Participants

Belinda Overdeput; Head, Investor Relations; Pros Holdings Inc

Andres Reiner; President, Chief Executive Officer, Director; Pros Holdings Inc

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

Jeff Van Rhee; Analyst; Craig Hallum

Unidentified Participant

Parker Lane, J.; Analyst; Stifel Nicolaus and Company, Incorporated

Jason Celino; Analyst; KeyBanc Capital Markets Inc.

Robert Oliver; Analyst; Robert W. Baird & Co., Inc.

Victor Cheng; Analyst; BofA Global Research

Nehal Chokshi; Analyst; Northland Securities

Brian Schwartz; Analyst; Oppenheimer & Co., Inc.

Presentation

Operator

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

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 in 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 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.
I'm incredibly proud of our team's achievement in 2024. Highlighted by an outstanding second half performance that was capped off by a strong fourth quarter in Q4, we delivered 14% subscription revenue growth and 10% total revenue growth bringing us to 14% subscription revenue growth and 9% total revenue growth for the year. Additionally, we delivered approximately $30 million in a just after the year, an impressive 400% improvement compared to 2023.
We also expanded our free cash flow margin by 4% points year over year, achieving an 8% free cash flow margin for the year. Our second half results reflect our team's strong execution and our continued momentum as a market leader setting a solid foundation for continued growth in 2025 and beyond our AI driven approach or relentless focus on innovation in our continued execution to our land and expand strategy are driving our success.
We've always embraced the power of AI. In 2024, we continue to elevate our approach by making AI an even stronger pillar of our strategy, embedding it deeper into our internal operations and driving transformative impact across the business.
From accelerating product development to automating key aspects of the commercial process, to streamlining project delivery through automating data onboarding and test case generation.
These initiatives drove tangible results. We achieved a record high non-GAAP subscription gross margin of 81% in Q4 while processing 4.4 trillion transactions in our platform in 2024, a 29% increase in volume year over year.
Additionally, for the third consecutive year, we achieved double digit improvements in customer time to value when it comes to our platform, we continue to set the pace of innovation in our markets, releasing over 560 new features across our platform in 2024.
These include new solutions such as smart rebate management A gente AI innovations such as dynamic ancillary pricing and embedded generative AI capabilities across our platform such as the recent launch of our Fair Finder genie in Q4.
Fair finder genie brings to life. The next generation travel agent using generative AI realtime fares. This solution offers a tailored flight search experience resulting in itineraries that match customer preferences.
Modern airline retailing needs innovation like ours to continue to inspire travelers and drive higher conversion of sales or innovation. Leadership continues to be recognized by major industry analysts.
I'm proud to share the process once again, they named the leader in the latest Gartner magic quadrant for configure price quote applications making one of the most significant upward moves in achieving our highest leadership ranking in the valuation.
To date, this success highlights our deep and broad platform capabilities along with our expanding market presence. PROS was also recently named a leader in the IDC marketscape for worldwide configure price quote applications recognized for or a ID driven innovations including our advanced pricing capabilities in seamless integration with key ecosystem partners.
PROS also earned idcs 2024 CS CPQ customer satisfaction award. This award is the result of a global survey of 2,500 organizations evaluating vendors across approximately 40 customer satisfaction metrics. PROS ranked among the highest for customer satisfaction in the CPQ application market with recognition for ease of implementation and user experience process has now earned a leader ranking from every key industry analyst evaluation specific to our solutions.
Our success is further evident by the amazing new customers who selected PROS in Q4.
We continue to see strong new customer wins across our target industries including Brady plus HBK and Warner Electric, among many others, Brady plus a national distributor of food service, packaging and sanitation supplies, selected the PROS platform to drive winning offers across the diverse industries. They serve in fuel revenue growth.
HBK, a global leader in testing and measurement technology. Selected the PROS platform to optimize pricing and drive a better customer experience.
Werner Electric, a leader in electrical supply distribution also chose the PROS platform to streamline their pricing strategy and fuel profitable growth.
We also continue to win new logos in the travel space. Further expanding our leadership as the trusted partner for over 170 airlines around the world, which together represent more than 52% of the global passenger volumes.
Fast Jet is South African hybrid carrier selected PROS in Q4 to enhance brand visibility and drive higher conversion of bookings through PROS offer marketing.
Meanwhile, multidecade customers, Air Canada and Lufthansa continue to deepen their innovation with PROS Air Canada chose to adopt dynamic offers to power continuous pricing across meta search and distribution channels. Gaining an advantage on the price performance curve for the heavy traffic driven by these channels.
Lufthansa group chose to adopt our dynamic cancel pricing solution and expand shopping and pricing.
These wins reinforce pro's position as a trusted innovation partner delivering the most advanced AI power solution to drive measurable revenue growth at scale.
Holcom expanded its partnership with PROS by adopting smart rebate management. Holcom will will optimize and automate rebate program management with end to end visibility.
This solution will enhance Holcomb's rebate program to plan powerful incentives to drive growth and deliver a better customer experience through seamless alignment on incentives and achievement.
In 2025 we're focused on building upon the three strategic pillars that have driven our success.
First or land and expand strategy will remain central to how we continue to capture the incredible market opportunity in front of us. Second, we will continue to work closely with our partner ecosystem to accelerate our joint growth strategies. And third, we're doubling down on AI as a transformative force to be the model AI native company deeply embedding it into our platform and operations to drive innovation efficiency and deliver unmatched value to the market.
We have the best team, the best solutions and amazing customers who are driving immense value with our platform.
We're in a very strong position and I look forward to a successful 2025 in closing. I want to thank our entire team for their incredible dedication and commitment to PROS our customers and our communities.
I'd also like to thank our partners and shareholders for their continued support of PROS.
I'll now turn the call over to Stefan to cover our financial performance and outlook.

