs usually need to take place in the beginning or end of the day. Well, now you've got a way to shift that demand. And so these algorithms are really driving tremendous value. The other thing I would say is, on the -- for our airline customers, this offer and order management journey that they're going on, the offer is composed of the seat and the ancillaries. What we've unveiled right now is a real-time, continuous pricing approach to get unshackled from the fare classes that these legacy systems have forced a lot of airlines to operate in, and we can have a continuous pricing approach. We've also got a way now to explore the pricing boundaries of every ancillary. So if you saw the demo yesterday that we unveiled or if you go to our Innovation Center, you'll hear our teams talk about dynamic ancillary pricing. Think of the seat, the seat selection and how you can dynamically adjust the price of that based upon the attributes of the customer. And one final thing I'll share with you is a technology we've unveiled, and we had a customer speak about it yesterday at a session around collaborative quoting. This collaboration capability lets our customers, the sellers, collaborate with their customers, the buyers, and there was actually a video testimonial of one of our customers interviewing their customers and talking about how this has enabled a high degree of collaboration on putting a complex door together when you're in an architectural scenario and you have so many customizations that you can make on a door, the way that our technology has facilitated a tighter relationship has been incredible.

Thank you, Sunil. Very exciting. And then, Michael, a question for you. I think with AI, obviously, being such a huge focus of the market right now, we are very happy to have you at PROS. You've been at PROS for quite some time. But I'd love to have you share your perspective about what is unique about PROS and what we're doing in the space of AI that keeps you excited and energized about the things that you're working on?

Okay. Let me try and answer this in a way that's a little easier to understand. So, by asking you guys all a question, do you think that airlines can actually operate their business profitably without a revenue management system? Why do you think every single airline have RM? Because their margin is so thin, right? They actually have to price pretty much at the optimal, right? You can't price off the optimal, otherwise they go into red line, they go into negative margin, okay? So that's -- so we have a lot of airlines that's using RM to keep their business profitable. On the other hand, we also have these B2B customers, and there's a huge TAM there. I don't know how big of a TAM it is. This is like...

It's most of the $30 billion TAM that we've sized. Yes.

Yes. So, it's like -- so a lot of them are not using PROS or not using revenue management or pricing. And the interesting thing is that there is, I would say, a kind of this socioeconomic trend that's driving the margin to be compressed over time. And to see this margin compression trend, I mean, the way I like to look at it is that this is actually something that I recognize when I was doing a little bit of research when I was joining PROS. And it's something that I find when I was -- because I actually have 0 background in revenue management or airline and 0 background in pricing, absolutely 0. I know nothing about them. And I was doing this research -- and so I was kind of a little bit of a strange -- like why did I choose PROS because -- when I know nothing about it? And -- but when I was doing this research, what I find is that, like as with any technology, they eventually get more and more commoditized, right? Any technology would eventually become more and more commoditized. And what that means is that more and more business will actually get access to those technology, right? When every single business have access to the same technology, then it evens the play field, and what that means is that they become more competitive in the market, okay? So, how does that actually reflect on the business versus their competitor? Is that your competitor will start taking your customers, right? That's what competition means, right. So -- and business typically have 2 ways to deal with competition. One way to deal with competition is, you lower your price. How do you keep your customer from your competitor taking it away? One is that you lower your price, right? So that will compress your margin, right? The other way and then probably a better way, probably a more innovative company will address this issue is like I'll provide -- I'll offer more, right? I'll keep the price the same, but I offer a free shipping. I even give you a better product or I keep research and give you a newer version of the product, but all of those increases your cost and that compresses your margin, too, right? So over time, the margin will constantly get compressed and compressed and thinner and thinner. Eventually, they will have no choice but to use a solution like PROS. I mean, they would basically -- those, I mean, how often do you get a company where the future demand for your technologies is pretty much guaranteed? I mean competitions aside, right? I mean there's -- there will be more and more need for this technology as time goes on because margin will get -- competition will increase because technology become more accessible and margin will continuously being compressed over time. So that's why I feel like this is a very special company and very unique in that way, because we drive profitability and keep those margins in the positive range.

Thank you. I love that thought and very scientific approach to understanding kind of the future values. I think to your point, there's a lot of benefit from PROS Solutions. We heard in Andres' keynote, from Graybar, their VP of Pricing and Profitability, talking about exactly that, being able to drive margin expansion when you have all these competitive dynamics. And so I think it reinforces the value prop. Okay, at this point, I will open it up to the room and to the online audience for any questions. And if we could just run some mics around to make sure that we're getting everyone. Looks like we have one in the front from Zane.

Hi. Zane Meehan, KeyBanc Capital Markets. Andres, we're seeing airlines start talking about travel demand coming back, specifically corporate travel. Just wondering if you could speak to the demand trends that you're seeing broadly across your travel portfolio, and anything you can share with us there?

