PROS Holdings, Inc. (NYSE:PRO) Q1 2024 Earnings Call Transcript

PROS Holdings, Inc. (NYSE:PRO) Q1 2024 Earnings Call Transcript May 11, 2024

PROS Holdings, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Greetings. Welcome to the PROS Holdings First Quarter 2024 Earnings Conference Call. At this time, all participants will be in listen-only mode. The 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, 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. Good afternoon, everyone, and thank you for joining us on today’s call. We delivered a strong start to 2024, 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 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 AI 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 Plugin in partnership with Microsoft. In today’s environment, customers place a premium on speed and efficiency, and research shows that 35% to 50% of sales go to the vendor that responds first.

The PROS Copilot for Sales Plugin seamlessly integrates PROS AI-powered quote insights into Microsoft Copilot for Sales, empowering sellers to deliver fast, personalized offers to customers directly from email threads. PROS is the first vendor to integrate quote insights into Microsoft’s Copilot for Sales, uniquely harnessing the power of data from across PROS Smart CPQ, Microsoft 365 apps, and CRM platforms to drive AI- powered offers that win. Our 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, ECE Group and Les Schwab made the strategic decision to adopt the PROS Platform. ECE Group, a global leader in real estate management, chose to activate Smart CPQ to power offers for their retail rental spaces to accelerate time-to-quote and drive a 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 welcomed Air India as a new PROS customer in Q1. Air India selected the PROS Platform to activate our 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 onto some of our incredible expansions in Q1. Hyatt has expanded its use of Offer Marketing on the PROS Platform to continue to drive exceptional experiences for their guests through optimized and personalized marketing campaigns.

The new innovations enable Hyatt to enhance customer acquisition strategies by launching customizable pages at scale across all digital campaigns. Air Baltic, the flag carrier of Latvia, expanded their use of the PROS Platform by activating Dynamic Ancillary Pricing. Airlines around the world are increasingly focused on driving revenue growth through ancillaries, and PROS has the only AI-powered solution in the market for ancillary pricing. PROS DAP 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 PROS initial estimates, DAP is expected to drive 2% to 6% revenue uplift through AI-powered dynamic pricing. With DAP, Air Baltic has already seen revenue uplift on assigned seating, which is one of their largest ancillary revenue contributors.

Cargolux expanded their use of the PROS Platform by activating our Gen IV AI Price Optimization including our Capacity-Aware Optimization. With this expansion, Cargolux will take advantage of our latest AI innovations to drive even more value as they continue to use the PROS Platform to power their omnichannel sales motion. We are so proud to see how the PROS Platform is helping businesses across industries and around the globe drive immense value. You will hear more from our customers directly and learn more about the new AI innovations we are bringing to market at our upcoming Outperform with PROS conference. Now, onto our recent organizational update. We welcomed 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.

Todd’s leadership will amplify our growth momentum, building upon our land, realize, and expand strategy. I’m excited to welcome Todd to the team and I’m enjoying working closely with him on our growth objectives. Lastly, our core values of ownership, innovation, and care show up in 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 can 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, our customers, and 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, Andres, and good afternoon, everyone. It has been almost one year since we outlined our 2026 financial objectives, and I am pleased with the progress we have made during that time, including the 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 result. I mention this because we typically see our best adjusted EBITDA and free cash flow results during the second half of each year. Now 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 am 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 $64.0 million to $64.5 million, representing 12% growth at the mid-point. 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 out-sized 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 2 percentage points. We expect second quarter adjusted EBITDA of between $1.0 million and $2.0 million, an improvement of $1.4 million year-over-year. We are expecting an increase in 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 mid-point.

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 $17.0 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. I will now turn the call back over to the Operator for questions. Operator?

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Q&A Session

Operator: Thank you. At this time we will be conducting a question-and answer session. [Operator Instructions] The first question will come from Scott Berg with Needham. Please go ahead.

