Pros Holdings Inc (PRO) 2012 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second quarter 2012 PROS Holdings, Incorporated earnings conference call. My name is Angela, and I will be your coordinator for today. At this time, all participants are in a listen-only mode. Later, we will be facilitating a question and answer session towards the end of this conference. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

And now I'd like to turn the presentation over to your host for today's conference, Mr. Damian Olthoff, General Counsel. Please proceed, sir.

Thank you, Operator. Good afternoon, everyone, and thank you for joining us today for the PROS Holdings financial results conference call for the second quarter of 2012. As mentioned, my name is Damian Olthoff, and I'm the General Counsel of PROS. Joining me on today's call is Andres Reiner, our President and Chief Executive Officer, and Charlie Murphy, Executive Vice President and Chief Financial Officer.

In today's conference call, Andres will provide commentary on the second quarter of 2012, and then Charlie will provide the review of the financial results and our outlook before we open up the call to questions.

Before we begin, 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 risks 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 earning 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, that 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 the website in the Investor Relations section.

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

Thank you, Damian, and thank you all for joining us on today's call. I am excited to report a strong second quarter for PROS with record revenue exceeding the high end of guidance and coming in at $28.1 million, a growth rate of 18% over the second quarter of 2011. We generated non-GAAP operating income of $4.4 million for the second quarter, up 19% from a year ago. Non-GAAP EPS was $0.10 per share, up from $0.09 a year ago.

I am proud of our team for executing as planned and for delivering these outstanding results, especially in a challenging economy. As you recall, in the first quarter we reported that a few deals had experienced extended sales cycles beyond our normal variability. However, our second quarter results confirmed that this was not a trend, as sales cycles were in line with historic norms. In fact, through the first half of the year, new customer signings in our B2B industries notably increased relative to our total book business. We also continue to see strong demand in all geographies. In the first half, we closed business in North America, Asia, Middle East, and Europe.

I am also proud of our many customers for demonstrating market leadership by investing in PROS big data technology as a way to address current economic pressures. For example, our solutions directly address the volatility of foreign currency and commodity costs that put additional strain on margins. This is just one way we are helping companies in this difficult macroeconomic environment to improve revenues, margins, and market share. Our current demand is broad-based, including demand from companies that are facing tough times. We believe this underscores the strategic nature of our solutions and validates our mission of being an engine of prosperity for our customers.

With our strong first half performance, our proven value proposition, and our growing pipeline of opportunities, we are on track to deliver 20% revenue growth for the year.

I'd now like to provide a few highlights of the second quarter that center on our three key growth strategies which include accelerating awareness and adoption of PROS, further extending our product leadership, and increasing our global reach and scale.

Our execution of these strategies, all supported by our big data analytics platform and high ROI, resulted in new customer signings and a continued increase in the mix of business from our manufacturing, distribution, and services markets. Companies representing a variety of industries selected PROS during the second quarter, including TE Connectivity in the high tech electronics sector, Kimberly Clark Professional in paper and packaging, and ARUP Laboratories in the medical services market, just to name a few. More than two-thirds of the B2B customers we've added this year run SAP, which further validates that PROS is the customer solution of choice for price and margin management in the SAP community.

We are also pleased with the continued adoption of our solutions across a diverse number of sub-industries, which now totals more than 30, up from 8 in 2005. Today, we have customers ranging from high tech, to chemicals, to service parts, wholesale distribution, equipment rental services, and software, just to name a few.

We believe this is further evidence that interest for our solutions continues to expand and mature. The horizontal nature of our platform enables us to serve this broad set of industries with the same common platform, while our market-leading configurability enables customers to take advantage of industry best practices. This is not only an important differentiator for PROS, but also a critical success factor as we continue to scale to meet the growing market demand for big data solutions across many industries.

In the second quarter, we continued to invest in accelerating awareness and adoption through a number of sales and marketing initiatives. We participated in global events such as SAP Sapphire in the U.S., the European Pricing Platform Chemicals Forum in Sweden, and Microsoft's Achema event for the chemical industry in Germany. We also continued to increase our level of media coverage, grew social media participation, and continued to deliver thought leadership during the quarter. As a result of these and other efforts, our sales pipeline continues to get stronger. Our initiatives for increasing awareness and adoption are working, and we will continue to invest in this area.

