Pros Holdings Inc (PRO) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter 2011 PROS Holdings, Incorporated earnings conference call. My name is Melanie, and I'll be your coordinator today. At this time, all participants are in a listen-only mode. We will accept your questions at the end of the conference. (Operator Instructions) As a reminder, today's call will be recorded.

I would now like to turn the call over to Mr. Damian Olthoff, General Counsel. Please proceed.

Thank you, operator. Good afternoon, everyone, and thank you for joining us today for the PROS Holdings financial results conference call for the fourth quarter and year end 2011. My name is Damian Olthoff, and I'm the General Counsel of PROS.

Joining me today for today's call is Mr. Andres Reiner, our President and Chief Executive Officer, and Charlie Murphy, our Chief Financial Officer.

In today's conference call, Andres will provide a commentary on the fourth quarter and full year of 2011, and then Charlie will provide the review of the financial results and our outlook before we open up the call to questions.

Before beginning, we must caution you that some of today's remarks, including our guidance for the year, our competitive position, future business prospects, revenue growth, market opportunities, as well as statements made during the question-and-answer session, contain forward-looking statements. These statements are subject to numerous and important factors, risks and uncertainties which could cause actual results to differ from the results implied by these or other forward-looking statements.

Also, these statements are based solely on the present information and are subject to risks and uncertainties that can cause actual results to differ materially from those projected in the forward-looking statements. Additional information concerning risk and other factors that may cause actual results to differ can be found in the Company's filings with the SEC.

Also, please note that a replay of today's webcast will be available in the Investor Relations section of our website at www.prospricing.com.

Finally, PROS has provided in its earnings release, and will provide in this conference call, forward-looking guidance. We will not provide any further guidance or updates on our performance during the year, unless we do so in a public forum. PROS does not assume any obligation to update the forward-looking statements provided to reflect events that occur or circumstances that exist after the date on which they are made.

I would also like to point out that in addition to reporting financial results in accordance with generally accepted accounting principles, or GAAP, PROS reports certain non-GAAP financial results. Investors are encouraged to review the reconciliation of each non-GAAP measure to the most directly comparable GAAP measure in the tables accompanying the press release distributed earlier today, and can also be found on our website in the Investor Relations section.

With that, I'd like to turn the call over to Andres.

Thank you, Damian, and thank you to all who are joining us on today's call.

2011 was an extremely strong year for PROS, and we enter 2012 very well positioned to capitalize on our sizable market opportunity. We are confident that our growth strategies are working. Awareness and adoption of PROS is increasing, our customers are realizing high value from our solutions, our partner ecosystem is strengthening, and our product innovations continue to set the pace in the market. We believe this combination positions PROS as the software provider of choice for companies interested in improving revenues and profitability.

We are excited to announce another record performance in the fourth quarter, where we exceeded the high end of our guidance on all of our primary guidance metrics. We reported revenues of $26.2 million, a 30% increase over the fourth quarter of 2010. Non-GAAP operating income was $4.5 million for the fourth quarter, up 56% from a year ago, and non-GAAP EPS for the fourth quarter was $0.11 per share, up from $0.08 a year ago.

For the full year 2011, we also exceeded the high end of our guidance for revenue and operating margins. Full-year revenue of $96.6 million was a 30% increase over 2010. Non-GAAP operating income for the full year was $15.4 million, resulting in operating margins of 16%, and full year non-GAAP earnings per share were $0.39. Our 2011 non-GAAP operating margin was ahead of plan due to stronger than expected top line growth. We will continue to invest in our business going forward to realize the long-term opportunity. Our strong performance throughout the year, and particularly in the fourth quarter, drove end-of-year backlog to a record $124.1 million, up 16% year-over-year.

In 2011, we extended our market leadership position by adding to our growing list of world-class customers. We are pleased to have been selected by Autodesk, Air Europa, Coates Hire, Kemira, Novozymes, and Sunoco, among others. We were selected by these companies based on our partnership approach, our proven history of success, our high customer referenceability, and our clear leadership position.

We also deepened our partnerships with numerous existing customers, as they extended the value of PROS solutions to new parts of their business or licensed additional software modules. Examples of this include long-time customers BASF and Lufthansa.