Scott Berg: Hi everyone. Congrats on the nice quarter and nice to see the profitability improvements. A nice, steady year-over-year trend there. Andres, I wanted to ask a question and I actually feel kind of weird about asking is, it’s on your new Copilot functionality that you announced. It’s only weird because I want to ask you how you monetize AI or how you plan to monetize new AI technologies knowing that you’ve been monetizing AI 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 ARPU for customers across there, or is it really more about embedding this functionality to create further differentiation of the platform?

Andres Reiner: Great question, Scott. We’re very excited about the Sales Copilot 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 email response, with the right quotes powered by PROS creates a significant differentiation in the market. I think this, one and foremost, it allows differentiation for our platform and the ability to now extend email threads all the way through being able to dynamically create a quote powered by PROS and a lot more adoption of our solution in the market.

So, see anybody that buys Sales Copilot can now embed PROS CPQ and have AI-powered deals right there in their fingerprint. We see this as a big opportunity to continue to innovate with Microsoft in something that helps us drive our strategy of landing more deals, realizing value and driving more expansions.

Scott Berg: Got it. Helpful. Thank you. 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 if you were 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 when A. Reiner has been running sales. What does Todd bring to the table that’s different than 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: Great question, Scott. Look, I’m really excited to have Todd in the 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, realize, expand strategy and our platform was to 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 very clear experience in significantly scaling sales organizations. 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 B2B and B2C converge. You’re seeing a lot of our wins that we’re talking about, they’re not just traditional B2B stories. They are B2B with B2C and direct to consumer strategies as well. So we’re seeing more of unified platform in our go-to-market and abilities to really bring our sales go-to-market team to drive more efficiency and scale as we move forward. So I’m really excited. Todd and I are going to be working closely together. We’re aligned on this strategy. It’s not about changing our strategy. It’s about really amplifying that strategy and really setting us up for ’25 and ’26. So, I could tell you I’m really excited and what he brings different is very strong sales go-to-market background.

Scott Berg: Understood. Congrats on the nice quarter again and thanks for taking my questions.

Andres Reiner: Thank you.

Operator: The next question comes from Parker Lane with Stifel. Please go ahead.

Matthew Kikkert: Hi everyone. This is Matthew Kikkert on for Parker. Thank you for taking my questions. First, last quarter 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: I would say it’s been consistent. We’re continuing to see the improvement remain the same, so no changes. And so right now no real changes from what we’re seeing. We’re seeing them continue to maintain.

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

Andres Reiner: Yes. Great question. I will tell you right now the marketplace is still in the infancy, in the creation. But what I’m really excited is the opportunity to have new solutions in that marketplace that can be activated with 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. I think that over time the opportunity that we have with the marketplace is getting our customers to adopt a lot of these solutions to trial and adopt them in a much faster way. So we’re very, very excited about the marketplace. 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, see this increasing quite a bit as we get to our 2026 goals.

Matthew Kikkert: Terrific. Thank you.

Andres Reiner: Thanks.

Operator: The next question is from Patrick Schulz with Baird. Please go ahead.

Patrick Schulz: Hey guys, thanks for taking my question. I guess maybe starting off on travel. I think last quarter you called out you had started to see some nice momentum in that business and it seems like it’s continued this quarter. Could you maybe frame how the recovery path has trended relative to expectations? 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: Great questions. I would say travel continues to drive improvements. I would say typically in the year early on travel tends to be more back-end loaded, not early-loaded in the year, but we are seeing good wins, both in net new and existing expansions. But we’re still seeing B2B drive the growth. So, make no mistakes about that. B2B is continuing to drive the growth. Travel is continuing to improve but we expect that similar to last year back end be stronger than the front end. Overall, in terms of sales cycles times, in travel they’re still not back to the pre-COVID years. But from a deal growth, we are seeing very good deal growth. In B2B we’re seeing better improvement on deal cycle times and continuing to see that as the main growth driver for the business.

