Pros Holdings Inc (PRO) 2013 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q1 2013 PROS Holdings Inc. earnings conference call. My name is Karen, and I'll be your operator for today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions).

As a reminder, this call is being recorded for replay purposes.

I'd like to turn the call over to Charlie Murphy, Executive Vice President and Chief Financial Officer.

Thank you, operator. Good afternoon, everyone, and thank you for joining us today for the PROS Holdings financial results conference call for the first quarter of 2013. This is Charlie Murphy, Executive Vice President and Chief Financial Officer of PROS. Joining me on today's call is Andres Reiner, President and Chief Executive Officer.

In today's conference call, Andres will provide a commentary on the first quarter of 2013, and then I 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 pros.com.

Finally, PROS has provided in its earnings release and will provide 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 like -- 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, which 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, Charlie, and thanks to all who are joining us on today's call. I'm pleased to report another strong performance by PROS in the first quarter of 2013. Our momentum from 2012 continues, even against the backdrop of an uncertain global economy.

PROS value proposition resonates now more than ever when companies are looking for solutions that deliver growth and profitability improvements across their business.

Confidence in PROS is reflected in our first quarter financial results, with revenue exceeding the high end of guidance at $33.6 million, a 24% year-over-year increase.

Non-GAAP operating income also exceeded the high end of guidance at $4.1 million, and non-GAAP EPS was $0.15 per share.

I'm proud of our team for delivering these great results and grateful to our many customers across more than 30 subindustries who partner with PROS to turn their big data into a selling advantage.

As the pace of business accelerates and the volume of data grows exponentially, the need for prescriptive, real-time, and innovative solutions like PROS only grows stronger.

Experts estimate the market for big data applications will increase from $1.8 billion in 2013 to more than $5 billion in 2015.

We believe we're in a strong and differentiated position to capitalize on this rapidly growing market due to our advanced data science expertise, our market-leading solutions, and our excellent customer reference ability.

More companies are recognizing that PROS delivers on the promise of big data. In the first quarter, Alliance Laundry Systems, Gates Corporation, Great Lakes Cheese, LATAM Airlines, and Sterling Infosystems, among others, all selected PROS as their big data solution of choice for driving growth and profitability.

The addition of new customers and our ongoing strength in B2B is driven by investments in our three main growth strategies, accelerating awareness and adoption of our solutions, extending our product leadership position, and increasing our global reach and scale.

I will share a few highlights of the progress we've made in each of these areas during the first quarter.

Our investments in accelerating awareness and adoption are working, as demonstrated in the first quarter by new customer signings and increased demand.

Recently, we enjoyed record attendance at our PROS Outperform Big Data event in New York. Guests heard presentations from PROS customers, such as American Standard, Arrow Electronics, Ecolab, Johnson & Johnson DePuy, and Panduit.

One customer shared how they benefited from PROS fast time to value by integrating their enterprise data into PROS analytic solution just nine days after starting their project, allowing them to immediately identify opportunities for improvement.

Another customer shared how they leveraged PROS data science and analytics to improve average field size 6% in one year in a market with substantial downward pressure on prices.

Yet another customer turned their declining profitability around in just nine months, doubling margins by using PROS data science to guide sales reps on which offers and prices were most likely to win.

These are just a few examples of how we help customers outperform in their markets. We view the increasing willingness of our customers to share their success and the record level of attendance as signs that the market is maturing, demand is increasing, and that our investments to promote and lead the market are working.

Our investments in extending our product leadership position in the market are also paying off. In the first quarter, we filed four new data science patents centered on turning big data into actionable insights that improve sales and pricing performance.

For example, one patent enables better predictive capabilities for cross-sell and up-sell opportunities in B2B selling environments.

Another patent focuses on the significance of attributes in predicting pricing outcomes. We turned these data science innovations into tangible value for customers by embedding them into real-time big data applications for sales.

The patterns and insights identified by data science result in guidance from PROS on key business actions, such as predicting customer attrition, guiding sales teams on which accounts to call on, and prescribing which products to sell.

Innovations like this help give customers better confidence in the decisions and actions as well as a performance advantage in their markets.