For the second year in a row, our ability to deliver meaningful value also earned us recognition as Strategic Vendor of the Year by a customer. And, our high levels of value and customer satisfaction enabled PROS to again deliver very strong maintenance renewal rates in the mid-90% range. We believe these accomplishments are further evidence of the value we deliver to our customers, and the strengthening of our leadership position in the markets we serve.

In 2011, we made great progress executing against the 3 pillars of our growth strategy, which will remain our key initiatives for 2012. These include accelerating awareness and adoption of PROS, further extending our product leadership, and increasing our global reach and scale. Let me share a few highlights of each.

In 2011, we invested in sales and marketing initiatives to accelerate the awareness and adoption of pricing software. Our efforts resulted in a far stronger demand generation and sales pipeline year-over-year, positioning us to further success in 2012 and beyond. We expanded our direct sales force by 50% to bring our total quota-carrying personnel to 28 at year end. We now have a stronger sales force than at any time in our history with additional sales capacity and increased length of tenure.

In addition, our message is reaching our target audience through articles in mainstream publications like CFO Magazine, through reports from industry analysts like Gartner, and through our presence at major marketing events around the globe such as SAP Sapphire in the US, Europe, and China. We will continue to invest in sales and marketing initiatives in 2012 to drive sustainable levels of growth for years to come.

Our continued focus on extending our product leadership position in 2011 resulted in new products, new patents, and the highest rating achievable from Gartner. In 2011, we introduced our first cloud-based deal quoting and pricing solutions for the mid-market. As more companies continue to recognize the importance of guided selling for outperforming their competition, we remain optimistic about the long-term opportunity our mid-market products create and their potential contributions to our growth.

As part of our ongoing commitment to providing customers with the most innovative and comprehensive solutions available, we released the latest versions of our enterprise pricing and revenue management solutions and added 4 patent-pending technologies to our portfolio. We believe these investments in innovation contributed to our rating of Strong Positive by Gartner in their annual report on price optimization software. We will continue to invest in product innovation in 2012 to deliver additional capabilities that our customers have come to expect from PROS.

Increasing our global reach and scale was another key strategic area for us in 2011. For the first time, we introduced an indirect sales channel. The signing of resellers in Brazil, China, Portugal, and Spain both broadened our international reach and helped to expand our pipeline of future opportunities. Our focus in 2012 will continue to be on enabling our resellers to create awareness and demand in their markets, with the expectation that they will contribute to our long-term growth.

In order to drive our 3 key growth strategies, during 2011 we added 111 employees, a 26% increase. Investments in our high-performing organization positions PROS to capitalize on the sizable opportunities ahead.

As we look to 2012, we will continue to invest in initiatives that drive growth and to focus on accelerating awareness and adoption, extending our product leadership position, and increasing our global reach and scale.

We are confident going into 2012 because we are well positioned to help companies compete and win in their markets by turning pricing into a strategic advantage. We have proven that we can help companies unlock the power hidden within their big data to provide actionable insights that lead to growth and profitability. Our solutions have enabled better business agility in the face of cost and currency volatility. We have proven that we can help improve the effectiveness of sales organizations by enabling them to negotiate their deals with far greater confidence.

We are optimistic about 2012 because we are seeing signs that the market is evolving and maturing with more educated buyers and with more companies speaking publicly about their successful pricing initiatives. We believe we have the right people, products, customers, and strategies to serve this growing market.

Now, let me turn the call over to Charlie so he can provide you with a review of our financial results and our outlook for the first quarter of 2012. Thank you.

Thanks, Andres. I will be discussing our financial results on a non-GAAP basis. A full GAAP to non-GAAP reconciliation is included in our earnings release, which can be found on our website in the Investor Relations section.

We are pleased with our performance in the fourth quarter, with revenue of $26.2 million, which was up 30% from a year ago and exceeded our guided range. License and implementation revenue was $17.5 million, up 38% from a year ago. License and implementation fees are bundled together, and revenue is generally recognized on a percentage of completion basis over the implementation period, with no revenue recognized at contract signing.

Maintenance and support revenue of $8.7 million was up approximately 16% year-over-year and represents the largest component of revenue from recurring sources. Total recurring revenue, which includes maintenance and support revenue and a number of term license contracts, was 42% of total revenue in the fourth quarter.

