Pros Holdings Inc (PRO) 2014 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first quarter 2014 PROS Holdings, Inc., earnings conference call. My name is Crystal and I will be the operator for today.

At this time, all participants are in a listen-only mode. Later, we will a question-and-answer session. (Operator Instructions).

As a reminder, the conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Mr. Charlie Murphy, Executive Vice President and CFO. 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 first quarter of 2014. 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 2014, and then I will review 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 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 at our website at pros.com.

Finally, PROS has provided in its earnings release and will provide in this conference call forward-looking guidance on a non-GAAP basis. We will not provide any further guidance or updates on our performance during the year unless we do 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, 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 that PROS started 2014 with a strong performance in the first quarter. The market for big data applications continues to build as more companies count on PROS to help them outperform in their markets.

Our strength in the market is reflected in our first quarter results, with non-GAAP revenue exceeding the high end of guidance at $42.9 million, a 28% year-over-year increase. Non-GAAP revenue contribution from acquisitions was $6 million. Non-GAAP operating income was $800,000, and non-GAAP EPS was $0.01 per share, both exceeding guidance.

We're pleased with these results, which were driven by our diversified growth strategy. Our acquisitions are performing better than expected, and we're making great progress on the integration of Cameleon and SignalDemand.

We have integrated our sales and marketing organizations with a unified go-to-market approach, and our product teams are aligned around a common innovation strategy. Across the business, our people are coming together under a shared culture of innovation, collaboration, and commitment to customer success. We are benefiting from the addition of strong people from Cameleon and SignalDemand, with a number of promotions already taking place in key roles.

Overall, we're excited about the many opportunities to drive growth, differentiation, and value for our customers. We continued to strengthen the sales organization in the first quarter. We're investing in hiring, onboarding, and training programs to further improve sales execution in B2B, such as in Europe, where we're making progress and still have work to do.

We're starting to see a positive impact from the initiatives we have underway, and expect continuous improvement throughout the year. I'm grateful to our many customers and partners across more than 40 sub-industries who work with PROS to turn their big data into a selling advantage. As the pace of business accelerates and competition intensifies, the need for prescriptive real-time solutions that drive sales only gets stronger.

PROS offers a unique and powerful way for companies to overcome their growth challenges. According to a recent study by the Aberdeen Group, an average of 60% of sales reps obtain quota when their companies use big data applications for pricing and quoting, compared to only 35% of sales reps attaining quota for those who do not invest in this technology. This 71% improvement confirms that B2B companies simply win more when using big data applications like those from PROS.

Our B2C customers also enjoy the advantages of our data science and solutions to drive better performance. For example, in their recent Investor Day presentation, one of our B2C customers attributed approximately $50 million of incremental earnings to fleet optimization and price optimization, both provided by PROS.

Results like these helped us add a number of new customers in the first quarter, including, among others, a business unit within Cargill, Brasil Foods, Hub Group, Jet Airways, and Legrand. We're honored to have been selected by these companies, and believe this is further validation that our solutions are of great value across many industries.

We're confident we will grow 20%-plus per year for the foreseeable future. Driven by our investments to accelerate awareness and adoption, extend our product leadership position, and expand 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, increased interest from prospects, and an uptick in our fees. We enjoyed record attendance at our 2014 Outperform events in the US and Europe.

Guests heard customers such as Arrow Electronics, Celanese, Ecolab, Gates Corporation, HP, Johnson & Johnson Depuy, Merck Millipore, NewPage, and Pearson share their success stories. One customer explained how they reduced deal quote turnaround times by 25% in the retailer channel, resulting in more wins and better buying experiences. Another described how they achieved payback on their investment in just six months.

Impressive ROIs like these are getting noticed. Recently PROS won the prestigious CRM Watchlist Award in recognition of standout technology companies that have a meaningful impact on their customers' business. We're pleased to be recognized as a leader in the CRM space.

Throughout 2014 we are a leading sponsor of nine Salesforce 1 World Tour events across North America and Europe, followed by our platinum level sponsorship at Dreamforce. We will showcase our next generation sales effectiveness solution designed for and delivered directly to the Salesforce.com community.

We are pleased with the impact our investments in accelerating awareness and adoption are making, and will continue to invest in this area going forward.

