Q1 2024 Pros Holdings Inc Earnings Call

Participants

Belinda Overdeput; Head of Investor Relations; Pros Holdings Inc

Andres Reiner; President and Chief Executive Officer; Pros Holdings Inc

Stefan Schulz; Chief Financial Officer, Executive Vice President; Pros Holdings Inc

Scott Berg; Senior Analyst; Needham & Company LLC

Matthew Kikkert; Analyst; Stifel Nicolaus and Company, Inc

Patrick Schultz; Analyst; Robert W. Baird & Co., Inc

Brian Schwartz; Analyst; Oppenheimer & Co., Inc

Jason Celino; Analyst; KeyBanc Capital Markets Inc

Nehal Chokshi; Analyst; Northland Securities Inc

Victor Cheng; Analyst; BofA Global Research

Presentation

Operator

Greetings and welcome to the PROS Holdings first-quarter 2024 earnings conference call. (Operator Instructions)
As a reminder, this conference is being recorded. I would now like to turn the conference over to Belinda Overdeput, Head of Investor Relations. Please go ahead.

Belinda Overdeput

Thank you, operator. Good afternoon, everyone, and thank you for joining us. Our earnings press release, SEC filings and a replay of today's call can be found on the Investor Relations section of our website at PROS.com. Our prepared remarks are also available on our website and will be replaced by the official transcript, which includes participant questions once available.
With me on today's call is Andres Reiner, President and Chief Executive Officer; and Stefan Schulz, Chief Financial Officer. Please note that some of the commentary today will include forward-looking statements, including without limitation, those about our strategy, future business prospects and market opportunities and our financial projections and guidance.
Actual results could differ materially from such statements 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.
With that, I'll turn the call over to you, Andres.

Andres Reiner

Thank you, Belinda, and good afternoon, everyone, and thank you for joining us on today's call. We delivered a strong start to 2020 for exceeding the high end of our guidance ranges across all metrics. We grew subscription revenue by 15% and total revenue by 10% while delivering a near 300% improvement in adjusted EBITDA and year over year, reflecting our continued focus on our 2026 goal of being a Rule of 40 company core to our strategy to fuel.
Our growth is to continue to bring groundbreaking innovations to market and drive market adoption of the PROS platform with our land, REALIZE and expand strategy. In Q1, we officially launched the PROS copilot for sales plug-in in partnership with Microsoft.
In today's environment, customers place a premium on speed and efficiency in research shows that 35% to 50% of sales go to the vendor, the response first, the process go public for sales plug-in seamlessly integrates Pro, say I powerful insights into Microsoft copilot for sales, empowering sellers to deliver fast personalized offers to customers directly from e-mail threats process.
The first vendor to any great forward insights into Microsoft copilot for sales uniquely harnessing the power of data from across Pro Smart CPQ, Microsoft 365 apps in CRM platforms to drive AI powered offers that wins or platform innovations are resonating evidenced by our wins across industries.
I will share a few of our exciting wins starting with new customers in Q1 EC. group, unless Rob made the strategic decision to adopt the PROS platform, UC Group, a global leader in real estate management chose to activate Smart CPQ to power offers for the retail rental spaces to accelerate time to quote and driving better customer experience.
Les Schwab, a leading automotive tire and parts distributor, chose to activate smart price optimization and management to power real-time dynamic pricing across their more than 500 retail stores fueling their profitable growth strategy. We also welcome Air India as a new PROS customer in Q1, Air India selected the PROS platform to activate or offer marketing solution to seamlessly market personalized offers to passengers online, bringing them into their direct booking channels to drive higher conversion of online sales and fuel profitable growth.
Now on to some of our incredible expansions in Q one, Hai has expanded its use of our firm marketing on the PROS platform to continue to drive exceptional experiences for their guests through optimizing personalized marketing campaigns for new innovations enable Hyatt to enhance customer acquisition strategies by launching customizable pages at scale across all digital campaigns.
Air Baltic, the flag carrier, last year expanded to suit the PROS platform by activating dynamic ancillary pricing airlines around the world are increasingly focused on driving revenue growth through ancillaries in process, the only AI power solution in the market for ancillary pricing process that uses reinforcement learning techniques to present tailored ancillary service prices to passengers aiming to drive more overall ancillary sales at more optimal prices based on process initial estimates, step is expected to drive 2% to 6% revenue uplift through real power dynamic pricing.
With that, Air Baltic has already seen revenue uplift on assigned seating, which is one of their largest ancillary revenue contributors cargo lux expanded their use of the PROS platform by activating or Gen four EI. price optimization, including our capacity to where optimization with this expansion target, Lux would take advantage of our latest innovations to drive even more value as they continue to use the PROS platform to power their omnichannel sales motion.
We're so proud to see how the PROS platform is helping businesses across industries and around the globe driving means that you will hear more from our customers directly and there are more about.
Anyway, I innovations we're bringing to market at our upcoming outperform with PROS conference to recent organizational update, we welcome Todd McNabb as Chief Revenue Officer. Todd will lead our global go-to-market team, bringing to pros over 25 years of experience in driving sales and scaling organizations thought leadership will amplify our growth momentum, building upon our land, realizing expand strategy.
I'm excited to welcome Todd to the team and I'm enjoying working closely with them on our growth objectives.
Lastly, for core values of ownership, innovation and care shopping everything we do, including our efforts to build a more sustainable future this is reflected in our recently published 2023 sustainability report, which highlights our progress across environmental, social and governance related topics and embodies our company's culture in action. You will find our new report in the Investor Relations section of our website.
Before I close, I would like to thank our incredible global team for their passion and dedication to PROS or customers in our communities. I would also like to thank our customers, partners and shareholders for their ongoing support of PROS.
With that, I'll turn the call over to Stefan to cover our financial performance and outlook.