Stefan Schulz

Thank you, Andres and good afternoon, everyone.
We closed 2024 on a high note, fueled by strong bookings across all our core industries including our travel business.
Our team did amazing work throughout the year. We were able to drive our strategic growth objectives while transforming our business through operational efficiency.
We achieved a record high and non-GAAP gross margin as a SaaS business from significant contributions from both our subscription and services operations.
The improvements were so significant that the year over year dollar improvement in non-GAAP gross profit was actually greater than the dollar improvement in total revenue.
Similarly, we added $0.90 to adjusted EBITDA for every incremental revenue dollar generated in 2024.
In 2025 we will continue to drive operational efficiencies in our business, but we will also increase our go to market investments to build on our momentum coming out of 2024 and further fuel our growth in R&D. We anticipate driving more efficiency improvements with the help of AI while accelerating our innovation road map in G&A, our global infrastructure positions us well to drive more leverage as we continue to win new customers around the world through our land, realize and expand strategy.
Now I'll cover our results in a little more detail.
Subscription revenue in the fourth quarter was $69.3 million increasing 14% year over year and then $266.3 million for the full year. Also increasing 14% year over year total revenue in the fourth quarter was $85 million increasing 10% year over year and $330.4 million for the full year. Increasing 9% year over year recurring revenue for the fourth quarter and the full year was 85% of total revenue an increase from 84% reported last year.
Our trailing 12 month gross revenue retention rate continues to be better than 93%.
Our subscription arr was $283.7 million increasing 10% year over year on a constant currency basis.
Subscription arr on an as reported basis was $281.5 million which was negatively impacted by about a percentage point due to the strengthening us dollar.
Our fourth quarter, recurring calculated billings increased 25% year over year and 11% for the trailing 12 months ahead of our expectations and demonstrating the strength we saw in the quarter.
We also set a new all time high as a Sass business for our non-GAAP subscription gross margin.
Non-GAAP subscription gross margin was 81% in Q4 and 80% for the year increasing from 78% in 2023.
And non-GAAP services gross margin was 16% in Q4 and 11% for the full year. An improvement from 5% reported in 2023.
As I mentioned earlier, these improvements in non-GAAP subscription and services margins allowed us to set a new all time highs as Sass business for total non-GAAP gross margin of 70% in Q4 and 68% for the full year, which is an increase from 65% reported in 2023.
We delivered adjusted EBITDA of $10.9 million in the fourth quarter. Significantly outperforming guidance and resulting in $30 million of adjusted EBITDA for the full year. An improvement of $24 million compared to last year, we generated $23.5 million in free cash flow in the fourth quarter and $26.2 million in free cash flow for the year. Significantly outperforming our guidance and an improvement of $14.8 million compared to last year.
We exited the year with $172 million in cash and investments. Our non-GAAP earnings per share for the fourth quarter was $0.16 per share. Bringing us to a non-GAAP earnings per share of $0.41 per share for 20 for 2024.
As we look to 2025 we are positioned to deliver another year of double digit subscription growth while also expanding profitability.