For the year, 64% of our revenue came from outside the United States, compared to 58% a year ago. 28% of our revenue in 2011 came from Europe, compared to 23% in 2010. We continue to diversify our revenue around the globe, and we are pleased with the strong growth we achieved both in the US and across our international markets.

Gross margins in the fourth quarter were 73.5% on a non-GAAP basis, compared to 72.8% from a year ago. Margins can vary from period to period, primarily due to the level of implementation services required relative to the total contract value.

Looking at operating expenses, total non-GAAP operating expenses for the quarter were $14.8 million, compared with $11.8 million a year ago. We are excited about the successes we are seeing from our investment strategy and will continue to invest as we look ahead to capitalize on what we believe is a very large market opportunity.

Non-GAAP operating income exceeded the high end of our guided range, principally as a result of revenue that was above the top end of expectations. Non-GAAP operating income in the fourth quarter increased 56% to $4.5 million, or a non-GAAP operating margin of 17.2%.

Based on a non-GAAP effective tax rate of 29%, non-GAAP net income was $3.2 million for the quarter, an increase of 45% over the prior year, exceeding the high end of guidance.

Non-GAAP earnings per share was $0.11, compared to $0.08 per share last year. On a GAAP basis, earnings per share was $0.08, also exceeding our guidance. A reconciliation of GAAP to non-GAAP is provided in our press release.

Turning to our full year results, non-GAAP revenue was $96.6 million, compared to $74.2 million in 2010, an increase of 30%. License and implementation revenue increased 40% over last year, and maintenance revenue increased $4.4 million, or 15% over last year. These are very strong results, which reflect the investments we have made in our business and follow-on services to our existing customer base. In addition, based on our revenue recognition model, 2011 benefited from business closed in 2010, which was a return to more normal spending patterns after the recession.

Our non-GAAP gross profit was $71.4 million for the year, yielding gross margins of 73.9%, a slight increase compared to gross margins of 73.5% for the year ended 2010.

Our non-GAAP research and development expenses increased $4.6 million to $24.1 million or 25% of revenue. Non-GAAP selling, general and administrative expenses for the full year were $31.9 million or 33% of revenue, an increase of approximately $6.4 million over 2010. The increase in expenses is consistent with focusing on investing in the business to drive long-term growth.

Non-GAAP operating income was $15.4 million for the year, up 62% over 2010, resulting in non-GAAP operating margins of 16%. Our operating margins were above our prior expectations primarily due to our revenue outperformance. This compares to operating income of $9.5 million and operating margins of 12.9% in 2010.

Our non-GAAP effective tax rate was approximately 31% for the year, including the tax effect of the R&E tax credit, as compared to approximately 29% in 2010.

Non-GAAP earnings per share for the year was $0.39, compared to $0.25 last year. On a GAAP basis, net income was $0.23 per share.

Now, moving to the balance sheet, we ended the year with cash and cash equivalents of $68.5 million, an increase of $12.6 million from last year.

Gross accounts receivable at the end of the year were $33.9 million. Day sales outstanding were approximately 107 days, slightly above our historical average, which considers normal variations in accounts receivable and the timing of collections and invoicing of milestone billings under our contracts.

We continue to generate operating cash flow, with approximately $3.2 million of operating cash flow generated in the quarter, yielding a cash flow margin of 12%. For the year, operating cash flow was $14.2 million, yielding cash flow margins of 14.7%.

Finally, headcount, including outsourcing, at the end of the year was 540, up from 429 at the end of 2010, an increase of 111, or 26%. We continue to increase our sales, marketing, engineering, professional services, and administrative resources, which reflects our confidence in our business to drive long-term growth.

Backlog at the end of 2011 was $124.1 million, compared to $107 million at year end of 2010, an increase of 16%. Our backlog is the remaining revenue expected to be recognized from our agreements to provide products, related implementation, and maintenance services. The portion of our 2011 ending backlog estimated to be recognized as revenue within the next 12 months is $85.8 million, an increase of 19% over 2010. We enter 2012 with solid visibility.

Before I turn to our guidance for the first quarter of 2012, let me provide you with some additional information. While we expect our past history of variability in sales from quarter to quarter will continue, we are pleased with our sales activity for the full year. Interest levels in our pricing and revenue optimization solutions remain very high, and we continue to benefit from our diversification across many industries and geographies. We also see increased opportunities to win new business and recognize the revenue within the year, especially if recent trends of follow-on services to our existing customer base continues.