We continue to extend our product leadership position in the market, with investments in innovation. The latest version of our PROS big data application for B2B companies features advances in mobility and prescriptive deal recommendations that enable a more agile and effective sales team.

Our acquisition of Cameleon and SignalDemand also creates further value for our customers, and further product differentiation for PROS. For example, bringing PROS analytics into SignalDemand's price and mix optimization solution drives greater visibility into performance and better agility in responding to shifts in the market. We believe this is a unique combination.

Similarly, we're setting a new standard of innovation in the CPQ market, with the combination of PROS and Cameleon. By bringing data science and analytics to CPQ, we deliver world-class quoting with prescriptive price guidance that gives sales reps a better chance of winning deals and hitting quota.

It's unique capabilities also help companies deliver a better customer engagement experience across multiple channels such as e-commerce and mobile. Our innovation in this market is driving increased demand for CPQ solutions and further extending our product leadership position. Gartner Research even reported the PROS and Cameleon combination would pose a real threat to pure-play CPQ and price optimization vendors.

The third pillar of our growth strategy is to expand our global reach and scale through direct sales coverage in our partner ecosystem. We ended the first quarter with 52 quota-carrying personnel, and we're continuing to grow the team, as planned throughout the year.

As we stated in previous calls, we expect system integration partners to help us expand our global reach and scale by leading more PROS implementations going forward, and by contributing to demand generation. We are pleased to be on track in both of these areas.

We have seen the number of opportunities coming from system integrators increase in each of the last three quarters. With more than 60% of our B2B customers running SAP, we continue to invest in our SAP technology partnership by achieving the latest certification for technology integration, setting the standard for most complete and seamless integration experience in the market. We believe this is one reason why so many SAP companies choose PROS. We look forward to showcasing our solutions at the upcoming SAP SAPPHIRE conference.

Overall, we're pleased with the progress we're making in our partner ecosystem, and we will continue to invest in this area.

Q1 was a good quarter for PROS. We delivered strong financial results and executed on our growth strategy. Looking ahead, we remain confident in our business for the rest of the year and beyond, as more companies recognize the power of PROS big data applications to drive growth in outperforming their markets.

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 2014.

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 non-GAAP revenue of $42.9 million exceeding the high end of our guidance and an increase of 28% from a year ago. As Andres discussed, we are pleased with the performance of our two acquisitions, which contributed $6 million to non-GAAP revenue.

License and implementation revenue was $30 million, up 33% from a year ago. Maintenance and support revenue was approximately $12.9 million, up 17% from a year ago, and represented the largest component of revenue from recurring sources.

Total recurring revenue, which includes maintenance, SaaS, and term license contracts, was 42% of total revenue in the first quarter.

Non-GAAP gross margins in the first quarter were approximately 68%, as compared to 70% in the first quarter of 2013. Excluding the impact of our two acquisitions, gross margins for our organic business would have been approximately 70%. As a reminder, our gross margins can vary from period to period, primarily due to the level of implementation services required relative to the total contract value. We expect the acquisitions to continue to impact gross margins in a similar proportion throughout the remainder of 2014.

Total non-GAAP operating expenses for the quarter were $42.1 million, compared with $29.5 million a year ago, an increase of 42.7%.

Non-GAAP operating income in the first quarter was $800,000, compared with $4.1 million a year ago. Non-GAAP operating margins for the quarter were 1.7%, primarily due to the dilutive impact of our recent acquisitions. Our non-GAAP operating income exceeded guidance as a result of revenue outperformance and better expense control management.

I'd also like to note that in addition to our normal, non-cash stock-based compensation expenses that are typically excluded from our non-GAAP results, we now have amortization of intangibles and acquisition and integration-related expenses, which are also excluded.

The non-GAAP effective tax rate for the first quarter was approximately 40%, compared with a benefit of 8% last year, resulting in non-GAAP net income of $300,000 for the quarter, a decrease of $4.3 million in the prior year, primarily due to the expected dilutive impact of our recent acquisitions.

Non-GAAP earnings per share and were $0.01 per share compared to $0.15 per share a year ago.

GAAP earnings per share for the quarter was a loss of $0.29 compared to a profit of $0.06 per share a year ago. The changes are primarily a result of the deferred revenue write-downs required under GAAP accounting, the amortization of intangibles, and acquisition and integration-related costs, and an increase in non-cash stock-based compensation expense.