Yes. So, airlines, I would say from a demand perspective, airlines are doing very well, and the demand continues to grow. I think some of their challenges is more not being able to add more capacity, you've probably heard about that. But overall, I feel the demand environment is very, very good. I think a lot of airlines are thinking about the future of digital retail, and you're seeing them more not just think about the seat, but how are they driving a great customer experience, thinking about everything, pre-flight experience, in-flight experience and post-flight experience. They see a huge opportunity in driving revenue growth in the future of digital retail. I think these areas of offer optimization in the future of order management are areas that there's a lot of interest. The areas of dynamic ancillary pricing is an area that most airlines they have fixed prices for ancillaries. They're not changing them. With our latest generation AI solution, the value is pretty significant, as we've shown. So, I would say airlines are looking to continue to invest across different aspects of their business and very -- always been very forward-leaning on the future. If you think about it, the airline experience is a pretty sophisticated experience as an end customer, but it's very digitized. They're thinking of the next level of digitization where you can select your meal pre- flight, you can select any ancillary pre-flight, post-flight experiences, and they become more of a marketplace to drive travel experiences, and those are areas we're innovating with them.

Okay. And then a follow-up for Stefan. On the Rule of 40 framework, looked like the R&D expense line is where the most improvement will be coming from. Maybe you could share where you would be making changes? And maybe if it's AI that's helping to reduce that cost line?

Yes. So, I think the point on the R&D is it's a journey, right? And so, to your point, AI is going to have a big part in that. As we bring in the tools to help us be more efficient in our coding. And the other thing that we're doing too, is we have made some heavy investments in some technologies that have been rolled out, especially as we were re-architecting our platform as those have started to wind down, and we're really now focusing on current innovation and going forward innovation. That's going to be helping as well. So that's going to be an area that we don't -- those are going to be areas that we don't have to invest as much, and so that's where that's going to come down. And then, to be honest with you, there's an element of scale, right? So, as we get better in our land and expand and expand upon what Andres was talking about, there'll be some scale that comes through as well. And that's true on all line items, by the way. It's true on the R&D line item, selling and marketing, a little less on the selling and marketing, but also on the G&A side.

Yes. Yes, we're definitely deploying, code generation technology for product development. It's an area and also quality assurance internally. We're also -- we're a very global customer base. If you look at our customers, we have 60 countries represented here. We're deploying also more R&D in other locations like our Sofia, Bulgaria location, which for us is a lower cost R&D center. But we're deploying also a lot of our R&D as we're adding, we're adding in lower-cost regions to also have full stack capabilities in every region so that we have, think of it from first level support, through third level support, through core R&D, through QA. So, we're also using that as a strategy over time to lower average cost.

Yes, the only thing I would say is to echo one point that Stefan was making. You've seen the expansion in subscription margins. It's because our platform has come together as opposed to thinking of our products as discrete, disparate products, you start getting scale by having a lot of shared services that go to all of our end markets across travel and B2B.

That's true.

Question -- okay, so we have questions from online as well. [ Jody ]?

Yes. So, we've got one from Scott Berg through the chat. This is for Andres. First, it's a 2-parter regarding sales. So, how is the sales team reacting to the year-over-year increase in quota? And then how are you thinking about sales capacity relative to what we have today and our abilities to meet the 2026 targets?

Yes. So, a clarification, the quota increase was for our SDR, demand gen team, sales rep teams obviously don't have a 50% quota increase. Overall, look, sales, like say it when it's easier to sell the solution and drive time to value. So a lot of our initiatives that we put in place around making it easier to sell our solution, get time to value. That's what sales wanted. So I think sales has been all along in this alignment because they want to see the velocity increase. The reps want to see their customers getting to value and expanding faster. So sales has been very aligned and played a very strategic role in this transformation. As you would imagine, getting a rep to want to sell it $200,000 versus a $400,000, it's not necessarily a trivial shift, right? Because -- with our platform, they could go sell it global and it could be a multi-million dollar deal, by getting them to believe that if they start, we make it very easy for a customer to get to value and start in an investment that's not as significant, we can get to value and drive expansions faster. They're actually going to hit -- be more productive, and that's why we drove a 20% productivity improvement last year. And I think they're seeing the effect of that. So there's very close alignment from a go-to-market, and you'll see Todd McNabb, our new CRO, talk about how do we continue to make it easier for reps to sell, easier for customers to get to value, and measuring and quantifying that value are key focus areas that we're doing. So overall, it's been really well received.

Thanks. Anything else on the online chat or [ Jack ]?

Hey guys, you talked about broad strength across all industries in the 1 quarter, the first quarter. Going a layer deeper, what are the top 3 verticals that you see as opportunities through the 2026 framework?