We continue to believe making strategic investments to drive our future growth is the right thing to do, as evidenced by our performance in 2011, and this strategy continues to guide our decisions. At the same time, our long-term growth could also be supported by acquisitions, considering our strong balance sheet. While we have no specific activity to announce at this time, we have, and will, consider acquisitions that support our strategic long-term objectives.

Now, turning to our outlook, for the first quarter we anticipate revenue in the range of $26.6 million to $27.1 million, approximately 25% growth year-over-year.

We expect total expenses to be approximately $22.9 million, up from $21.7 million in the fourth quarter of 2011, as we continue to make strategic investments in our business.

We expect non-GAAP operating income of $3.7 million to $4.2 million, which translates to non-GAAP operating margins of 13.9% to 15.5%.

With a tax rate of 35% in the first quarter, we anticipate non-GAAP earnings per share of $0.09 to $0.10 based on an estimated 28.2 million shares outstanding.

The Research and Experimental tax credit has not been renewed for 2012. The credit has expired a number of times since it was originally enacted in 1981, and each time, except for a brief period in 1995, it has been retroactively reinstated. If the tax credit is reinstated during 2012, and if it is retroactive to the beginning of the year, as has been the case in the past, then we will make a cumulative adjustment in the quarter in which the tax credit is reinstated, as we did during 2010. Should the Research and Experimentation tax credit be reinstated, the estimated tax rate for the year would be 31%.

Including stock based compensation expenses of approximately $1.6 million, we anticipate GAAP earnings per share in the range of $0.05 to $0.06.

For the full year, we expect revenue growth of approximately 20%. We believe this represents strong year-over-year growth off of tough comps.

Regarding expenses, with the full effect of our hires to be felt in 2012, continued investments in our long-term growth, and considering our actual non-GAAP 2011 operating margins exceeded our expectations, we expect for 2012 that non-GAAP operating margins will approximate 2011 levels. We continue to believe that long term, we will see increasing operating margin leverage as our business scales and we realize the benefits of our investments.

In summary, we are pleased with our performance in the fourth quarter and in the full year, and believe we are very well positioned for a strong performance in 2012. We believe that the investments we are making will further strengthen our market position, growth prospects and margin expansion over the long term.

With that, let me turn the call back to the operator for questions.

Thank you, sir. (Operator Instructions)

John DiFucci, JPMorgan.

Congratulations, Andres and Charlie. It's nice results here.

Thank you.

I guess, first question, Andres. Can you talk a little bit on two things? One, the mid-market and your SaaS offerings, can you kind of give us an update on how that's going with your partnerships with Salesforce and iServiceGlobe?

And then, secondly, I guess -- so, you built out the sales force, as you said, 28 people at this point. Can you tell us a little bit about your plans for extending that going forward into 2012?

Okay, perfect. So, on the mid-market, we obviously believe we're at the right place at the right time. We believe the need for pricing technology in the mid-market is just as high as it is in the enterprise. As we said, this was released a year ago, and it's still early stage, given it's less than a year since we released it. But, we're seeing a lot of interest and demand. We have signed our first customer for the deal quoting solution, but it's still very early stage. We do see quite a bit of interest in the market and are continuing to invest both in sales and marketing, as well as continued innovation within that solution.

So, with respect to quota-carrying salespeople, we expect to grow quota-carrying salespeople by approximately 40% in this year.

Okay. Wow, that's a big number.

And I guess when I look at that, Charlie, and I look at the sales force here now, the capacity you even have now versus the beginning of the year, and then growing it, and I look at your backlog, which looks really strong and -- $86 million, I think you said, was going to be recognized this year. It looks like you've got to sign an additional $20 million -- I'm sorry, $30 million or maybe a little bit more of revenue to be recognized. Obviously, there's a lot more that needs to be booked in order to recognize that revenue this year. But, it sounds like the capacity you have -- I guess it doesn't make that, to me, seem like a big stretch. And I guess if -- it looks like the world is getting a little bit better out there. And I think it's still prudent to be a little bit cautious, but it does look like things are getting a little better. What are your thoughts just on that capacity growth, and how long does it, I guess, take to get some of these people, I guess, up and running to full capacity, given sort of the long lead cycle on your products, your solutions?