A report from Gartner stated that companies who invest more fully in big data technologies than their competitors have the potential to outperform their competition by 20% in every available financial metric.

We will continue to invest in big data science and technology innovations that help companies outperform and further differentiate PRO in the market.

The third pillar of our growth strategy is to expand our global reach and scale through direct sales coverage and our partner ecosystem.

We ended the first quarter with 39 quota-carrying personnel. We expect to achieve our goal of approximately 30% increase in quota-carrying personnel in 2013 to meet the growing demand for solutions.

Our strategic partnership with Microsoft continues to play an important role in driving awareness and differentiation for PROS in the market.

We collaborate with Microsoft on product innovation and go-to-market activities, such as joint event sponsorships, content creation, and thought leadership in key B2B industries.

In the first quarter, Microsoft spotlighted PROS at their Global Account Summit. And Microsoft is the premier sponsor of PROS Outperform event in New York and Brussels.

We collaborate with Microsoft in their chemical and discrete manufacturing industry reference architecture initiatives, providing technology leadership and best practices to companies in these markets.

On the product side, we continue to coinnovate with Microsoft on SQL server, dynamic CRM, and other Microsoft technologies that further differentiate PROS.

We value our strategic partnership with Microsoft as it strengthens our position in the market and enhances our value proposition to customers.

We're also excited about our new OEM agreement with SAP announced last week. As an OEM partner, PROS can offer customers the choice to run PROS solution on SAP HANA for real-time analytics.

The planned integration of PROS and HANA will provide customers with additional flexibility, speed, and data science capabilities for optimizing pricing and sales.

This OEM relationship is a natural extension of our long-term partnership with SAP. We share a common vision of empowering customers to take faster, more-informed actions that will drive their growth in overall business performance.

With more than half of our B2B customers running SAP, our innovation on HANA reflects our long-standing commitment to provide SAP customers with the most complete and seamless integration experience.

We believe our OEM partnership further distinguishes PROS as an innovator and a leader in the real-time big data applications for sales and pricing effectiveness in the SAP community.

We will have a strong presence at the upcoming SAP Sapphire Now Conference, where we will showcase our partnership with SAP and our industry-leading big data solutions.

Overall, Q1 was an excellent quarter for PROS. We delivered strong financial results and made great progress executing on our stated growth strategies, enabling us to slightly raise our full-year revenue guidance.

Looking ahead, we remain confident in our business for the remainder of the year and beyond because demand for solutions continues to grow. 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 outperform in their markets using big data science and solutions as a competitive advantage.

We believe PROS is a stronger position than ever before. And we will continue to invest in our growth strategy to capitalize on this sizable market opportunity.

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 second quarter and full year of 2013.

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 first quarter with total revenue of $33.6 million, exceeding the high end of guidance and up 24% from a year ago. License and implementation revenue was $22.6 million, up 27% from a year ago.

Maintenance and support revenue of $11 million was up 20% from a year ago and represents the largest component of revenue from recurring sources. Total recurring revenue, which includes maintenance and support revenue and the number of term license contracts was 39% of total revenue in the first quarter.

Non-GAAP gross margins in the first quarter were approximately 70% as compared to 72% for the first quarter of 2012. Margins can vary from period to period, primarily due to the level of implementation services required relative to the contract value.

In addition, margins have been impacted by investments in personnel, particularly across our professional services teams, in anticipation of future growth.

Total non-GAAP operating expenses for the quarter were $19.4 million compared with $15.3 million a year ago, an increase of 27%. Non-GAAP operating income in the first quarter was $4.1 million, essentially in line with a year ago.

Non-GAAP operating margins for the quarter were 12.2%, reflecting investments across our business in support of our growth.

As we previously commented, the research and experimental tax credit was renewed for both 2012 and 2013 in January of 2013. And we recorded the entire 2012 tax credit in the first quarter, as required by GAAP.

Therefore, the entire 2012 R&E credit is reflected in our first quarter and full-year 2013 tax rates.

The non-GAAP effective tax rate, which includes the entire 2012 credit, was a benefit of approximately 8%, resulting in non-GAAP net income of $4.3 million for the quarter, an increase of 59% over the prior year.