Stefan Schulz

Thank you, Andreas, and good afternoon, everyone. It has been almost one year since we outlined our 2026 financial objectives, and I'm pleased with the progress we have made during that time, including first quarter of this year. In the first quarter, we set new highs for non-GAAP subscription and overall gross margins as well as our second best adjusted EBITDA results.
I mentioned this because we typically see our best adjusted EBITDA and free cash flow results during the second half of each year. And with that, I will dive into our results for the first quarter. Subscription revenue was $64.3 million, up 15% year over year, and total revenue was $80.7 million up 10% year over year, both exceeding the guidance ranges.
Our first quarter recurring revenue was consistent at 84% of total revenue and our trailing 12-month gross revenue retention continued to be better than 93%. Calculated billings in the first quarter increased 3% year over year and 11% for the trailing 12 months in line with our expectations and the seasonality of our business.
We expect the trend of calculated billings this year to continue to be consistent with what we saw last year. Our non-GAAP subscription gross margin was 79% in the first quarter, an improvement of over 140 basis points year over year. We also delivered a 9% non-GAAP services gross margin in the first quarter, an improvement of over 1,500 basis points year over year.
With these improvements, our overall non-GAAP gross margin increased to 67% in the first quarter, an improvement of 315 basis points in non-GAAP gross margin year over year. I'm very pleased with the progress we are making on our key gross margin metrics we generated adjusted EBITDA of $4.6 million in the first quarter, significantly exceeding guidance and achieving a near 300% improvement year over year.
Our continued focus on operational efficiency through the initiatives we have in place, such as infusing AI in all aspects of our operations are helping us continue to drive better profitability. Our free cash flow burn in the first quarter was 4.9 million, which is about in line with our burn in the first quarter of last year. I'm very pleased with this outcome, given the increase in incentive payments made in the first quarter of this year versus last year.
As a reminder, it is typical for us to have higher expenses in the first half of the year because of payroll taxes as well as marketing initiatives and events.
From a balance sheet perspective, we exited the first quarter with $166.4 million of cash and investments later this month, we have $21.7 million of our convertible notes due, and we currently plan to pay this balance with our existing cash and investments. Our first quarter non-GAAP earnings per share was $0.04 per share, also exceeding guidance.
Now turning to guidance for Q2, we expect second quarter subscription revenue to be in the range of 64 to $64.5 million, representing 12% growth at the midpoint. We expect second quarter total revenue to be in the range of $80.5 million to $81.5 million, representing 7% growth at the midpoint. We are anticipating services to be essentially flat due to the outsized 25% growth we saw in services revenue during the second quarter last year.
This is impacting our expected total revenue growth rate by as much as two percentage points. We expect second quarter adjusted EBITDA of between $1 million and $2 million, an improvement of $1.4 million year over year.
We are expecting an increase in the selling and marketing expenses for outperform, which will take place later this month using a non-GAAP estimated tax rate of 22%. We anticipate second quarter non-GAAP earnings per share at breakeven to $0.02 per share based on an estimated $48.2 million diluted weighted average shares outstanding.
For the full year, we are raising our guidance for subscription revenue, total revenue and adjusted EBITDA. We now expect subscription revenue to be in the range of $263.5 million to $265.5 million, representing 13% growth at the midpoint and total revenue to be in the range of $332.5 million to $334.5 million, representing 10% growth at the midpoint.
Similar to what we saw in Q2 of last year. We have visibility to a higher level of services revenue in the second half of this year from what our guidance would imply for the first half of 2024. Adjusted EBITDA is expected to be in the range of $17 million to $20 million, representing an improvement of $12.5 million year over year.
In closing, I would like to thank our global team and our customers for their continued support of PROS. We also thank you, our shareholders for your support of PROS and we look forward to speaking with you at our upcoming events. And I will now turn the call back over to the operator for questions. Operator?