Here's our guidance with the stated growth rates and improvement amounts at the midpoint of the ranges for the full year. We expect subscription arr of 308 to $311 million representing 10% growth year over year.
We anticipate full year subscription revenue to be in the range of 294 to $296 million representing 11% growth year over year and total revenue to be in the range of 360 to $362 million representing 9% growth year over year. We anticipate full year adjusted of between $42 million and $44 million representing an improvement of $13 million year over year and free cash flow in the range of $40 million to $44 million, an improvement of $15.8 million year over year.
Our business typically experiences lower free cash flow in the first half of the year, followed by stronger free cash flow in the second half of the year. With Q1 being the seasonal low point. We expect this trend to continue in 2025 though to a lesser degree. We're expecting a 20, 80 cash generation split between the halves compared to last year's 5, 95 split.
Turning now to guidance for the first quarter of 2025 we expect subscription revenue to be in the range of $70.25 million to $70.75 million, representing a 10% increase year over year and total revenue to be in the range of $85 million to $86 million, representing a 6% increase year over year.
With the recent improvements in our travel business subscription revenue from these travel bookings is expected to increase throughout 2025 which is factored into our full year guidance ranges.
We expect first quarter adjusted of between $7.5 million and $8.5 million which is an improvement of $3.4 million over the first quarter last year using an estimated. non-GAAP tax rate of 22%. We anticipate Q1 non-GAAP earnings per share at 10 to $0.12 per share based on an estimated 47.9 million diluted weighted average shares outstanding in closing. I want to thank our employees for their hard work and dedication as well as our shareholders for their continued support.
With the momentum we've built in 2024. I'm confident we will deliver a successful 2025. I will now turn the call back over to the operator for questions, operator.

Question and Answer Session

Operator

(Operator Instructions)
Jeff Van Rhee, Craig Hallum.

Jeff Van Rhee

Congrats on that free cash flow just both in the year and in the guide looks great. Maybe if I could just start with the travel side of the business, you talk a little bit more about the turn. Actually, you're talking about a return to growth here. But can you give maybe a little more color on two aspects? Just what kind of growth rates are conceivable for travel in this four year, sort of low and high end and then just at a minimum, at least a little qualitative commentary on sort of the return to health of the airline industry and what you learned in the last 90 days.

Stefan Schulz

Well, I'll take the first part and I'll let and take the next part. Yeah, to your point, we were happy to see our travel business, start showing signs of solid improvement in the fourth quarter and right now we're planning for that to happen in 2025 as well. We've talked Jeff quite a bit about travel overall being a call it AI call it a below 10s growth rate on a steady state.
We feel like we certainly and capable of generating that type of growth, I think to your point though, in as we start to see that from a booking standpoint, we should start to see that growth rate starting to materialize, I would say, as we exit or as we progress through this year.
So you'll see our subscription growth start to accelerate as we go from first quarter all the way through the fourth quarter. And a lot of that's going to be on the heels of what we're doing from a travel perspective.