Non-GAAP earnings per share were $0.15 compared to $0.10 per share a year ago. GAAP earnings per share for the quarter were $0.06 compared to $0.04 per share a year ago.

The 2012 R&E tax credit contributed $0.05 to both non-GAAP and GAAP earnings per share in the quarter.

Now, moving to the balance sheet, we ended the first quarter with cash and cash equivalents of $82.5 million, a decrease of $1.1 million from the end of the fourth quarter.

Capital spending for the first quarter was $2 million. We expect capital spending for infrastructure and facility improvements for the year to be approximately $8 million.

Gross accounts receivable at the end of the quarter were $42.7 million. Days sales outstanding were approximately 110 days, a nine-day improvement from the fourth quarter.

We generated operating cash flow of $1.3 million in the quarter, yielding a cash flow margin of 3.8%.

Cash flow was impacted by the payment of variable compensation related to 2012 performance. For the year, we expect our annual operating cash flow to approximate our annual non-GAAP operating income of approximately 13% to 13.5%.

Finally, headcount, including outsourcing, at the end of the quarter was 739, up from 580 on March 31st, 2012, an increase of 159 or approximately 27%. We continue to increase our sales, marketing, engineering, professional services, and administrative resources, which reflects continued confidence and our long-term opportunity.

Before I turn to our guidance for the second quarter and the year, let me provide you with some additional information related to our business. As we have been discussing with you, we continue to invest in our quota-carrying salespeople, primarily in the United States, and an awareness initiative to drive our B2B business, which is the key growth driver for our Company.

As a result of our investments, we continue to see strong growth from our B2B business. And this was reflected in our United States revenue, which increased 48% and contributed 47% of total revenue for the quarter compared to 40% of total revenue in the first quarter of 2012.

Our legacy travel B2C business, which is predominantly outside of the United States, continues to perform well and is up compared to last year, driven by rest of the world, which made up 30% of total revenue and increased by 32% over the prior year.

Revenue from Europe was 23% of total revenue in the first quarter as compared to 32% of total revenue in the first quarter of 2012.

As you know, our revenue by geography can vary quarter to quarter based on the timing of implementations. Overall, we are pleased with how our European business is performing, given the difficult macroeconomic environment. And we expect this business to grow in 2013.

Our business continues to have positive tailwinds, driven by the large growing and significantly underpenetrated B2B markets we serve. Interest levels in our big data solutions remain very high. And we continue to benefit from our diversification across many industries and geographies.

As we discussed with you last quarter, we will continue making strategic investments to drive our future growth, particuarly in sales and marketing, product development, professional services, and to a lesser extent administration in 2013.

We believe these investments will further increase our leadership position, enable us to capture 20% plus top line revenue growth over the next few years.

Now, turning to our outlook, we continue to be optimistic while mindful of the global economic environment. For the second quarter, we anticipate revenue in the range of $34.8 million to $35.4 million, approximately 25% growth at the midpoint from the second quarter of 2012.

We expect total expenses to be approximately $30.9 million, up from $23.7 million in the second quarter of 2012 as we continue to make strategic investments in our business.

We expect non-GAAP operating income margins of approximately 12% at the midpoint of revenue guidance.

With a tax rate of approximately 27% in the second quarter, we anticipate non-GAAP earnings per share of $0.09 to $0.11 based on an estimated 29.8 million shares outstanding.

On a GAAP basis, we expect operating income margins of approximately 1% and GAAP earnings per share at breakeven.

With the research and experimentation tax credit for 2012 and 2013 both recorded in 2013, we expect the 2013 full-year non-GAAP tax rate to be approximately 19% and for the second through fourth quarters, we are modeling non-GAAP tax rates of 27%.

For GAAP, we are modeling the full-year tax benefit of approximately 5%, and we are modeling tax rates for the second through fourth quarters of 48%. Our GAAP tax rate is higher than the federal tax rate due to a nondeductible portion of noncash compensation expense.

For the full year, we are slightly raising our revenue growth targets and now expect revenue growth of approximately 23%. Our non-GAAP operating margin guidance continues to call for approximately 13% to 13.5% as we invest in the significant opportunity we see ahead of us.