Question and Answer Session

Operator

(Operator Instructions)
Scott Berg, Needham.

Scott Berg

Hi, everyone, and congrats on the nice quarter and like through the profitability improvements done nice steady year over year trend there.
Andreas, I wanted to ask a question. I actually feel kind of weird about I'm asking is it's on your new copilot functionality that you that you announced. It's only where it because I want to ask you how you monetize AI, or how you plan to monetize new AI technology,
Knowing that you've been monetizing the eye for obviously a couple of decades now, but how should we think about this innovation being infused into the platform, is there an opportunity to step up your RPU per customers and costs are or is it really more about embedding that functionality to create further differentiation in the front?

Andres Reiner

Yes, great question, Scott. Look, we're very excited about the sales scope, quality innovation because I think Microsoft is changing the way that sales reps will work in the future and bringing this type of technology really brings them the best AI possible to continuously respond to customers.
So for us to be embedded into these workflows and then being able to help reps quickly respond to prospects with the right e-mail response with the right quotes powered by PROS creates a significant differentiation in the market.
So I think this of one and four months it adds a lot of differentiation for our platform and the ability to now extend our, you know, e-mail threats all the way through being able to dynamically create a quote, powered by PROS and in a lot more adoption of our solution in the market. So see anybody that buys sales copilot can now embed Pro CPQ and have a high-powered deals right there in their fingerprints.
So we see this as a big opportunity to continue to innovate with Microsoft and something that helps us drive our strategy of landing more deals and realizing value and driving more expansions.

Scott Berg

Got it, helpful.
Thank you. And then from a follow-up perspective, you hired a new CRO, Todd, I feel like you and I just had this conversation about two months ago if you're going to hire a new CRO or not. And I think the comment I made at that point in time was your best or at least most consistent sales execution last five or six years has seemingly been one a dot Rainer has been running sales.
What does what does that bring to the table that's different than and maybe the prior couple of people that have been in this role? And how does he kind of fuel your growth strategies over the near term?