Andres Reiner

And then the other part that I would add is in general, we're seeing the areas around offer optimization being key areas that, that we're seeing the market really embrace both. Thinking about, for example, in Air Canada, I talked about them implementing dynamic offers and continuous pricing for MC channel.
These are very strategic areas for them to capture revenue growth as they're constrained with capacity. Now that we're seeing very very strong passenger volumes, they want to optimize both the revenue as well as the ancillary revenue.
Lufthansa is another great example, adopting DAP dynamic ancillary pricing solution and really trying to continue their trajectory around the full offer optimization. So in general overall, we're seeing the travel industry in a better place today, you probably see many of the major us airlines talk about the year as a positive year. Also the investment in people in programs inside. We're seeing those start to get activated. A big big area of focus around offer optimization.

Jeff Van Rhee

And and then second, maybe if I could from a sales standpoint, Todd came in, I guess mid last year, early part of last year and this might be the first full clean reset, he's got going into a new year. How are you approaching from a sales leadership standpoint? The managing to drive the outcomes you want, but avoid disruption. And I'm obviously thinking specifically about quotas and territories, et cetera. Just talk about this transition and the new year and what might be changing and how you're managing it.

Andres Reiner

Yeah, great question, Jeff. I would say, look, I'm extremely proud of the whole sales leadership, the level of execution, not just at a quarter level but our weekly goals, monthly goals to quarterly goals, how we're executing all the way from demanding to sales to our delivery teams and customer success. We have a full customer life cycle alignment and in an incredible execution engine.
So I would say I'm very, very pleased with the programs we put in place last year around a regional focus and getting closer to our customers in the market. And that's working as we head into this year, we're doing more surgical, not big changes because all of the changes were done last year is really accelerating the programs that we started last year.
One new area is we are actually moving our customer success organization beyond the adoption and renewal into expansion. So our CSN teams going into this year are going to own quota around expansion as well beyond just the adoption value generation and renewals, which they've traditionally focused with very close alignment with the full sales go to market teams.
The other area that we're focused is now that we have our land, realize and expand, working well. We're continuing to put focus on our partner channel and accelerating our partner channel. But with real big focus on key partners that are going to help us accelerate our growth. So I would say those are the key areas that we're focused this year.

Operator

(Operator Instructions)
Scott Berg, Needham & Company.

Unidentified Participant

This is Rob on for Scott and congrats in the quarter.
You announced some expansions and renewals in the travel business over the past couple of weeks along with those in the press release today. Can you just touch on maybe the operational environment for these airlines? Have you noticed any improvement from the personnel perspective that drove some of the headwinds over the second half of last year? Thanks.

Andres Reiner

Yeah, Rob. Great question. Yeah. Overall, we've seen definitely an improvement in operational and in strategic focus around new initiatives. You've seen we've had not just renewals but quite a few expansions as well and an acceleration of programs that frankly we were working on last year that finally got accelerated in the fourth quarter.
And as we look at, this year, we're continuing to see good momentum on the on the travel industry in the strategic areas that we've invested. So overall, we've seen a meaningful improvement in that environment.

Unidentified Participant

And then, last quarter, obviously, there was a big announcement surrounding some changes in leadership. You know, any updates you guys have on the on the search for a new CEO.

Andres Reiner

Yeah, so it's progressing exactly how we expected. As we said, we're going to take our time and be very intentional through this process to ensure we have the best candidate as well as a very well orchestrated process and it's progressing as expected, nothing really new to report.

Unidentified Participant

Congrats on the quarter again.

Operator

Parker Lane, Stifel.

Parker Lane, J.

And you talked about some of these AI Powered Solutions particular Fair Finder genie. I just wanted to get some updated thoughts on how you're thinking about including some of these generative AI solutions as part of the broader platform versus standalone opportunities to monetize. Where are you at in that evolution of that journey from a commercialization standpoint?