Yes, John, that's a great question. I think you started -- you hit one of the points that we wanted to make, and that is that we're still somewhat concerned about the macro economy out there. And obviously there's lots of vagaries as we went through 2011, and we obviously performed well, but we still have that situation going into 2012. So, we think it's prudent not to get ahead of ourselves and to provide guidance that has some stretch to it, but that we're reasonably, obviously, comfortable we'd be able to achieve.

As far as the adding a number of new salespeople, which we are planning on doing, we're also expanding our reach geographically as well. So, we've made a significant investment, particularly last year, and we'll continue this year even more so. And I know Europe may not be a -- may have some connotations that may not be positive, but for us historically Europe has been a very good base of business for us, and our growth in Europe this year was very good -- I should say last year was very good, and we're very pleased with it. So, you see investments in our sales organization not only here in the United States, but also in Europe and in other parts of the world.

Now, as far as the time, it does take time to get the sales force schooled up. I think Andres has mentioned previously we've invested a lot over the last 18 months in improving our onboarding processes. We've expanded the sales force, we've top graded the sales force and -- but it still takes time to get these very qualified individuals up to speed. We're talking 6 to 9 months to get them to a point where we're comfortable expecting that they should be in a position to close deals. Part of that also, too, is the long sales cycle. So, the salespeople are coming into a situation where the sales cycles still continue to be very long.

So, it's really the combination of all of those factors that say we believe it's right to invest. If the economy, obviously, is better than what some of the expectations are today, there perhaps could be some upside for us in 2012, but it's prudent not to be anticipating that now.

Andres, anything else?

Yes, I agree with Charlie. I mean, we feel very good about our guidance and where we're starting the year. In terms of adding sales reps, our focus is not just 2012 growth, but 2013 and beyond. And as Charlie said, taking 6 to 9 months to ramp up the sales organization where we're really focusing our investments not just for growth this year, but how do we maintain growth for years to come.

Okay, great, guys. Thank you, and nice job.

Thank you.

Thank you.

Tom Ernst, Deutsche Bank.

Hi, this is Jobin on behalf of Tom. Thanks for taking my question.

Hi, Jobin.

So, obviously, 2011 was a great year. You guys grew license revenues 40% year-over-year. Arguably, you guys had easy comps last year, but as we look ahead, given that this is an underpenetrated market and there's a lot of room for you to grow, what do you think is kind of a steady state 2- to 3-year license growth rate that we should be looking at?

And the second part of my question is it looks like there is a lot of focus on [inaudible] selling in 2012. Can you talk about how some of your recent partnerships with partners have ramped up and what is the approximate revenue contribution today? Thanks.

Yes, I'll take the question around the partner ecosystem. So, overall, we're very pleased with our whole partner ecosystem program, as we talked about before. On the SI front, partners like Accenture, Deloitte, Wipro, and L&T are continuing to strengthen. About 40% of our implementations we had a partner involved in 2011, so we feel very strong about our SI partner program and their ability to help us and influence accounts.

In terms of our technology partners, our investments with our partnership with Microsoft has been very strategic for us and us joining the Chemical Reference Architecture program within Microsoft, and we're continuing to make that partnership stronger and stronger, as well as focus on the SAP front, on us having the latest technology integration with both the ERP and the CRM.

In terms of our reseller program, we're continuing to invest, especially on the areas of sales and marketing and awareness and demand generation. We held multiple events in the fourth quarter in Shanghai, Sao Paulo, Madrid, to name a few, with those partners, and we're seeing strong demand in those markets, and we're actively pursuing opportunities in those markets with the partners.

So, we're very happy with the progress across the board in the partner ecosystem, including the reseller partners.

Yes, and, Jobin, regarding the long-term outlook for revenue growth, I think it's probably a little bit too early to be giving any specific guidance on that. We are -- obviously, we have the balance sheet to invest, we've got the profitability to invest, and we're doing that because we believe in the big market opportunity, which was your point. The market still is underpenetrated. And we're guiding this year to about 20% revenue growth, which we've commented on. I would like to think that the 20% growth should be a reasonable growth for a period of time, but we don't want to say anything more than that.