Andres Reiner

Yes. Great question, Scott. Look I'm really excited that Todd and his team, he brings a unique skill in sales go to market. I think a lot of the work that we've done in building our land realized expand strategy and our platform, which position us to really scale the business. If you think about deal velocity, deal consistency that we've driven, we've dramatically increased.
What Todd brings is I'm very clear experiencing significantly scaling sales organizations and we think tied to our goal of getting to Rule of 40 by 2026, we think now is the time to invest in our go-to-market team this year was very important for us to make a big improvement in profitability and start to invest in our go to market and scaling it.
The other aspect that I'm really excited about is we're seeing B-to-B and B-to-C converge. You're seeing a lot of our wins that we're talking about. They're not just traditional B2B stories. They're B2B with B2C and direct to consumer strategies as well. So we're seeing more of a unified platform in our go to market and abilities to really bring our sales go to market team and to drive more efficiency and scale as we move for us. I'm really excited putting that are going to be working closely together.
We're aligned on this strategy is not about changing our strategy to do so, but really amplifying that strategy and really setting us up for 25 and 26. I could tell you, I'm really excited in what he brings different is very strong sales go-to-market background.

Scott Berg

Understood. And congrats on the nice quarter again, and thanks for taking my questions. Thank you.

Operator

J. Parker Lane, Stifel.

Matthew Kikkert

This is Matthew Kikkert for Parker. Thank you for taking my questions. First, the last call you mentioned a 28% reduction in new logo sales cycle times for B2B. Are you continuing to see improvements in that metric? And what do you believe is driving that?

Andres Reiner

Yes. So I would say it's been consistent. So we're continuing to see, you know, the improvement remain the same. So no changes, you know. And so right now, no real changes from what we're seeing. We're seeing them continue to maintain.

Matthew Kikkert

Okay. Sounds good. And then turning into the marketplace, which continues to be a focus for you this year, what are the attach rates looking like there and how big of a role. Can the marketplace play in your achievement of Rule 40 goals going forward?

Andres Reiner

Yes, great question. And I will tell you right now, the marketplace is still in the infancy in that creation. But what I'm really excited is the opportunity to have new solutions in that marketplace that can be activated with real real small, little to no activation, which will allow customers to now be able to expand on some of our products in a very, very fast way and in I think that over time, the opportunity that we have with the marketplace is getting our customers to adopt and want these solutions to trial and adopt them in a much faster way.
So we're very, very excited about the marketplace and this is the beginning of a product-led growth strategy. And I think a lot of work has gone really proud of the product team for bringing together the platform in the marketplace to allow us to bring these new solutions to market and allowing our customers to activate them seamlessly as we move forward.
So right now, the current attach is small over time we see this increasing quite a bit as we get to our 2026 goals.

Matthew Kikkert

Terrific. Thank you. Thank you.

Operator

Patrick Schultz, Baird.

Patrick Schultz

Hey, guys. Thanks for taking my question. I guess maybe starting off on travel. I think last quarter you called out you have started to see some nice momentum in that business, and it seems like that's continued this quarter.
Could you maybe frame how the recovery path has trended relative to expectations? And then when looking at the rest of the year how are you thinking about the contribution from new logos versus existing customer expansion?

Andres Reiner

Yes, great questions. So I would say, look, as travel continues to drive improvements, I would say you know, typically in the year, you know, early on it, travel tends to be more back-end loaded or loaded in the year, but we are seeing good wins both in net new and existing spent expansions, but we're still seeing B2B drive that growth.
So make no mistake about that. B2B is continuing to drive the growth. Travel is continuing to improve, but we expect that similar to last year back end, it's stronger than the front end overall in terms of our sales cycle times in travel, they're still not back to the pre-COVID years.
But from a deal growth, we're seeing very good deal of growth in B2B. We're seeing better improvement on deal cycle times and continuing to see that as a main growth driver for the business.

Patrick Schultz

Okay. Very helpful. And then maybe a quick follow-up for some responses in financials on cycling on the new versus existing?

Andres Reiner

We expect that to be for the year that 50 50 split, we're continuing to see strong on new logo wins as well as expansions and think of that. Obviously, our B2B driving more new new logo wins, travel, strong on on the expand. But I would say, look, we were very pleased with that expansion in the quarter, both in B2B and travel.

Patrick Schultz

Great.
Appreciate the color there. And if I may, maybe just on subscription revenue for the year, you posted a strong start to the year. I think you beat Q1 guidance by about 1 million full year guidance. Looks like that was raised by a little bit less than that. Can you just talk about that dynamic there and why not pass through the full be?
Has anything changed from a broader macro perspective since last quarter and nothing's changed from a broader macro perspective as it relates to the beat in Q1 and how much of that was applied to the full year?