Andres Reiner

Yeah, great question, Parker. I'll tell you, look, we have within our platform. As you know, we have a gene generative AI capabilities core to the platform, my belief and it's been our belief at PROS really the value of solutions in AI is when the AI is at the center of the solution, not just an ancillary component.
So we're really looking at embedding it across every capability poor to each product solution that's adding a significant value to an end customer, whether it be revenue uplift, margin, uplift or efficiency gain. And you're going to see as we head into this year, an acceleration of innovation around this notion of egen AI to bring more and more of these solutions, but embedded within the products and solutions that we have to either help people accomplish goals faster or helping a full autonomous ways. Like we do for dynamic ancillary pricing as an example to power real time channels.

Parker Lane, J.

And maybe one for you on the subscription growth margin. Congrats on the solid improvements there. You know, in the context of your long term targets, any updated view on how much of that will come as a result of further improvements off of this 80.7% I believe the number was performance in 4Q.

Stefan Schulz

Yeah, Parker, I think I'm on record as saying, I didn't think that was possible, just a few quarters ago and I'm not going to put any sort of limitation what our engineering team can do anymore. So I do think there's some upside and we've actually had some conversations about some of the innovation that that the team is doing and, and some of the efficiency that they're writing into the code.
And so there is an opportunity to do more. Obviously, the opportunity is not quite what it used to be. But no, I think, I think it's something we can see 82 maybe even 83 at some point. So I'm not going to put a cap on them anymore.

Parker Lane, J.

Well, good work there. Congrats again.

Andres Reiner

Thank you.

Operator

Jason Celino, KeyBanc Capital Markets.

Jason Celino

Maybe just a couple. So subscription growth in Q4 was very strong, right? 14%. But when I look at the Q1 guide, it's deselling the 9.5%. I guess why would that be? I guess any? And maybe just that question first.

Stefan Schulz

Yeah. So Jason, what we saw in the first quarter was some of the bookings that we had. We talked about some of the travel recovery and seeing some stronger bookings, some of those bookings or a lot of those bookings actually are having a little bit of a from a recognition perspective. So we'll start to see that as we go in and progress through 2025.
And so that's part of it. I would also tell you currency had an impact, currency had about a 1% point impact just given what's happened in the last, call it two months in terms of the FX market. So that's part of it as well. But I think you're going to see subscription revenue, respond nicely throughout the year. Based on the bookings we had in the fourth quarter and obviously what we're expecting in the first part of 2025 as well.

Jason Celino

And then I think this is more for your B2B business, but if we look back, five to eight years ago, tariffs seem to be in the news a lot, obviously, it's very fluid. But how does that impact your customers spending habits? Is it like a near term distraction or does it just add to the complexity and need? I guess how, what did you see for five, six years ago?

Andres Reiner

Yes, Jason, great, great, great question. I think this is just in the same realm as in general, the constant volatility change. And if you think about it today that need the requirement to have real time technology is even greater because if you think about any changes to tariffs that may happen, you have to be very quick and very surgical, how you drive price change.
So the need for this is even more strategic. And as companies are realizing the volatility, as I've always said is really here to stay between currency shifting potential risk of tariffs, the complexity of pricing has only amplified and the need to have, in AI power pricing is, is really critical. In addition, we've also put B articles to help our customers as well with leadership around this.
But this is an area I can tell you from talking to many of our customers top of mind and something that I think for our customers, they're very happy that they have technology like PROS to be able to address. I think for the broader market, I think it's a risk if you're on Excel and manual, how you're going to manage the market with this level of uncertainty and volatility. So it can be actually helping us from a growth perspective.

Operator

Rob Oliver, Baird.

Robert Oliver

And Andres, first one's for you. So it really seems like we're in an exciting time here for revenue management. I know historically, you guys have said that, one of the kind of maybe barriers to growth was that a lot of your airlines and customers kind of viewed you guys as like a closely held secret because and not something that they wanted their competitors to have.
Now, it seems like, all of the big airlines are talking about generative AI know sometimes doing pilots with a native companies, talking about the importance of revenue management. So I'd just be curious to hear from you coming into this year.
And obviously, you guys are guiding for an improvement in those travel bookings throughout the year. But if you've seen any change in the market relative to your opportunity to get shots on goal, given this new focus on this market, perhaps even with some of the bigger airlines where you guys, traditionally, maybe have not cut business. And then I had a quick follow up for Stefan.