Our investments in extending our product leadership in the market are also paying off. Through the first half of the year, we have filed four new patents to our growing patent portfolio, released the latest versions of our enterprise pricing and revenue management solutions, and introduced a new product in Rebate Optimizer. We remain focused on providing real-time big data applications that enable our customers to outperform by better understanding their customers' buying behavior.

Research analysts are reporting on the growing demand for such solutions. For example, IDC Research recently projected that spending for big data technologies will reach $17 billion per year by 2015, up from $3 billion in 2010. We believe PROS is uniquely positioned to capitalize on this opportunity, given our two and a half decades of experience providing real-time big data applications across many industries. We will continue to invest in our innovation engine to further extend our product leadership in the market.

In the second quarter, we also made progress in expanding our global reach and scale through direct sales coverage and our partner ecosystem. In the second quarter, we increased our quota-carrying personnel to 31 and remain on track for a 40% increase for the year.

We are pleased with the efforts our resellers are making to bring PROS into their respective markets. For example, our reseller in Brazil recently led a successful B2B pricing workshop in Sao Paolo. In addition, our reseller in China will be presenting on the topic of price optimization at an upcoming CFO event in the region. We are on track with our reseller expectations that 2012 is about building awareness and pipelines with revenue contributions beginning in 2013.

Our technology partnerships continue to get stronger as well. For example, we recently entered the Microsoft Dynamics CRM Global ISV partnership program to provide sales teams with an integrated solution for accurate and timely customer insights at the point of negotiation. This program is a natural extension of our long-standing relationship with Microsoft, and is indicative of our commitment to provide differentiated solutions that improve sales performance and enterprise collaboration. We believe our technology partnership with Microsoft has, and will continue to be, a key differentiator for PROS in the market.

We continue to invest in our SAP partnership. For example, we recently achieved another product certification that sets the standard for most complete and seamless integration experience with SAP in our market. We have been investing in our SAP partnership for the past seven years, and believe our depth of integration with SAP ERP and SAP CRM is a key reason why SAP customers choose PROS. With more than 50% of our B2B customers running SAP, we remain committed to providing the most compelling price and margin management solution to the SAP community.

We are also making strides with our system integration partners, who participated in half of PROS B2B implementations in the quarter, up 30% year-over-year. We continue to certify additional partner resources for implementing and configuring PROS solutions, now totaling more than 160 partner consultants, up more than 40% from the second quarter last year.

We have made great overall progress in expanding our reach and scale through direct sales coverage and our partner ecosystem, and will continue to invest in these areas going forward.

As you can see, our efforts to grow our business organically are paying off. We continue to believe that M&A is a key part of our business strategy. During the quarter, we continued to prepare internally for such opportunities by securing a $50 million working capital credit facility that enables us to be more agile in our M&A pursuits, which are focused on technologies that optimize the value chain. While we have nothing to announce, we continue to actively seek strategic opportunities that further strengthen our position in the market. We remain committed to M&A and feel good about our ability to act decisively for the right opportunity.

Overall, this was an outstanding quarter for PROS. We remain confident in our business because demand for our solutions has never been stronger, our customers are realizing high value, our partner ecosystem is strengthening, and we continue to set the pace of innovation in the market. Our real-time big data applications are more relevant than ever before as companies across diverse industries look to effectively compete and win in a challenging global economy.

Looking ahead, we will continue to invest in initiatives to accelerate awareness and adoption, extend our product leadership position, and increase our global reach and scale. We remain focused on execution across all of our target industries, and believe PROS is in a strong position to capitalize on the sizable market opportunity.

Now let me turn the call over to Charlie to provide you with a review of our financial results and outlook for the third quarter of 2012.

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 second quarter, with total revenue of $28.1 million, exceeding the high end of our guidance and up 18% from a year ago. License and implementation revenue was $18.2 million, up 21% from a year ago. For the majority of our contracts, license and implementation fees are bundled together and revenue is recognized on a percentage of completion basis over the implementation period.

Maintenance and support revenue of $10 million was up 14% year-over-year and represents the largest component of revenue from recurring sources. Total recurring revenue, which includes maintenance and support revenue, a number of term licenses, and cloud service contracts, was 43% of revenue in the second quarter. Our revenue recognition model gives us good revenue visibility.