Stefan Schulz

We had a little bit of a benefit from a timing perspective in terms of how we initially modeled the year of the subscription rollout in terms of revenue recognition and we actually were able to pull some of that into Q1. And so that's why we had a bit of a beat in Q1 was was really moving some revenue up, which we'll always take when we can.
And so that's why there was a 0.5 million of that 4 million that was reflected in the base as it pertains to our views for the rest of the year. As I said earlier, we don't really see anything change with the macro. We have increased our guidance a bit. But I would also tell you that our guidance philosophy is continuing to stay consistent. And that is we provide guidance on our numbers.
We have a high degree of confidence we can achieve. And so as we go throughout the year. I expect we'll refine that more and more as our visibility improves, but nothing has really changed. We're very happy with where we sit as of today.

Patrick Schultz

Perfect. Appreciate the guys. Thanks for taking my questions.

Andres Reiner

Thank you.

Operator

Brian Schwartz, Oppenheimer.

Brian Schwartz

Yes, hi. Thanks for taking my questions today. Andres. Can you talk a little bit more just about the sales productivity and Dom bookings that you had in Q1. You know, it does look like the year is a little bit more back-end loaded than it was when you gave guidance three months ago? And Dom, maybe if you can just provide a little insight into the productivity in Q1?

Andres Reiner

Yes. So overall, we're seeing pretty consistent on sales cycle times. I did say we've seen some improvement from a B2B perspective, but overall, it's remained on, you know, pretty pretty similar in terms of how the year is turning out is turning out pretty much how we expected side. I wouldn't say we've always been a back-end loaded. You know, back half of the year is stronger than the front half of the year. The year is turning out exactly how we predicted. So no changes there. And overall, in terms of our efficiencies and you know, in our win rates continue to improve.

Brian Schwartz

Thank you. And then the follow-up question I wanted to ask about also about the Microsoft copilot integration. Is your expectation I guess it's early now, but do you think that that will increase awareness for your AI driven dynamic pricing solution in the market?

Andres Reiner

Yes, absolutely. There is no doubt like Microsoft and us are planning to market this as being the first partner that innovated on this, it is really, really important. And, you know, there aren't many AI solutions that that produced this much revenue, a margin uplift with quantifiable value that helped transform the sales process. So I think and both Microsoft and pros are very proud of this innovation.
This is just the beginning, but it definitely will increase visibility within the Microsoft ecosystem. And we're very focused from a go to market on how we're going to amplify that visibility.
One of the transformative areas of this sales, copilot that's unique. And I think it's been very clever on the Microsoft side is your technology can integrate with any CRM. So not just the Microsoft ecosystem, but also the salesforce.com ecosystem because you can plug in sales copilot on top of both sales force and Microsoft.
So I think it really and unify the way that sales rep sell on and that's to be right there to help the reps respond faster and drive higher win rates at better margin. And revenue is said a very high ROI use case.

Brian Schwartz

And then one question for Stefan. Just wanted to ask you about how you're feeling about the visibility to on the second half now that you're one quarter into the year?
I know Larry, last quarter, you felt that on the visibility wasn't as strong for for the back half of the year. I'm just wondering how you're feeling today if that it has at all improved now that we're one quarter into the year. Thanks for taking my questions.

Stefan Schulz

Yes, Brian, it has improved a bit from being 90 days, further down the line. We have a better view in terms of things like, you know, the amount of services that we're going to have to book on bookings that occurred both last year and this year, and I highlighted that in my prepared remarks, our visibility has improved to the degree that I can actually comment and say we expect to see a meaningful bump up in services revenue in the second half of the year.
And I can also say that similarly on the on the subscription side, we have a better idea of what Q3 is going to look like given the bookings that we've had in Q1. So I had just as a point of color on that, as we look at the full year, you look at the mix last year, first half second half and how that unfolded, we're expecting subscription to be somewhat similar to this year's.
So a similar ratio, if you will, first half the second half. And in services is what we're expecting to see a meaningful jump in the second half from what you saw in the first half of the year. So we're starting to get a better feel for how the year is going to shake out in. And that's the color we can give at this point in time.