Andres Reiner

Yeah, no, great, great question. I would say yes, I mean, we see a lot of opportunities. I think it's top of mind. And I&I would say airlines are really focused on two areas. One how they're optimizing the right to fly, think of that as the revenue and then how they're optimizing ancillaries and thinking about the future full offer optimization. And I can tell you, I've been quite a bit out on the road as the rest of our team.
And in that, we hear loud and clear and I think they're all looking at some of technology like PROS like or request specific pricing or dynamic ancillary pricing solutions to really drive the right revenue. And they all have pressure to drive higher revenue with not significant additional capacity. And these are the levers that, that we can help them to achieve the goals they're trying to achieve leveraging next generation technologies.
So I can tell you, look, we're very excited about this. I would say I'm also really proud of our marketing team. There's been a lot of focus that we put on the brand to demand strategy and really launching every two weeks new programs to let the market know these areas where we're achieving phenomenal results to activate demand in the market. So we're really looking at how we're driving top of the funnel, plus the opportunities that we have in our pipeline, that we're working that are more late stage.

Robert Oliver

And then Stefan, for you just on that subscription revenue growth from travel, which is expected to kind of ramp throughout the year.
Obviously, you guys are generally more positive on travel, which is exciting. I'd be curious to hear more color from you on how you forecast and how you thought about that forecast. You know, there's different moving parts, there's perhaps the return in travel spend for you guys.
Maybe you're seeing that in the pipeline. Maybe it's I know you guys unified your go to market teams around B2B and travel. So perhaps you're seeing something there which gives you more confidence, any more color around the confidence in that trajectory throughout the year would be really helpful. Thank you.

Stefan Schulz

Yeah, so you're, you're right, Rob. It's all of the above. I mean, we see the pipeline improving on the travel side. We see the amount of opportunities as Andre just laid out as our sales team and, and him and our other executives get out and visit with customers. We're seeing more and more opportunities than, than what we might have seen. Say a year ago.
I'd also say this as we look forward over the course of the next four quarters. You know, we obviously look at, what's scheduled to be recognized in terms of revenue and based on how things are already established in and just looking at, the second, third, fourth quarter, we already see a nice flow of of new subscription revenue that's going to be coming online from bookings that have already taken place. And so that's what gives us the really the confidence to talk in terms of of an accelerating subscription growth rate throughout the year.

Operator

Victor Cheng, Bank of America.

Victor Cheng

A couple of them if I may. Well, I guess first of all, you talk about the Gartner and, and you being leaders in the CTQ space. Now, if I remember correctly, the prior year, you were in the challenge of bucket. Do you talk a bit about what has changed from a product perspective or is it something else that, that has kind of driven the change in terms of how Ghana sees you?

Andres Reiner

Yeah, Victor, great question. First of all, I would say, look, I'm incredibly proud of the product team when we made or, or focus and acquisition in the CPQ space. Initially, I said, look, we're coming from behind, there is a lot of new innovation and I would say, just over the last three years, there's been an immense amount of innovation around our CPQ solution and really bringing the next generation modern platform.
And I would say many of our capabilities around digital collaboration, for example, where we're really transforming the customer experience, we're no longer sending AP DF or a word document as a quote. We're actually bringing a experience to create a digital physical collaboration between a buyer and a seller or embedded AI capabilities.
Those are all the things that are greatly, greatly differentiating and, and thanks to our, to our sales team and the great work on the winds, the market momentum. So I think it's a combination of two things, we've had amazing product innovation and, and now we're ahead of S AP salesforce and oracle, which is a huge goal for our team and, and we're not going to rest on our Laurels, but now we're a leader in every one of the major analyst reports and then the other part is, is the market momentum, we're winning amazing deals. And, and both of those are critical to be at that top right hand quadrant.