In the second quarter, 61% of revenue came from outside the United States, as compared to 66% a year ago. Revenue from Europe was 28% for both this and last year's quarters. Europe is a large market opportunity which we will continue to invest in to capture the growth we see in front of us. Also, to note, 80% of second quarter European revenue was denominated in U.S. dollars so movements in European currencies had a minimal impact on our reported results. During the quarter, we experienced foreign currency exchange losses of approximately $100,000 due to the weakening of foreign currency exchange rates. Our foreign currency exchange loss had no impact on earnings per share.

Overall, we are pleased with the strong growth we achieved both in the U.S. and across our international markets as we continue to diversify our revenue around the globe.

Non-GAAP gross margins were approximately 74% for the second quarter of both 2012 and 2011. Margins can vary from period to period primarily due to the level of implementation services required relative to the total contract value. We believe our overall blended gross margins are very strong, driven by our product platform.

Looking at operating expenses, total non-GAAP operating expenses for the quarter were $16.5 million, compared with $13.9 million a year ago, with the increase of 19% representing planned investments consistent with our growth strategies. We will continue to invest as we look ahead to capitalize on what we believe is a very large market opportunity.

We are pleased with our non-GAAP operating income in the second quarter, which increased approximately 19% to $4.4 million, for a non-GAAP operating margin of 15.7%.

Based on a non-GAAP effective tax rate of 35%, non-GAAP net income was $2.8 million for the quarter, an increase of 12% over the prior year. Non-GAAP earnings per share were $0.10, exceeding the high end of our guidance, compared to $0.09 per share a year ago.

GAAP earnings per share were $0.04 compared to $0.05 last year. A reconciliation of GAAP to non-GAAP is provided in our press release.

Now moving to the balance sheet. We ended the second quarter with cash and cash equivalents of $71.2 million, an increase of $2.7 million from the beginning of the year. Gross trade accounts receivable at the end of the quarter were $37.3 million. Days sales outstanding were approximately 104 days, which remained unchanged from the first quarter and 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 $3.5 million of operating cash flow generated in the quarter, yielding a cash flow margin of 12.6%. Year-to-date operating cash flow is $7 million, also yielding cash flow margins of 12.6% year-to-date. For the year, we expect our annual operating cash flow to approximate our annual non-GAAP operating income. We expect capital spending for the year to be approximately $6.5 million as a result of increased infrastructure investments and facility costs.

Finally, head count, including outsourcing, at the end of the quarter was 620, up from 580 at the end of the first quarter, an increase of 40, or approximately 7%. Year-to-date, head count has increased 15%. We continue to increase our sales, marketing, engineering, professional services, and administrative resources to support growth, reflecting confidence in our long-term opportunity.

Before I turn to guidance for the third quarter and full year, I wanted to provide you with a little more color on how we see the business operating currently. As Andres mentioned, deal closures returned to more normal levels and we are back on track for the first half of the year. While we can experience deal closure variability, our pipeline activity remains strong and we believe the remainder of the year will continue to have solid deal activity. With that, we remain confident in our ability to grow full year revenue approximately 20%.

Now turning to our outlook. For the third quarter, we anticipate revenue in the range of $29.1 million to $29.7 million. We expect total expenses to be approximately $25.3 million, up from $20.9 million in the third quarter of 2011, as we continue to make strategic investments in our business. With a tax rate of 35% in the third quarter, we anticipate non-GAAP earnings per share of $0.09 to $0.10 based on an estimated 28.3 million shares outstanding.

On a GAAP basis, we expect operating income of $1.4 million to $1.9 million, and GAAP earnings per share in the range of $0.02 to $0.03.

At this time, we can be more specific about the full year. On a full-year basis, we expect revenue in the range of $115.4 million to $116.6 million, which at the midpoint is a 20% increase in revenue over full-year 2011. We expect non-GAAP operating margins of approximately 15%. We continue to view 2012 as an investment year, and are balancing continued investments in our future growth with profitability. 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.

One more item before I turn the call over to Q&A. The research and experimentational tax credit has not been renewed for 2012. If the 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 credit be reinstated, the estimated non-GAAP tax rate for the year would be approximately 31%.

In summary, we are pleased with our performance through the first half of the year. We are confident that our growth strategies are working, and that we are positioned well to capture the growing opportunity for real-time big data solutions.

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

Thank you, sir. (Operator Instructions) Gentlemen, your first question will come from the line of Thomas Ernst with Deutsche Bank. Please proceed.