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 first quarter. And we believe we are very well positioned for a strong performance through 2013. We are confident that our growth strategies are working and that we can 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. (Operator Instructions). First question comes from the line of Scott Berg of Northland Capital Markets. Please go ahead.

Hey, Andres and Charlie. Congratulations on what appears to be a very strong quarter for you guys.

Thank you.

Thank you.

Couple quick questions. First of all, Charlie, on the EPS outperformance in the quarter, was the impact of the tax credits in line with your expectations, or was there any variance in the quarter?

I would say it's pretty much in line. And it was, as I mentioned, $0.05 both on the non-GAAP and the GAAP EPS. Now, that's behind us, of course. I'm sure a lot of companies will have a similar situation for the first quarter because of the 2012 R&E credit. And then going forward, I think we tried to give very explicit tax provision guidance so everyone can get their models aligned with our expectations.

Great. Just trying to reconcile if the strong earnings performance was more tax related or other operations. And clearly, it looks like it's operations.

Andres, could you talk a little bit maybe about pipelines or demand in the space, US, say, versus Europe in particular, and what you're seeing on an incremental change basis from the fourth quarter?

Yes, so, we continue to monitor all areas of our pipeline, the top end of the funnel as well as the late-stage opportunities. And we're seeing a positive progression in growth in all those areas, both in North America and in Europe.

I would say North America has been a very strong part of our growth and continues to be a strong part of our growth and our growth strategies, from both the sales and marketing.

So, we feel very good about the pipeline improvements quarter over quarter and year over year.

Great. And the last question I have for you is on sales cycles and/or any deal slippage. Did you see any material change to either of those in the quarter? Obviously, you announced the number of large customer signings, which is a positive for the business. But, your company seemed to buck the trend of other large ASP, call it on-premise, license software companies out there that seemed to have struggled in Q1.

Yes, no meaningful change in the overall sales time, and no change in deal slippage that we saw in the quarter. So, we continue to see that companies are really focused on making strategic investments.

I would say we've seen a trend over the last year as the focus in investing in technologies that are going to drive meaningful and measurable ROI. And I think that's what's really helping us in the market is aligning to a very clear measurable ROI and being able to show that we can drive a fast time to value, that we can drive meaningful results to the business within the first year and typically payback within the first year. I think that gives us a big competitive advantage.

Also, seeing that customers sharing their success, like in our Outperform event in New York, helps a lot because prospects are able to see and hear directly from them meaningful results and validating the ROI stories. It's not just the success of the technology but being able to speak confidently about the captured ROI.

Great. Thanks. I'll jump back in the queue.

Thank you.

Thank you for your question. The next question comes from the line of Joe Fadgen of Craig-Hallum. Please go ahead.

Yes, hey, guys. On here for Chad today. A couple quick questions. One, I guess around the competitive environment, it seems like you guys are seeing a lot of opportunity. Awareness for your solutions seems to be growing and everything like that. I'm just wondering. Are you seeing, like, more aggressive competition out there? Are you running into your competitors more often? Are they more aggressive when you do compete, any color around that?

No, we haven't seen any real change on the competitive landscape. I am very proud of our sales team and our execution when we're in competitive situations. We have a very strong win rate. So, I think, really, there hasn't been a very meaningful change in that.

And then, really, our focus continues to be on that 95% of the market that hasn't adopted the technology and going and capturing that large market opportunity. And we feel we're in a pretty strong differentiated position.

Yes, okay. Again, I guess then, just to follow up on that a little bit, given that it seems like you've got -- talk about what a high value-add offering this is. And customers really see the benefit of it, lot of greenfield space, room to run.

I guess have you seen -- have you either I guess raised your ASP, or do you think there is a possibility to, like, raise basically what you charge given the value of your offering? Obviously, you'd want to be thoughtful about it. But, I'm just wondering how you kind of think about that, how you approach that.

I would say we're really not -- I wouldn't say we're focused on raising our prices. We believe we have a solution that drives very strong ROI. And we believe it's really about growing the market share and growing our market penetration.

We believe the lifetime value because we're successful with customers, because we're not licensing global enterprise licenses, we want to build an incredible customer experience and continue to expand within our customers to drive more value.