Victor Cheng

. And then you going back to the point about travel. Obviously you made a couple, announcements throughout the quarter. And if I take a step back and think about, airlines and how, technology is evolving and distribution is evolving there, I've been to a number of those conferences.
It seems to me that the new technology, the NBC, the older offer management, it it's still very new despite kind of obviously the industry talking about it and you're it but is that is that, you talk a bit about the offer optimization. So it sounds like that is already driving kind of solid growth throughout '25.
But does that mean that as airlines eventually truly adopt NDC or thinking a lot more about leveraging that to drive ancillaries and pricing optimization that actually that that ramp and that that growth can be sustained or even go higher for the next couple of years.

Andres Reiner

Yeah, absolutely. Think about it. Airlines have to adopt a NDC and multi channel like Air Canada is doing so that they're not just now doing continuous pricing on their airline dotcom but across every meta search engine in every channel they power and then thinking about the same for dynamic ancillary products and then the bundling this is a journey.
And I think it's an incredible opportunity for us in the market to really transform both the customer experience and the revenue potential for airlines. And I would tell you my view is the next three years is going to be heavily focused on the offer optimization side.
I would say longer term, say three to probably 10 years is going to be the next generation order management side. So I would say, and you're pretty familiar with this space, but I would say the next decade, I expect that a lot of new innovation in the travel industry as they move to create more preflight inflight, postflight ancillaries that are tied really to driving a better experience.
And then technology like our marketing, for example, how are we driving demand for these type of new offers that they're creating and how do they build the top of the funnel all the way through activating every channel? So I think we feel like we're in an incredible position. We've been innovating towards this space and and based on our view, this is probably the order in which airlines are going to activate the next generation offer and order management.

Victor Cheng

And maybe the last question for staff and just thinking about how you got it for '25 and talking about the long term guidance as well. Well, that you alluded to you previously. Has your view changed in terms of the mix of, of topline growth versus margins or just the contribution from B2C and B2B has a mixed change as well. Given you see kind of momentum coming back on the B2C side.

Stefan Schulz

Not really, Victor. It's progressing consistent with what we've been thinking, we've always felt like travel was going to recover in return. So that, that's always been part of the model. I will say, I'm glad you asked the question because I know, early on when we put, our long term goal out there, there was some questions about our ability to, to respond on the profitability side.
I must say, I think our team has done an amazing job there and there's a lot of energy and momentum behind it. I think we're going to be able to continue to do that. So I think as we look out over the next several years, I think we've got a really good, a really good plan to, to achieve, the ranges that, that we set out there.
Maybe, a little on the lower end on one other or a little higher on the other end on another one. But all in all, we feel very good about where we are today and where we're going in the next couple of years.

Andres Reiner

The only thing I would add is this year, you're going to see us really increase our sales and marketing investment to accelerate growth while we expect to drive greater than 60% improvement in free cash flow, which to me is an incredible goal. You know that we are aligned as an organization to drive that significant investment and driving acceleration in the back half as we go into next year, setting up acceleration while we're driving it better than 60% improvement in free cash flow.

Victor Cheng

Congrats on the solid quarter.

Andres Reiner

You. Great.

Operator

Nehal Chokshi, Northland Capital Markets.

Nehal Chokshi

And congrats on a good finish here. Stefan, did I hear you correctly saying that on a constant currency basis, your ARR for calendar '24 was up 10% year of year.

Stefan Schulz

Yes.

Nehal Chokshi

And what was the base for the year ago period in order to get to that? Because I actually have 11% on my model when I plug in that number.

Stefan Schulz

Let's see here, let me grab it real quick. Let's see here, Neha on a constant currency basis. 259.0.

Nehal Chokshi

I thought that was the AIS number. So the for the calendar '23, that was AI and possible currency basis.