Okay, I guess my follow up to that would be do you guys still feel you are distribution constrained or do you still think there's a lot more productivity to be got from existing sales force?

I think the constraint, really, is the awareness in the marketplace, and we've invested a lot in marketing over the last 2 years to help create greater awareness in the marketplace. And that's why we're investing in some of these other initiatives, such as the SI initiative we've talked about, the reseller initiative we've talked about, the number of conferences we go to. We've learned recently that one of the major pricing organizations in the United States came out and said they had record attendance last year at their conferences. That's the Professional Pricing Society. I think it's more of an awareness. It's not is the ROI there. The ROI is there, the customer satisfaction is there, but we just need to get the awareness up to get the adoption up.

Chad Bennett, Craig-Hallum.

So, a couple of questions. Is there a way to quantify with the sales heads you added this year how much benefit you saw this year? Probably not much from a revenue standpoint, but some, but more importantly in the backlog, and shouldn't we expect a fair amount of benefit out of those people in 2012 here?

I wouldn't say it's easy to quantify the percentage. Obviously, our investments in sales and the salespeople that we've added over the last 18 months greatly contributed to our success last year. We expect that will continue. The headcount that we add this year will probably have minimal impact to this year, but as we said we feel stronger about this year because the sales force that we have now has more tenure and is more experienced, and we're very, very happy with their performance.

So, the new people you added this year contributed decently to backlog at the end of the year?

There was a percentage of the individuals added last year that contributed to the backlog.

But, they should be more productive this year, right?

Yes, we expect them to be more productive this year, absolutely.

And I don't know if this is -- I don't recall if this is a relevant metric for you, but would your pipeline growth, however you look at it at this point in time, be different from your backlog growth?

Yes, I would say -- this is Charlie. I would say the pipeline growth is different than the backlog growth. And I think what's comfortable for us to say is that the pipeline is up more than the backlog growth is up.

So, I mean, is there any type of -- I mean, is it up -- back -- short-term backlog is up 19%, 20%. Is pipeline up double that?

Yes, I think -- I don't think we want to get into quantifying it, but it is up. We're comfortable saying that. The awareness is up, but, of course, we have a long way to go in awareness because it's still a significantly underpenetrated market. It's really a question of how quickly -- and the sales cycles are still long, and how quickly can the sales force help convert some of those long sales cycles into bookings.

Did you see throughout the year in back -- as backlog built and progressed year over year, especially, I guess, in the fourth quarter, did you see any different, I guess, trend in momentum of the backlog towards the last quarter of the year? I mean, did you see any different change in order patterns or anything in the fourth quarter of the year?

I mean, we had a strong fourth quarter, but I wouldn't say it's -- that there was anything that --.

-- Unusual --.

-- Unusual. And overall -- as we said, all the leading indicators from a demand side, we have been saying it last year, they've been trending in a positive direction up. We feel very good about the leading indicators. Obviously, those are earlier leading indicators than the pipeline, and we feel good about the leading indicators.

So, you've seen no change in close rates or sales cycles, so nothing is extended or anything like that, right?

Yes, we haven't seen any material changes. It's been fairly constant. And in fact, our closure -- time to close a deal hasn't materially changed. It's about the same. That's --.

-- Got it. So, Charlie, I understand you guys are going to invest again pretty heavily, but I think when we were on this same call last year you talked about flattish gross margins. And lo and behold, gross margins, I think, grew -- or I'm sorry, operating margins. Lo and behold, operating margins grew 300 basis points year over year.

Yes.

So, you're talking about flattish again. I guess can you invest at the rate -- assuming you're getting the revenue from the right places, which I guess it doesn't matter if it's L&I or maintenance. I guess can you invest fast enough to hold operating margins down?

Yes, I think that's a good question. As you know, in 2011, really what contributed to the revenue growth -- I'm sorry, the operating margin growth -- wasn't the lack of spending. We spent according to our plan, and we did have a bit of a challenge ramping the spending up as the revenue accelerated, and the revenue certainly accelerated in 2011.