Okay.

At this point, I don't see a meaningful shift in our ASP.

Okay. All right. And then a last one from me. Last year, you guys were pretty aggressive on hiring on the sales force. I assume those guys are ramping and getting up to speed kind of as you would expect.

Yes, I would sound very proud of the team that we built. And I think we're continuing from a process from a development and onboarding. We're continuing to make big improvements. And I think, definitely, we have a stronger sales force today than we had a year ago. And we're continuing to invest in growing that organization, but definitely very proud of the results that they've driven.

Okay. All right. That's all for me. Thanks a lot, guys.

Thank you.

Thank you.

Thank you for your question. The next question comes from the line of Tom Roderick from Stifel. Please go ahead.

Hey, guys, this is Chris Koh for Tom. So, just -- .

-- Hi, Chris.

Hey, guys. Good afternoon. So, just a follow up on the previous question. So, I think you ended last quarter at 38 sales reps. And I think you mentioned 39 this quarter. So, that seems to be a bit of a slow start in terms of the hiring. Are you able to find all the people that you want, or was that pretty much in line with what you expected coming into the quarter?

Yes, I would say we're very selective in our recruiting. We're looking for salespeople that are experienced with the Challenger sales model and that I think we definitely feel we're in a good position. And we feel that with our pipeline of candidates that we have that we will ramp up to the 30%.

So, definitely, a lot of the sales reps that we'll add this year is really to drive growth for next year. And we feel we're in a good position. And we definitely feel that we will recruit to the 30%.

Great. And then on this OEM relationship with SAP, what are the ramifications for that from a tangible standpoint? I understand it's probably a little early to be talking about actual revenue. But, if you could maybe better help us understand what you expect to get out of that, appreciate it. Thanks.

Yes, I would say three key areas. It definitely strengthens our solution by bringing the real-time capabilities into our technology, further real-time capabilities.

It also aligns with our big data strategy around the SAP community. A lot of our customers are SAP customers. And they're interested in adopting newer technology that SAP's providing.

It also raises the awareness of PROS in the market. And definitely, it aligns us and SAP together from a go-to-market sales and marketing.

Great. Thanks, guys.

Thank you.

Thank you for your question. The next question comes from Greg McDowell of JMP Securities.

Hi, thank you so much. Thanks for taking my questions. I actually just have one question. And I apologize if you addressed this already. In going back to the analyst luncheon last month, you talked about the three types of partners, systems integrators, technology partners, and resellers.

And I think, on this call, you've talked quite a bit about technology partners and the relationship with Microsoft and SAP.

I was just wondering if you could talk about SIs in the quarter and how they performed and maybe some of the resellers in the quarter and how they performed because I think, at the Analyst Day, you talked a little bit about how you've recently brought in resellers from China. So, that's my question. Thank you so much.

Yes, so, we continue to invest in our SI partner community to achieve scale and awareness in the market. Within the first quarter, approximately 35% of our projects, we had an SI partner involved. And we continue to work diligently with our partner ecosystem around our growth.

We also were very pleased to have Deloitte not only sponsor our Outperform event in New York, but also be a speaker at the event. So, definitely, our alignment with the SI partner continues.

Within the resellers, we continue to work with both our resellers, Habber Tec and Integritas. And we are focused in those markets in early-stage opportunities helping to build a pipeline, supporting them in engagement, raising awareness. These are areas where it's early-stage market, less mature. But, we're investing for future growth in the three- to five-year term helping to drive our growth.

That's helpful. Thank you. And one quick follow up. I don't remember if it was Craig or Chris who mentioned this at the analysts' luncheon. But, you talked about some of the different sales levers to drive growth. And those two levers were both getting revenue from existing customers and winning new customers, new logos.

And I was wondering. As you think about Q1 and those two levers, maybe which lever you were more happy with, new logo wins versus driving revenue from your existing customer base. Thanks.

Yes, that's a great question. I think, consistent with last year, we're very pleased with the new customer acquisition. Obviously, a big part of our business is sell back in, particularly on the travel side, which is our B2B business, our legacy that's very mature.