Brian Schwartz

Thank you.

Operator

And next question is from Jason Celino with KeyBanc Capital Markets. Please go ahead.

Jason Celino

Great. Thanks for taking my question. Andres, in a bit of a philosophy of philosophical question, actually, I think several months ago there was a fast food chain that was looking at real-time pricing set menus. I don't think and then I'm going with through with that plan, but kind of shows you well, how far we've come with the industry as we think about pricing optimization today and reflect on kind of the technology and the adoption trend, especially for the industries that you serve today, what might be talking about three to five years?

Andres Reiner

Yes, I would say, look, the adoption of dynamic pricing algorithm, especially for the B2B industries, which is over $30 billion on the TAM opportunity is huge. I mean, the adoption is still low and it's a great example to have less drop. For example, this quarter. That's one of the very important criterias and them selecting process really to power their over 500 reels retail stores with real-time pricing. So we see this use case applying very broadly in the B2B.
Our space is more important than ever to compete and win. I think a lot of the challenges that companies are having is one, their products are changing pretty dramatic. So the configuration aspects of the products in personalization criteria. They have So recommending the right offer. And second is the right price of which they can win. That is in real time that is adapting to market changes so I would tell you look at a large percentage of the wins we're having.
It's because of these real-time capabilities and our conviction of the growth opportunity and excitement that we have is we feel we're significantly ahead years ahead of anybody in the market in producing real-time AI algorithms that can scale.
It can be pure machine run with very significant revenue and margin uplift. So I think we're still at the beginning of the journey. I would tell you it applies to the majority of the opportunities that we're closing. This is a very important component.
Yes. No. Next to here. On the left-hand side, you know, the company in my neck of the woods. So yes, we are very excited about.

Jason Celino

And then one quick one for Stefan business linearity. I guess how did kind of sales execution in our business pipeline and close deals? How does that kind of fair throughout the quarter? Was it was all fairly consistent?

Stefan Schulz

Yes, I'd say fairly consistent. It always it leans heavily towards the 3rd month, and that's pretty typical of even when we talk about linearity, it linear linearity is assuming a certain percentage in month, one month two and a bigger percentage in month three of that's that's just the nature of the business, but nothing unusual in the first quarter at all.

Jason Celino

Okay, perfect. Thank you both.

Andres Reiner

Thank you.

Operator

Nehal Chokshi, Northland Capital Markets.

Nehal Chokshi

Yes, thank you and congrats on a strong quarter here I'm talking, however, on billings Rose. Stefan mentioned 1,000 lending expectations was up 3% year over year. And then you also said that you expect billings growth to be consistent with the trend of last year. But I'm not sure what you mean by June of last year because that trend from last year was volatile on a year-over-year basis. So could you just give a little bit more color on what you mean there?

Stefan Schulz

Yes, yes. No, all that's that's a good observation. So our calculated billings on a quarter to quarter basis are volatile and we saw that last year. And the point I was trying to make is we're expecting to see that volatility again this year, although I will say it might be muted a bit. In other words, the volatility be a little less than what we saw last year, which is I think it's a welcome to all of us in that regard. But I think in terms of a consistent pattern where the strengths of last year will match the strength, our vision.

Nehal Chokshi

Okay. So despite basically a year ago, tough compare you'd still expect that to be strength on a year-over-year basis?

Andres Reiner

Yes.

Stefan Schulz

So I think in terms of our total revenue, we plan in calculated billings being in that same ZIP Code just like it was last year?

Nehal Chokshi

Yes. Okay. And then why are you expecting a deceleration of subscription revenue for Q2?

Stefan Schulz

It's really related to timing of recognition. So we were able to pull a little bit of revenue forward on the criteria we're actually required. And so it was a little faster than what we had originally modeled. And so we we had a little bit of a beat in Q1 as it relates to that.
And so that had a had an impact on the second quarter number. And we see that throughout our history. There are times when we'll see a concentrated amount of recognition occur in one quarter versus another. But as I was talking earlier, our visibility allows us to see how this year's going to unfold. And we're expecting to see that number increase again in the second half of the year.