Hi. Good afternoon. This is Nandan Amladi on behalf of Tom. You talked about strength across the different regions, but how's the pipeline looking in Europe specifically trying to compare Northern Europe versus Southern Europe?

Yes, so Europe also feels -- it is very strong in our pipeline. In the regions that we see strength are in the stronger economies, the U.K., Germany, and the Nordic region. Those are the areas where we see strength, but overall across all geographies our pipeline is stronger year-to-date.

Thank you and a short follow-up if I might. There was a significant increase in CapEx during the quarter. Can you characterize where those investments are going?

Yes, absolutely. We've commented previously that this is the year that we're making investments and renovating our facility here in Houston, Texas. We renewed the lease last year. We've been in the facility for ten years, and we've been talking about capital spending this year in total being about $6.5 million, and we started talking about this I think in the fourth quarter of last year. Of that, about $4 million of that for the facility and $2.5 million is for our normal IT infrastructure spend.

Thank you.

And, gentlemen, your next question will come from the line of John DiFucci with J.P. Morgan. Please proceed.

Thank you. Andres, I assume those deals that slipped from last quarter I assume -- well, actually, can you tell us whether they all closed this quarter, and when I look at -- because when I look at the guidance and it looks like these results look good and -- but when I look at the guidance and they look -- it looks pretty good, but it's a bit lower than we had modeled. I was just wondering was -- the deals that slipped last quarter, do you look at those as sort of a one-time shift, or do you look at that as an opportunity to see sort of a catch up in, I guess, a future quarter?

Yes. So, the deals that we expected to close did all close, and we are very pleased with the execution of that. We also saw very strong demand in the second quarter, so it wasn't just about the deals that slipped. We don't expect other deals to slip. Like we said, we're seeing normal sales cycle times and we're not seeing any slip in any of the current high pipeline opportunities.

I'd also like to say, too, that we're pleased that we re-affirmed our 20% revenue growth for this year. We thought -- we find that to be, I think, a good performance for the Company and we did provide some specifics with a range and the range could be as high as 21%.

Okay. That's all helpful, and I don't -- I agree with all -- with that, Charlie. And Charlie, one for you. Can you tell us what the delta would be in cash tax regarding the R&D tax credit, and would that actually even -- that might not hit like right at the end of this year, right? It might hit at the beginning of next year?

Well, it depends really on when it gets renewed. If it gets renewed, say, before we have to make our fourth quarter estimated tax payment, you could get a little bit of a benefit in the fourth quarter. Does that make sense?

Yes, it does.

Yes, no -- yes, if it gets renewed after you made your estimated tax payment you get the benefit sometime next year.

Can you tell us -- can you even roughly tell us what the -- could you quantify that benefit, what it might be?

We think it's approximately 4%. The tax rate without the credit's 35% of the non-GAAP basis. With it, it's about 31%. That's 4% of our pre-tax income.

Okay. Okay, great. Thanks a lot, guys.

Thank you.

And your next question will come from the line of Tom Roderick with Stifel Nicolaus. Please proceed.

Hey, guys. This is Chris Koh in for Tom. Good job on the quarter. So, if -- going back to what you guys had mentioned earlier -- Charlie, I think you mentioned it -- if you could clarify the comment about signings increasing in the first half of '12 relative to total booked business, would you say that you caught up enough in Q2 and that the pipeline's strong enough where you're ahead of plan in terms of bookings or is it pretty much kind of just making up for the lengthening of the sales cycles in the first quarter?

Yes, I would say given that we've reaffirmed the 20% revenue growth, I think that's validation that we're where we're expected to be, we caught up to plan, we feel good about where we are, and we feel particularly good about the pipe activity coming into the third quarter. That's why we're very comfortable in reconfirming our 20% revenue growth and then at the high end of the range perhaps 21%. And we're also pleased that we exceeded the high end of our guidance in Q2 by $300,000, so I think that's good -- I think that's a good position for the Company to be in going into the last half of the year.

Great, and then so if I look at deferred, it looks like it had a pretty nice bump, especially last year; it declined in this quarter. Should we read anything into that or is that timing issues?

Not relative to last year. I think generally deferred revenue does not reflect our contract value -- our full contract value. That's why it's hard to infer much from the deferred revenue balance, but obviously we're pleased with the number of milestone billings we were able to get out in the second quarter driving that increase. I think deferred revenue today, or at least June 30, is probably a record for the Company. So, we're pleased with that, as well, but don't infer too much from that because, again, it does not reflect full contract value.