Patrick Schulz: Okay. Very helpful. Maybe a quick follow-up for Stefan to, just on financials.

Andres Reiner: And then one quick thing on the…

Patrick Schulz: Go ahead.

Andres Reiner: One quick thing on the new versus existing, we expect that to be for the year, that 50/50 split. We’re continuing to see strong new logo wins as well as expansions. Think of that obviously B2B driving more new logo wins. Travel strong on the expand. But I would say we are very pleased with expansions in the quarter, both in B2B and travel.

Patrick Schulz: Great. Appreciate the color there. Stefan, maybe just on subscription revenue for the year. You posted a strong start to the year. I think you beat Q1 guidance by about a million dollars, but 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 beat? Has anything changed from a broader macro perspective since last quarter?

Stefan Schulz: 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, we had a little bit of a benefit from a timing perspective in terms of how 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. That’s why we had a bit of a beat in Q1, was really moving some revenue up, which we’ll always take when we can. That’s why there was $0.5 million of that full million dollars that was reflected in the beat. As it pertains to our views for the rest of the year, as I said earlier, we don’t really see anything change at 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 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’s really changed. We’re very happy with where we sit as of today.

Patrick Schulz: Perfect. Appreciate the color. Thanks for taking my questions.

Andres Reiner: Thank you.

Operator: The next question is from Brian Schwartz with Oppenheimer. Please go ahead.

Brian Schwartz: Hi. Thank you for taking my questions today. Andres, can you talk a little bit more just about the sales productivity and the bookings that you had in Q1? 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 maybe if you can just provide a little insight into the productivity in Q1.

Andres Reiner: Yes. So, overall we’re seeing pretty consistent sales cycle times. I did say we’ve seen some improvement from a B2B perspective, but overall it’s remained pretty similar. In terms of how the year is turning out, it’s turning out pretty much how we expected. So I wouldn’t say — we’ve always been a back-end loaded, 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 overall in terms of our efficiencies. And our win rates continue to improve.

Brian Schwartz: Thank you. Then the follow-up question, I wanted to ask about, also about the Microsoft Copilot integration. Is it 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: Yeah, absolutely. There is no doubt. Microsoft and us are planning to market. This has been the first partner that innovated on this. It is really, really important. And there aren’t many AI solutions that produce this much revenue and margin uplift with quantifiable value that help transform the sales process. I think 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 the Sales Copilot that’s unique — and I think it’s been very clever on the Microsoft side — is this 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 salesforce and Microsoft. So I think it really can unify the way that sales reps sell, and us to be right there to help the reps respond faster and drive higher win rates at better margin and revenue is a very high ROI use case.

Brian Schwartz: One question for Stefan. I just want to ask you about how you’re feeling about the visibility to the second half now that you’re one quarter into the year. I know last quarter you felt that the visibility wasn’t as strong for the back half of the year. I’m just wondering how you’re feeling today, if that has at all improved now that we’re one quarter into the year. Thanks for taking my questions.

Stefan Schulz: Yeah, Brian. It has improved a bit. Being 90 days further down the line, we have a better view in terms of things like 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 is 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. I can also say that similarly 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 just a point and color on that, as we look at the full year, you look at the mix last year of first half, the second half and how that unfolded, we’re expecting subscription to be somewhat similar this year.

A similar ratio, if you will, first half to second half, and 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. We’re starting to get a better feel for how the year is going to shake out and that’s the color we can give at this point in time.

Brian Schwartz: Thank you.

Operator: The next question is from Jason Celino with KeyBanc Capital Markets. Please go ahead.

Jason Celino: Great. Thanks for taking my question. Andres, a bit of a philosophical question actually. I think several months ago there was a fast food chain that was looking at real-time pricing its menus. I don’t think it ended up going through with that plan, but kind of shows you 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 trends, especially for the industries that you serve today, what might you be talking about three to five years out?