But, on the B2B side and on the travel, we had new customer acquisitions in Q1 and certainly last year. So, we're pleased with the focus and our ability to attract new customers each quarter. And that then just leverages the opportunity to sell back in. And we're pleased with our historical sell-back-in experience. So, net-net, we're very pleased with the new, but the sell-in continues as well. So -- .

-- Great. Thanks. I'll get back in the queue.

Great.

Thank you for your question. (Operator Instructions). The next question we have comes from the line of John DiFucci of J.P. Morgan. Please go ahead.

Hi, this is John DiFucci. Thanks for taking my question.

Hi, John.

Hey, Andres. So, Charlie, two quick questions on cash flow. Cash flow was a little bit -- it was lower than we were looking for. It declined year over year. I guess, will we see improvement going forward, or will the investment this year sort of suppress cash flow? That's the first question on cash flow.

Yes.

I did notice -- we did notice an increase in accounts receivables this quarter -- .

-- Yes -- .

-- Which will help cash flow next quarter. But, that's not normally what we see seasonally. So, if that's like the -- that's going to really normalize cash flow. What happened in the quarter? Was it more backend loaded for some reason or something?

No, actually, John, both points think are very well taken. For the cash flow for the year, we reaffirmed I think on the script that we actually just discussed that we expect cash flow for the year to approximate our non-GAAP operating income. So, we're very comfortable with that.

So, if you look at Q1, you nailed it when you talked about receivables. And you nailed it when you talked about last year. Last year, receivables actually decreased a bit. And we had -- I think as we went through that quarter, we had said that there were some deals that slipped in the first quarter of last year. And deals obviously have an impact on our receivables.

So, our receivables came down in the first quarter of last year, providing cash flows, which some analysts I think assumed would happen again in their cash flow models this year.

This year's Q1 receivables actually increased, which we view as a positive. And that increase was as a result, of course, of new customer acquisitions, new bookings, as well as time of implementation, milestones and such. So, last year, a different start to the year, this year, a different start to the year. Receivables are up. We view that as a real positive.

And you're right. If you look at the change from last year to this year, it's the change in receivables that changed the cash flow for the quarter.

So, for the year, we feel very confident about achieving our overall objectives of approximating non-GAAP operating income. Does that make sense?

Yes, that does. I guess just the second part to my question, given that receivables went up this year and I think it was -- they went down the last two -- the prior two years. And the year before that, it did go up. But, I was just wondering if, perhaps, you just signed some deals. Were there more deals at the end of the quarter? That's all -- and where you would've billed people but not collected yet.

Well, that's -- I would say yes. There's more deals in Q1 than there were in Q1 of last year. That's absolutely the case, yes.

Okay. That's fair. Thanks, Charlie. And I guess, just a quick follow up for Andres. It looks like your European business, at least the revenue declined year over year, which makes me think that the bookings probably even declined more year over year, given the way your revenue's recognized.

I guess, what gives you the confidence -- I think Charlie said that your European business was going to increase this year. Is it because of deals that are already sort of in the works that just haven't hit their milestones yet where you're going to be recognizing revenue, or is it really more your pipeline that you have confidence in?

John, let me take part of it. Then I'm sure Andres can elaborate a bit. The preponderance of our revenue in the first quarter is coming off of the backlog we had at the end of the year. So, it's really not as much a function of which deals close in the quarter. They're not going to have that much of an impact on revenue by geography, even revenue mix between B2B and B2C.

And the European revenues came down this quarter compared to last quarter, as you mentioned. But, I will comment that the B2B revenues increased. The revenues that came down were at our legacy travel business, which has even more variability on a quarter-to-quarter basis because they're truly global in nature. The travel business is spread across all geographies, whereas -- so, you can have more variability in the travel side.

So, that's what gives us confidence. We say the revenue in Europe is going to continue to grow because the preponderance of our revenue in that little part of the world is more B2B today than it is travel.

Yes, the other part that I would comment is we continue to monitor the pipeline not just for the global business but even B2B within Europe. And when we look at B2B within Europe, the top end of the funnel as well as the overall pipeline, we've seen growth year over year. And we feel very good about our projections for the year in achieving the growth. So, definitely, there are areas that we're continuing to invest from a B2B perspective.