Great. Thanks, and then one last one. In terms of your comments about M&A, so where do you think you guys would pursue in terms of supplementing your product or complementing your products? Would it be a scale buy? Would it be a geographic buy? If you could maybe -- and I know you have nothing to announce today, obviously, but if you could kind of just direct us in terms of where your line of thinking is relative to opening up that line of credit. Thanks.

Yes, we've commented on our vision of providing solutions that help optimize the sales process and the whole value chain, so the areas that are of most interest to us are adjacencies around our technology to help optimize the whole value chain.

Okay. Great. Thank you, guys.

Thank you.

(Operator Instructions) Your next question will come from the line of Joe Fadgen with Craig-Hallum Capital. Please proceed.

Hey, guys. On here for Chad today. Just a couple of quick questions. I know you said that Europe seems to be going pretty well for you, but I'm thinking this quarter you said it was 28% of revenue. I think last quarter it was like 32%. Looking forward, do you still think around that 30% is probably the right number to think about in terms of revenue from Europe?

Yes, I would say that that's probably not an unreasonable expectation. Again, our B2B business is doing well, so we'd expect that Europe probably should stay about where it is today.

Okay. Sorry. Go ahead.

I was also going to say I think historically, you're probably not that familiar with the story, but we've had a very strong presence in Europe and we're very pleased about our position there. And also, of course, in Europe the two segments that have been talked about quite extensively are government and financial institutions and we're not in either of those. We're very strong in manufacturing, distribution, services, and travel, which are all very large enterprise-wide organizations. So, we feel good about Europe.

Okay. Great.

And one last point that I'll add is one of the companies that I commented on in the script, Kimberly Clarke Professional, was a deal out of Europe, but that's just one of the deals that we've done within that geography.

Okay. Great. Then can you give me some color on how traction is going with the Rebate Optimizer product over these last few months?

Yes, we're actually very pleased with the Rebate Optimizer. We've seen a lot of interest both from our customer base, as well as from new customers, new target opportunities, and we did close deals in both quarters on the Rebate Optimizer. It's bringing marketing, pricing, and sales together to a common collaboration platform. That resonates very well in the market and there's really no solution in the market that brings the total collaboration and brings our predictive prescriptive capabilities. So we've seen very strong demand.

Okay. Great. Real quick. Did you give maintenance renewal rates on the call? Maybe I didn't catch it.

No, we generally don't give it on the call, but our maintenance renewal rates remain best in class, mid to high 90% renewal rates. It's consistent with historical performance.

Okay. Great. And then just one more from me. On the sales headcount, I think you said you ended this quarter at 31, and if I remember correctly, last quarter was 28, so looking at about 3 net adds over the last couple quarters. I mean, we -- do we still feel that -- do you still feel pretty confident that you're going to be able to get to that I think it was 40% growth in the sales force by the end of the year? And I guess what gives you that confidence seeing that it's -- you seem like you probably have to get a pretty good push here in the second half to get there.

Yes, we still feel confident that we will reach the 40% growth based on our recruiting pipeline, so we still have a lot of activity in recruiting, and based on that pipeline, we feel confident that we will increase by 40%.

I'll say our plan has not changed. Our plan is still to increase by 40%.

Okay. That's all for me guys. Thanks a lot. Really appreciate it.

Thank you.

And, gentlemen, your next question will come from the line of Jesse Hulsing with Pacific Crest Securities. Please proceed.

Thanks for taking my question, guys. You won a deal in the quarter with Etihad Airlines. One, how is the airline vertical trending versus manufacturing and distribution and are you seeing more opportunity in the pipeline and emerging markets?

Yes, as far as the trend, we've said for quite a while that the big growth opportunity for the Company is in the B2B business, the manufacturing, distribution, services. We've also said that our travel industry, which is predominantly airline, continues to grow. So, it's trending -- we're pleased with the trend for travel. It's growing, but the bigger growth, of course, as we've been saying, is in the B2B manufacturing, distribution, and services. And as far as the going down market, there's an opportunity for us there. We did a number of deals last year in airline in the down market. We're pleased with that and we continue to look at those opportunities, but also a couple things you may or may not know is that some of the historical metrics is we have, I think, 18 of the top 25 largest airlines in the world, and we've got 8 of the 10 most profitable airlines in the world. So the legacy for the Company has been the larger airlines, but we also are attracting a nice position with the mid-market airlines, as well.