Now, moving to the balance sheet, we ended the first quarter with unrestricted cash and cash equivalents of $47 million, an increase of $2.4 million from the end of the fourth quarter. At quarter end there was restricted cash on the balance sheet of $2.6 million related to the Cameleon software tender offer. Capital spending for the first quarter, which includes infrastructure and facility improvements, was $1.7 million. We expect capital spending in 2014 will approximate $8 million.

Gross accounts receivable at the end of the quarter were $50.5 million. Days sales outstanding were approximately 104 days, within the range that we have experienced in previous quarters.

We generated operating cash flow of $3.4 million in the quarter, yielding a cash flow margin of 8%.

Finally, at the end of the quarter, headcount, including outsourcing, was 986, which increased 33% from March 31st, 2013. This reflects the addition of SignalDemand and Cameleon and our increased investments in sales, marketing, professional services, engineering, and administrative personnel to drive growth.

Before providing guidance for the second quarter and the year, I would like to provide some additional information related to our business.

Our United States revenue increased 17% and made up 43% of revenue for the quarter compared to 47% in the first quarter of 2013. We are pleased that revenue in the US has increased, and our acquisitions are contributing to the performance in the region.

Revenue from Europe was 23% of total revenue in the first quarter, which is the same as the first quarter of 2013. While Europe revenue grew 31% year over year, the majority came from our Cameleon acquisition, as we continue to experience sales execution challenges in the region.

The rest of the world made up 33% of total revenue compared with 30% last year, and increased 41% year over year. Rest of the world revenue continues to show solid performance and growth, and was also aided by our acquisitions.

Our business continues to have positive tailwinds, driven by the large, growing, and significantly underpenetrated B2B markets we serve, and continued positive performance by our B2C markets. Interest levels in our big data solutions remain very high, and we continue to benefit from our diversification across products, industries, and geographies.

Now turning to our outlook, for the second quarter, we anticipate non-GAAP revenue in the range of $45 million to $46 million, approximately 28% growth at the midpoint, for the second quarter of 2013.

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Excuse me? All right, I'll continue.

We expect total non-GAAP expenses to be approximately $43 million, up from $30.6 million in the second quarter of 2013, as we continue to make strategic investments in our business, as well as the increased expenses coming from our two acquisitions.

We expect non-GAAP operating income margins of approximately 5.5% at the midpoint of revenue guidance. With a tax rate of approximately 40% in the second quarter, we anticipate non-GAAP earnings per share of $0.03 to $0.05, based on an estimated 30.4 million shares outstanding.

For the full year, we are maintaining our revenue growth targets, and expect revenue growth of approximately 33% at the midpoint of our revenue range of $190 million to $194 million. Our non-GAAP operating margins guidance for the year continues to call for approximately 10%.

Our confidence in our business for the full year is based on several factors I would like to spend a moment on.

First, we continue to have good visibility into the full year. Last year, we saw a meaningful increase in contracts with recurring revenue from our B2C business, and we expect to see an increase of recognized revenue in the back half of the year. In addition, we continue to increase our SaaS revenue, which adds to our long-term visibility.

Second, as we've discussed our business model shift of recognizing revenue upfront from new deals was in line with our expectations in the quarter, and remains consistent with our prior guidance for the full year.

Third, we believe the sales improvements we have made, together with the additional improvements we are making, will have a positive impact over the next few quarters, and will have a positive impact to our results later in the year.

Finally, we are pleased with the way our acquisitions are performing. In fact, they are slightly ahead of our expectations for the first quarter. Market receptivity is positive, driven by customers' understanding of the increased value they can derive from the expanded PROS value proposition.

As we continue to move forward with our sales integration efforts, it will become increasingly difficult to assign bookings or revenue to organic versus inorganic. What is important is that we believe the opportunity to grow our business is expanding. We are delivering more value to our customers with our combined CPQ and PROS offerings, and we are driving revenue growth across the organization.

In summary, this was a good first quarter for PROS, and we believe we remain positioned for strong performance in 2014. We are confident that our growth strategies and investments across the business have been working, and expect this to continue in the future, as we capitalize on our expanded market opportunity, and improvements in our go-to-market initiatives.

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

(Operator Instructions). Our first question will come from the line of Chad Bennett from Craig-Hallum. Please proceed.

Hey, guys. Good afternoon.

Hi, Chad.

Hi, Chad.