Nehal Chokshi

And that sooner than expected recognition of some incremental subscription revenue within a quarter that had to do with the strong billings that you saw in Q4, we had strong bookings rather because of that strong ARR that you put up there.

Stefan Schulz

Well, yes, but I wouldn't I wouldn't say it's a direct correlation. It just happened to be the transaction that was recorded in the fourth quarter that we were able to accelerate the recognition on basically the delivery happened a little faster than what we had what we had assumed.

Nehal Chokshi

Great. Thank you very much. Congrats.

Andres Reiner

Thank you.

Operator

Victor Cheng, Bank of America.

Victor Cheng

Hi, Andreas and Stefan. Thanks for taking my questions and congrats on a solid quarter again. Maybe first on a I can give us some color on how your Gen four AI. has been resonating with customers and what's the adoption rate right now?
And then more broadly, how should we think about whether generative I would change the playing field. Obviously, you've now integrated with copilot, and you've talked a lot about we are the opportunities with Microsoft copilot for sales. How should I think about maybe future plans on leveraging Genesis AI capabilities in into your portfolio?

Andres Reiner

Yes. Great questions. So in terms of Gen four AI, I think has been transformative for the market. I would tell you that all the deals we're winning, where there's less fraud or we're seeing an expansion at cargo lux or any of the deals I talked about, you know, the Gen four technology is a very big leap compared to or Gen three technology, and it's resonating really well, especially in these type of markets where you have high volatility, you can't go with that typical segmentation based on pure historical data and as many companies have in the marketplace. So that continues to play a big role.
Generative AI. one of the really transformative parts of or AI platform is our ability to and fumble multiple algorithms and L. and lands in Q2, including our you know, the OpenEye technology that we're using with Microsoft. It allows us to leverage those for the right use cases. So think of a sales, assistant type of technology, pricing, assistant type of technology, those are where we're leveraging LLM.'s technology and we'll continue to do so as well as many aspects of our business.
But it's a combination of many types of algorithms that we're bringing to bring a higher level of intelligence as to our solution and continue to transform our, you know, the AI space. So I think we're very excited about being able to leverage all of these different types of AI algorithms for the right problem areas, and we'll continue to innovate very closely with Microsoft, especially on the generative AI front.

Victor Cheng

But I think you and maybe one follow-up on share-based comp I know it's a bit higher for Q1 and for full year as well. Can you give us some color on that? Is there any kind of wage inflation that we are we should be factoring in a bit more?

Stefan Schulz

No, that, Tom, that's a timing of some accelerated expense that we took in the first quarter. It's basically going to take expense away from the rest of the year. So what you should see is as the year unfolds, our percentage of stock-based compensation expense should actually decline year over year from about 14% a year ago to about 13% this year. It's really more about the acceleration of some of that that occurred in the first quarter and you'll see the benefits throughout the rest of the year.

Victor Cheng

Very clear. Thank you.

Stefan Schulz

Thank you.

Operator

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.

Belinda Overdeput

Thank you for listening to today's call. We look forward to speaking with you at conferences and events this quarter. As a reminder, we'll be hosting our 2024 outperformance PROS Conference on May 20 to 22 in Orlando, Florida. We will host a session for investors and analysts at the conference at 8 AM Eastern Time on the 22, which will include a customer panel and executive management panel registration is open on our website or the conference.
The investor and analyst session will be streamed live virtually from the Investor Relations section of our website and available thereafter.
For those who cannot attend the conference in person, we will also be attending the Needham Technology Media and Consumer Conference on May 15 in New York City, the Craig-Hallum Institutional Investor Conference on May 29 in Minneapolis, the Stifel Cross Sector Insight Conference on June 4 in Boston and the Baird Consumer Technology and Services Conference on June 5 in New York City and the Bank of America Technology, Media and Telecommunications Conference on June 12 in London.
If you have any questions following today's call, please contact us at ir@pros.com. Thank you and goodbye.