So, we're looking at a lower revenue acceleration in 2012 of 20%. We've got the plan. We've already brought in a significant number of people in the first quarter of this year, so we're certainly on track on our spending side. So, it could happen that perhaps revenue gets far enough ahead of us, which would be a great thing if it did -- it's not expected today -- that perhaps we end up with higher operating income margins.

But, today, I think the plan is the plan. It's the one that we're working towards, which is 20% revenue growth and operating margins on a non-GAAP basis of, let's say, the mid-15% range.

And then, the last question should be fairly straightforward. Charlie, how should we think about -- I don't recall FX impact on the business.

The FX impact, it's pretty much consistent with historical levels. We had $100,000 loss for the year, and that came in the fourth quarter by the way. Up to the first 9 months of the year it was nothing, and then the fourth quarter of the year we had $100,000 loss. You can go back the last 3 years and it's been plus or minus $100,000, so we haven't had any significant impact to the Company's operations as a result of foreign exchange.

All right, thanks, guys. Nice quarter.

Thank you.

Thank you.

Jesse Hulsing, Pacific Crest.

Hey guys, thanks for taking my question. Just real quick, you mentioned that awareness has been growing for pricing. Can you talk about the competitive environment, how are win rates, how are you guys doing in bake-off type situations?

Yes, so we're pleased with our win rate. We're very pleased with our win rate. In terms of the competitive environment, there's been no material change. It's been very consistent with what we've said. Through last year, it's really Vendavo is one of the primary competitors we're face to face. We do see in some situations, Zilliant, and don't see them as much as we did 2 years ago. But, overall, we feel in a very strong position and strong differentiation in our technology.

Our real focus has been from a market -- it's not as much a competition. We respect the competition, but our focus is that 95% of the market that's not using price optimization software, and that's really where we're putting all of our energy. That's how we're going to grow the business faster is getting more companies that are using spreadsheets or not using any technology to do pricing to adopt our technology.

And you talked a little bit about your partnership initiatives. How should we think about, I guess, pulled-in revenues from your SI partners? Are you using them primarily as just an expansion of your services team or are they materially influencing deals? And has that improved, and do you see it improving?

Yes, so partners are helping to play a reference role in accounts, and that area is improving. And that's an area that we said, that's our whole focus around SI partners, is to play an influence role. We said it's not around them closing business; that's the resellers. But, partners is more around playing a reference role because they have experience in deploying our solutions and seeing our quality and our partnership approach. And in some accounts, they're complementing our team, and there are some in follow-on business where they may be doing the implementation for other divisions or other modules that customers are implementing.

(Operator Instructions)

Ian Kell, Northland.

Nice quarter in a tough market. Congratulations there, but --.

Thank you.

Thank you.

Most of my questions have been asked. I'm just curious in terms of backlog, how does that break out between some of your more traditional end markets versus your target markets, the M, D & S?

Yes, actually we -- since we look at the Company as one Company, and I think we commented on this a couple of times last year, we really don't break out the business -- not that we view the business, really, as separate pieces. So, we're really not in a position to break out the backlog across different industries.

But, I would say the backlog is strong across our industries. We're very pleased with it. Revenue was up last year across our industries, so we're very pleased with that as well.

On the acquisition side, I mean, can you talk a little bit about -- as much detail as you can give, anyway, about what areas you're looking at or anything along those lines just to give us an idea or an update?

Yes, so overall we're very pleased with our organic growth and how we're executing. We're looking at strategic acquisitions to drive to our vision of PROS being at the heart of business and helping to improve revenue or profitability, still having price as the core key component. And there are opportunities that we're always looking at, but there's nothing eminent at this point.

And then, my final one here -- it sounds like the market at this point is, the way you guys talk and some other people in the industry, kind of entering the next phase of its development, more mature obviously. But, I wonder if you can comment, Andres, on where you see this market as a whole being in the 3-year timeframe? I mean, is it -- are we going to still be looking at a handful of competitors like you or is there -- does this make sense? What's the market just going to look like here as we move down the road that we're on, in your view?

Well, it's hard to say what it would look -- I do believe that pricing is very strategic, and the themes around big data and predictive analytics. Pricing is one of those technologies that actually drives a better business intelligence within a more intelligent enterprise. And we believe our technology is very well positioned. Companies have invested so much in data, but today companies don't really have the tools to really monetize that data and to make better decisions. And pricing is a great example of leveraging both structured and unstructured data to make strategic decisions that drive profitability and revenue growth. And we're really focused on our execution and growing the business. We still believe that our science capabilities and the differentiation in our innovation side and all of our investments in the product really will end up differentiating us in the future for years to come.