Stefan Schulz

Well, it resets every year, right? So what happens is well, right?

Nehal Chokshi

So 10% cost of currency AR growth calendar '24, you're guiding 10% for AR growth and 225. Yet you're guiding subscription revenue grow 11% for the full year previously. You talked about how the ending calendar year ARR growth is a pretty good indicator as far as what the subscription revenue growth is going to do in the next year. So, can you help us understand why you have the confidence that the subscription revenue growth to 11% despite ending calendar '24 with 10% cost of currency growth on ARR?

Stefan Schulz

Yeah. So what when we look at our, our subscription revenue going forward from a, from an a from a quarterly perspective, there's revenue that we're getting to recognize from previous bookings from previous years that we haven't had a chance to recognize.
So we get an opportunity to do to accelerate some of that recognition. But to your point, it's not something that's going to be that significantly different, it's going to be in a similar zip code. So, while we are going to be benefiting from, some of the previous bookings that are going to fall into recognition in 2025. You know, all in all it's going to be a close proxy for where we are. It's not going to be an exact number, but it will be pretty close.

Nehal Chokshi

And is it fair to say that your bookings in 4Q were indeed better than expected. And as such, the this constant currency ARR was also above your expectations, ie your expectations of having $282 million ARR was on a constant currency basis, not on a as a basis. Is that correct?

Stefan Schulz

No, we kind of managed to air on a constant currency basis, all, all year long. And our guide was 280 to 284. Obviously, as you know, we landed on the higher end of that range. So we were very happy with the, with the bookings performance in the, in the fourth quarter. And obviously happy that we landed on the higher end of the range as well.

Nehal Chokshi

And then you just mentioned that we'll be accelerating investments in sales and marketing, which parts of the go to market organization, will that be focused on.

Stefan Schulz

We, in terms in terms of B2B and travel or just make sure I'm following your question.

Nehal Chokshi

I was thinking more in terms of like customer success versus a quota pairing.

Andres Reiner

Yeah, so think of it from a sales and marketing is going to be both on the demand and, and, and quota carrying personnel plus programs spend. So those are the areas csm's. We have a great team we'll continue to add, but the majority think of them being quota carrying Demandgen and then program spend.

Nehal Chokshi

And then final question for me is that yeah, I presume that both better linearity continues to be something that you're observing. The Todd has stepped in here. Was that the bigger role in the half million subscription revenue beat relative to your midpoint or was it actually the better than expected bookings that drove the better than expected?

Andres Reiner

Both, both help. I would say they both help. The linearity definitely contributes. And, and then the improvement on the bookings also contributed.

Stefan Schulz

Yeah, it was definitely both.

Operator

Brian Schwartz, Oppenheimer.

Brian Schwartz

I've just got one for Andres about the opportunity with the embedding AI through the platform, the egen vision for for the company. Can you share with me the how we should think about the monetization path on the revenue side? I'm I'm I'm just wondering, volumes are going to continue to increase, but somehow, will agents increase the velocity of the volume or can you capture it on pricing share with us, the strategy with the new technology you're introducing?

Andres Reiner

Yeah, that's a great question, Brian, with the way that we look at it, as we said is that AI has to be core to a capability that brings significant value. And and if you think about that as an example, if we're deploying dab that obviously power by gente AI, it has to drive revenue uplift.
We sell that as an individual skew. So customers buy for that innovation versus incorporating it in a in an ancillary type of usability capability. So think about in every area when we talk about innovations around this, we're really trying to drive each one of these to bring incremental value to an end customer and be a sellable skew that we can either sell to a net new logo or expand within an existing account.
What we're trying to drive is based on our strategy of land real expand it, create more and more sellable skews that bring significant tangible value that that both our team can sell to net logos or can sell as an expansion to customers.

Operator

And ladies and gentlemen, we have reached the end of the question-and-answer session. I would like to turn the call back to Belinda over 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. If you have any questions following the call, please contact us at ir@pros.com. Thank you and goodbye.