Andres Reiner: I would say, look, the adoption of dynamic pricing algorithm, especially for the B2B industries, which is over $30 billion of the TAM opportunity, is huge. I mean the adoption is still low. And it’s a great example to have Les Schwab, for example, this quarter. That’s one of the very important criteria in them selecting PROS is really to power their over 500 retail stores with real-time pricing. So we see this use case applying very broadly in the B2B space. And more important than ever to compete and win. I think a lot of the challenges that companies are having is when their products are changing pretty dramatic. So they configuration aspects of the products and personalization criteria they have. So recommending the right offer.

Second is the right price of which they can win. That is in real time. That is adopting to market changes. I would tell you, look, a large percentage of the wins we’re having is because of these real-time capabilities. And our conviction of the growth opportunity and the 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 and can be pure machine run with very significant revenue margin uplift. 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.

Jason Celino: Nice to hear on the Les Schwab side. That’s a company in my neck of the woods, so that’s good to see.

Andres Reiner: Yes. We are very excited about it.

Jason Celino: Then one quick one for Stefan. Business linearity, I guess how did kind of sales execution, business pipeline, closed deals, how did that kind of fare throughout the quarter? Was it all fairly consistent?

Stefan Schulz: Yes, I’d say fairly consistent. It always leans heavily towards the third month and that’s pretty typical. Even when we talk about linearity, linearity is assuming a certain percentage in Month 1, Month 2 and a bigger percentage in Month 3. 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: The next question is from Nehal Chokshi from Northland Capital Markets. Please go ahead.

Nehal Chokshi: Thank you and congrats on a strong quarter here. However on billings growth, Stefan, you mentioned that that was in line with expectations, was up 3% year-over-year and then you also said that you expect billings throughout to be consistent with the trend of last year. I’m not too sure what you mean by the trend of last year because that trend from last year was volatile on a year-over-year basis. Can you just give a little bit more color there on what you mean there?

Stefan Schulz: Yeah, Nehal, that’s a good observation. 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 are expecting to see that volatility again this year, although I will say it might be muted a bit. In other words, the volatility will be a little less than what we saw last year, which I think it’s welcome to all of us in that regard. But think in terms of a consistent pattern where the strengths of last year will match the strengths this year.

Nehal Chokshi: Okay. So despite basically a year ago touch compare, you’d still expect that to be strength on a year-over-year basis?

Stefan Schulz: Yeah. So, think in terms of our total revenue plan and calculated billings being in that same zip code, just like it was last year.

Nehal Chokshi: Got it. Okay. Then why are you expecting a deceleration of subscription revenue for Q2?

Stefan Schulz: It’s really related to timing of recognition. We were able to pull a little bit of revenue forward. The criteria actually required it, and so it was a little faster than what we had originally modeled, and so we had a little bit of a beat in Q1 as it relates to that. That had an impact on the second quarter number. 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 is going to unfold and we are expecting to see that number increase again in the second half of the year.

Nehal Chokshi: That sooner-than-expected recognition of some incremental subscription revenue within the quarter, did that have to do with the strong billings that you saw in Q4? Strong bookings, rather, because of that strong ARR that you put up there?

Stefan Schulz: Well, yes, but I wouldn’t say it’s a direct correlation. It just happened to be a 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 assumed.

Nehal Chokshi: Great. Thank you very much. Congrats.

Andres Reiner: Thank you.

Stefan Schulz: Thank you.

Operator: The next question is from Victor Chang with Bank of America. Please go ahead.

Victor Chang: Hi Andres and Stefan. Thanks for taking my questions. Congrats on a solid quarter again. Maybe first on AI, can you give us some color on how your Gen IV AI has been resonating with customers and what’s the adoption rate right now? Then more broadly, how should we think about whether generative AI will change the playing field? Obviously, you’re now integrated with Copilot and you talk a lot about the opportunities with Microsoft Copilot for sales. How should I think about maybe future plans and leveraging generative AI capabilities into your portfolio?