Great. Great. And you talked a little bit about your mid-market product. I know you've added some leadership in that department. How is that trending? How is that team getting ramped up and are there any particular geos that you've been focusing on trying to penetrate?

Yes, so in the mid-market, our leader, Kevin Fitzgerald, has made a lot of progress on building out an inside sales organization as well as continuing to build the awareness in our pipeline and we see quite a bit of interest in that market and expect to see some revenue contributions next year from those investments. Predominantly, most of the interest that we're targeting right now is North America and a little bit in Europe, but mostly North America.

Okay, and last one from me, average deal size -- any movement in the quarter? Is it still trending along with historical averages?

We're very pleased that it's still trending at the historical averages.

Great. Thanks, guys.

Yes.

Yes. Thank you.

(Operator Instructions) Gentlemen, your next question comes from the line of Ross MacMillan with Jefferies & Company. Please proceed.

Thanks. I wonder if you could just go back to the quarter itself and you clearly beat the high end of your revenue expectations, so what actually drove that? Was it more net new bookings that started to convert? Was it just the pace of implementation? If you could just put some color on what actually drove the upside in the quarter, that'd be great.

Yes, actually, I'd say it's a mix of both. As we mentioned, we're very pleased with the bookings activity for the quarter, so that helped. We're also pleased with the timing of our implementations during the quarter. We got some help there, as well. So, we feel good. Plus, of course, obviously, the catch-up in Q1, right, for the deals that didn't close. That's really the booking space, so we feel good about both of those components.

Okay. That's great, and then I think most of my other questions have been asked. I just wanted to recap on cash flow, Charlie. I think I heard you say that you still expect your cash flow from operations this year to approximate to non-GAAP operating income. Is that correct?

That's correct.

And just in terms of the first half performance on cash flows, and I guess specifically, I think the DSOs are still tracking a little bit above last year, anything to comment on there or is it just -- is it really just timing on payments? Are you seeing any extended payment terms for customers or any change in cash collection?

No. It's entirely based on the timing of our billing, timing of our milestone billings and the bookings we have in the quarter. The billings go out, you don't necessarily get the collection in the quarter. That's why we're -- actually from a cash flow standpoint, one of the reasons I feel good about the last half is our trade receivables are up substantially, about $8 million in trade receivables, so that's going to help the cash flow in the last half of the year. So it's really just a function of the timing of the billings. It's not extended terms. It's not credit issues that we see in the marketplace, so I actually feel good about that.

And then just in terms of the geographic mix, I think I got the numbers you gave and they obviously suggest that the U.S. is growing faster than the international business, but I think the comp was a lot easier. So, just in terms of net new business, is that also kind of the reflection of what you're seeing in terms of net new business mix that North America from a growth perspective is leading the way or is that not necessarily the case? Is it more broad-based?

Yes, it's definitely net new North America is doing very strong, but also Europe. What we commented on the script is the industry, the manufacturing, distribution, and services, we're seeing heavy growth as you know. Most of our business in travel, well over 90% is outside of North America, so most of the growth that we're seeing is in the B2B manufacturing, distribution, and services industries.

So if we compare just B2B in North America and B2B in Europe, those would be more similar, but when you add in the lower growth travel business outside of the U.S. that brings that international growth rate down?

That's exactly right.

Exactly right.

That's what we're expecting as we go forward.

Okay. Great. Thanks a lot. Congrats.

Thank you.

And ladies and gentlemen, at this time I have no further questions in queue. I'd like to turn the call back over to Andres Reiner for any closing comments.

Thank you for your participation in today's call and for your support of PROS. We are confident that our growth strategies are working. More and more companies look to PROS to monetize their big data and improve their business performance. We continue to invest in innovation and our go-to-market strategies in order to drive long-term, sustainable growth. I would like to thank our PROS team worldwide for their relentless passion and commitment to innovation and customer success. Thank you to our customers, partners, and shareholders, as well, for your support of PROS. We look forward to speaking with you on our next call. Thank you and good-bye.

Ladies and gentlemen, we thank you for your participation in today's conference. This does conclude the presentation, and you may now disconnect. Good day.