All right. Thanks for the time. Nice quarter.

Thank you.

Thank you.

Ross MacMillan, Jefferies.

Hey, Charlie, I had a question on the maintenance and support growth. It's obviously lagged the growth of L&I this past year. Do you expect maintenance and support to grow faster in calendar '12 because of that historic higher growth in L&I? Is that something that we'll see in the model?

Yes, we're expecting maintenance to grow at a greater rate in 2012 than it did in 2011, I think for the points that you've mentioned. So, yes, we do expect to see maintenance growth to be a bit higher. Still in the teens, perhaps mid to high teens, but higher.

And the second question, could you just clarify -- I know you said it, but I wanted to make sure I caught it. What was the mix between international and domestic for the year?

Yes, we actually -- what we want to do is very specific, too, is to talk about Europe, which is 28% of our revenue rounding up. And we wanted to -- within Europe, I want to give some color on that, too, because that seems to be a question -- is that we're very strong on the countries like Germany, UK, France, the Nordics, and Austria. That's where the vast majority of our European revenue comes from. And if you put in the other Eastern European countries, we're at about 24% -- I'm sorry, probably about 23% of that 28% of revenues from countries that are deemed to be very, very strong countries. So, I think that's a good position to be in.

The overall revenue mix, I think even long term looking out, we've had about a 60/40 split. This year was a bit higher. But, we would still look at the 60/40 as being a reasonable split, at least certainly for 2012. I really can't talk beyond that, but this year -- it was a little higher for 2011. I believe it was 68% -- 64%, I'm sorry -- 64% and 36%.

And Charlie, you -- I think you had mentioned that there might be a one-time tax benefit in Q4. It didn't look like it came through. Can you just remind me of what that was and timing?

Yes, exactly. It wasn't -- it was a cash refund, if you're referring to a tax benefit. It was a cash refund of approximately $2.8 million.

And it was in Q4?

It was in Q4, and that was offset by a higher tax payment that we made in Q4. And I did want to comment on this as well. Based upon the most recent analysis we have, we will have a refund of taxes in 2012 because the taxes were overpaid in 2011. So, it's almost like those 2 should have washed, Ross. We should have had a little more positive cash flow from operations in Q4 because the tax payment we made in Q4 really wasn't necessary, and it's going to be coming back to us in Q1 or Q2 of 2012.

And did you help us with the full-year tax assumption for '12 and non-GAAP tax rate that we should think about?

For 2012, we're talking 35%, and the reason is, is that currently the Research and Experimentation credit, which has been giving us about a 3% to 4% benefit on our tax rate, has not been reinstated for 2012 as of yet. You should use the 35%, and if gets reinstated we'll obviously have the benefit in the period when it is reinstated.

And then, last one, maybe to Andres. You talk about how pricing is becoming more relevant in a big data world. Can you help us understand what new technology partnerships may you be seeking as you try to take advantage of some of the new technologies that allow you to maybe take advantage of things like in-memory computing or other approaches to fast data upload and analysis?

Yes, so we're leveraging the same part -- the 2 strong technology partnerships, Microsoft number one, and also SAP. Those are 2 that we're investing in and have been investing in.

Are you working toward a version of your products on top of HANA or is it too early to say?

It's too early to say.

Thanks a lot, and congratulations.

Thank you.

Ladies and gentlemen, I show no further questions at this time.

I'd like to turn the call back over to Andres Reiner for closing comments. Go ahead.

Thanks for your participation in today's call and for your support of PROS.

Our accomplishments in 2011 are reflective of the great people, customers, and partners we are proud to have at PROS. These are the ingredients that will fuel our continued growth and success in the future. As more companies recognize that pricing and revenue management software is essential for competing in their markets, we believe the PROS value proposition is unequalled. We have made great progress in 2011 and look forward to another strong year of execution in 2012.

Thank you very much for your time, and we look forward to speaking with you on our next call.

Ladies and gentlemen, thank you for your participation in today's conference. That does conclude the presentation. You may now disconnect. Have a wonderful day.