Okay. Great. Thanks, guys. It's nice to see a software company not do what most of the other ones have done. So, thank you.

Thank you.

Thank you. Thanks, John.

Thank you for your question. Next question comes from the line of Aashiv Shah of Jefferies. Please go ahead.

Hi. It's actually Ross MacMillan on Aashiv's line. Andres -- .

Hi, Ross.

Hey, guys. How are you? I just had a quick question on the relative -- I know you don't disclose this on a quarterly basis. But, I was curious to get a sense for the relative growth rates of the traditional travel business relative to the MDS or B2B business. You gave as an update at the end of last year, which helped us frame it.

Is that differential broadly unchanged, or as you -- maybe a question really for the year. Do you think that B2B growth relative to the traditional airline business, are we going to see further acceleration do you think in the B2B business, or how do you think that plays out?

Yes, John. This is Charlie. I think the way we're looking at 2013, we think it's going to play out fairly consistent with last year. So, we don't see a big shift between the two. And we think that's a positive. We expect the travel business to continue to grow. We don't expect it to be the big driver for the Company. But, we expect it to grow. We continue to invest in travel. I think we've made that -- hopefully we've said that on a number of occasions.

So, we expect our travel business to continue to grow. But, we continue to expect our B2B business is really where the growth is for the Company. And so, we don't expect much of a change between those two.

Yes, and I would say there was no meaningful change.

So, that would mean that the mix between B2B and airlines, I think it was 56-44 last year, is going to get even more skewed, obviously, towards B2B this year, i.e. the highest -- higher-growth category.

Yes.

That's what we'd expect.

Okay. And then I just had one other one, just really following up to John's question on cash flows. And I heard you still saying that you're very confident around the full-year cash flow growth.

What are the variabilities that we could see on cash flow because I remember, last year, I think you made the comment about Q1. But, in Q4, I think your -- the calculated DSO spiked up. So, I just wanted to sort of revisit the variability, if you will, quarter to quarter around milestone payments and recognition and so forth.

Sure. Yes, I would say the fourth quarter for us is definitely one of our stronger cash flow quarters. I think some of that may just be -- there's a seasonal factor there where large companies seem to like to get some cash off the balance sheet by the end of the year. So, we get a little bit of a benefit from that.

So, the receivables, of course, went up last year. But, that was very positive because, again, that really is I think another indication of a good bookings period for us.

So, if anything, the DSOs came down Q1 compared to Q4. So, we feel really good about the quality of our receivables and the relative direction the receivables are going in. But, all it takes is a few. These are all big deals. It takes just a few collections here or there, and it can have a fairly significant impact on a quarter-to-quarter cash flow metric.

Okay. Last one. Just on the platforming on HANA, is it too early to talk about sales cycles or engagements, even early sales cycle engagements? Is it still too early to talk about that, or have you already started to see any interest?

We have seen interest, both prospects and customers. But, I would say it's still too early from a sales process standpoint. But, definitely, we've seen interest in the market and positive interest from both our customers as well as prospects in the market.

And, Andres, do you know if Vendavo has done something similar yet, or are you unique as having platformed on HANA?

I'm not aware. So, I'm not aware of them. But, we're definitely first to speak publicly about it. But -- .

-- Okay. Great.

And we know we're one of a few OEM HANA partners. That we know for sure.

Great. Thanks, again. And congratulations.

Thank you.

Thank you.

Thank you for your question. I'd now like to turn the call back over to Andres Reiner for closing remarks.

Thank you for your participation in today's call.

We're pleased with our performance in the first quarter and feel good about our outlook for the remainder of the year. We're confident because our growth strategies are working. And demand for big data applications powered by data science is growing.

With our legacy of innovation, market-leading solutions, and unmatched customer reference ability, PROS is in a strong position to capitalize on the growing market opportunity.

I would like to thank our PROS team worldwide for their relentless passion and commitment to customer success. Thank you also to our customers, partners, and shareholders for your support of PROS.

We look forward to speaking with you on our next call. Thank you and goodbye.

Thank you, ladies and gentlemen. This concludes the presentation. You may now disconnect. Have a good day.