Yes. No, I would tell you, look, B2B industries continue to be the top industries that we see trends. All of the commodity-driven industries, to me, are highly critical, whether it'd be food, energy, those are the need for precision and speed and the volatility is critical. Distribution has been brought a very strong industry, lot of complexity in the number of SKUs, the number of customers, the pressures they negotiating very low-margin business distribution would be one that you could compare the closest to airlines and being very low margin. Every 100 basis point is a big, big difference to their margins. So I would tell you those industries, we see a lot of change happening and a lot of adoption. And I would tell you, we're seeing more broadly in B2B, not just thinking about direct channel, but thinking about self-serve. You heard HP in my keynote, yesterday talked about moving to 75% self-serve. I mean, that's a pretty bold goal that they achieved. You're seeing more B2B companies, especially distributors and manufacturers thinking about self-serve and how they're supporting a self-serve channel because they know that will accelerate sales. If you have precision AI, you no longer need to have an intermediary review the deals and lag how long it takes you to put a quote out, and you know your win rate is going to be improved because you're first to quote with a market-oriented that you have high probability to win. So, we're seeing that play out well.

Got it. And then second one for me. You guys have talked a lot about the convergence of B2B and travel. And Dr. Wu, I know you talked about this a little bit in your keynote yesterday. What does this look like in practice? Is this mostly on a product perspective or is it something else?

Maybe, Michael, do you want to just start a little from an innovation perspective, and then we can talk about go-to-market, too?

Sure. I think that from an innovation perspective, as I said, first of all, I apologize for my clicker issue yesterday, that was not my best delivery, but anyway, it kills my flow, and I just kind of didn't get the energy, momentum back.

We're having clicker challenges, but everything else is going great.

Anyway, I do think that this synergy between the 2 sides, right? I mean it really enable us to bring our research to both the B2B industry and the airline, the travel industry much faster, because, as I said, like there's lots of innovation that is easily applicable to both. I mean, for example, our Explainable AI, right? I mean, right now, it's actually built into our Gen IV price optimization product, right? But that could easily be used for airline too, because it's possible that they could use this to explain some of their black box algorithm. And so why does it have to be only used for our Gen IV. Like it's -- so there's many of these, I would say, like algorithm that our science -- AI research team developed, if you use this kind of platform, then basically, they become available, right, to all the -- it actually doesn't matter what industry we're in anymore. So that's enable us to kind of innovate faster, much, much faster. That's essentially what, Lucio want, right? We could bring this, maybe some of the innovation, what the research has done from the B2B side, right, but for us to solve a B2B problem. But when the algorithm is developed, maybe the airlines could use them.

I think the way that I look at this is that all of our customers across all our industries, fundamentally, they're trying to put an offer out to their customers that is going to be acceptable. So that's going to be value for them and profitable for the seller. And so if you deconstruct the offer, you have the product or service that you're putting in place, you've got the price that you wrap around it. You've got the incentives that you put in place, whether that's a discount or rebate or other type of incentive. And then you wrap that around an experience. And that's going to be true for all of our end markets and verticals, and all of our technologies are really focused on driving the levers for every single one of those commercial decision points. This is whether it's a salesperson, this is whether it's a self-serve, how do we reveal those nudges, if you will, to get the offer completed and drive a higher and higher engagement with the customer over the lifetime of that relationship.

Yes, the only thing I would add to that, if you think about travel, they're now for the first time thinking of a catalog. If you think about our main component, CPQ say catalog, because in the past, it was the [ seat ], now they're thinking of a collection of products, and now it is actually a configurable product, right? Because you can connect different use cases. Think about if you get to not just the bags or the seat and all the in-flight, but think about post-flight. Think about if you want to attach tours to that. It's becoming more complex and our innovations around the catalog are going to apply and more of the solutions you're going to see cross between B2B and travel as a more common platform. On the B2B side, most B2B companies don't have a really accurate forecast. They can barely predict demand maybe a week out, but no long-term forecast. I mean, airlines could not be successful if they didn't have a forecast a year out into the future, right? So we see -- or demand forecasting technology also as something that as B2B companies mature, those type of technologies will be transformative for them, allowing them to know what types of products they need to build to end up driving the right revenue and margin growth expectations that they have. So there's, over time, I would say B2B is probably a decade behind travel in levels of sophistication. You can see us blending more sophistication to the B2B side of algorithms we already have and taking those to market for B2B companies that want to be more advanced and build more capability, which will bring a lot of co-innovations from the single platform.

And the time does go quick. So we are actually at time for this session. Thank you to our panel. I appreciate all of you being here. Thank you so much again to everyone who came out for the conference, and thank you to the online attendees. I'm always available if there are any questions, you can find me at ir@pros.com. That's my e-mail address, and I'm happy to chat after the session as well. But thank you very much.

Thank you.

Thank you.

Thank you.

Thank you.