Nice job on the quarter. I guess you guys talked about the acquisitions getting off to a better start. That $6 million quarter, on a run-rate basis, is decently ahead of what you were thinking kind of going into the year. I guess the March quarter is typically tough in enterprise software. You guys did reasonably well, and the acquisitions, in particular, first quarter out of the gate did well.

Is there any reason we believe that $6 million would decelerate or go down at all kind of going forward for the rest of the quarters of the year?

Yes, Chad, I guess right now, we don't want to get ahead of ourselves, but, yes, we kind of think now that that may be closer to the level of contribution that may come from these acquisitions. We'd like to note that Cameleon is moving to SaaS and they still have some perpetual revenue, say, in last year. So, we have to be a little guarded about the contribution from Cameleon continuing at the rate that it has, because we preferred that they move more to SaaS than having a mixed model of perpetual and SaaS.

And with all that said, we are pleased with the performance, and the run rate may be indicative of what of what the rate is for the full year.

Okay. And the alternative to that, the flip side, is your pricing business was, obviously, closer to, I think, a 10% growth rate, year over year, in this quarter. So, is it to safe to say that in the year guidance that you reiterated maybe the acquisitions are a little bit more and organic growth is a little bit less than what you thought?

Yes, I would say that that's reasonable. We've always expected, just so you know, that the guidance we provided, say, for the first quarter, would be below the full year expectation for the organic, because we expect to see organic growth in the back half of the year. And we also are confident in our ability, long term, to certainly generate 20% growth from that business over the long term.

I think part of what I think we explained at year end that needs to be probably be reiterated is this mix change that occurred in 2013 relative to our bookings. As we mentioned, we had a very significant uptick in recurring revenue bookings, particularly in the fourth quarter of last year. Those bookings, necessarily, are not going to drive near-term revenue. So, we're fully expecting an impact on our organic growth rate in the first quarter compared to previous quarters.

And I think that we're -- actually, overall, we're pleased. We're pleased that we came in above the high end of the guidance for the first quarter, and we do expect to see an uptick in the last half of the year on the organic business.

But with that said, the organic, given the challenges that we continue to have, particularly in Europe, the organic is likely going to be less than what our initial expectations were, but, again, the acquisitions are running a little head. So, net/net, we're pleased with our overall full-year guidance of $190 million to $194 million or 33% revenue growth at the midpoint.

Yes. No, that's great. I just on that point, Charlie, the bookings mix in last year, especially in the fourth quarter of last year shifting to more term or recurring, I guess is there -- what is the timing on the revenue rec, especially those Q4 bookings? Is it based on when the implementations start? Or why are they back half weighted?

Yes, let me give you a couple of examples, because we probably could have been even clearer on this.

On the GAAP revenue recognition, if you sign a term agreement, the term agreements we have licensed the rights for a period of time, there's a significant difference in revenue recognition on that contract than you would if you just had a straight-up perpetual contract. And we had a multi-million-dollar term agreement in the fourth quarter, and there'll be no revenue recognized in 2014 on that, on that deal.

Now, it's interesting, just to show you how GAAP changes, there's new GAAP regulations that are coming out, that are expected to come out in the third quarter this year. In the future, not 2014, but in the future, GAAP is going to change revenue recognition for term contracts.

So, it just shows it doesn't -- it doesn't evidence the results that the Company is actually achieving. So, on one hand we have a term contract, multi millions, no revenue this year. When they change the rules, we'd have multi millions of revenue this year on this contract.

I guess the question I was asking, Charlie, is what triggers the revenue rec on a term deal?

Okay, sure. Okay, what triggers it is that -- this is -- what triggers is - this particular instance the customer licensed a suite of products. You have to have the last product in production before revenue recognition starts. So, you can have four products in production, no revenue recognition. When the fifth product finally goes into production, then the revenue recognition starts.

Okay, got it.

So, there's an example where the health of the business was much stronger at the end of the year than was evidenced in the organic growth for 2014.

And there's another example like that, as well. We had one that was even a bigger deal, okay? Now, fortunately, on that one we're going to be getting some revenue on that in the last of the year. No revenue from that one in the first half, but some revenue in the last half.

But just, those two deals, between the two of them, were, I mean, substantial. We're talking multi millions, much higher than the average ASP for the Company, but very little organic revenue this year.

Great. I appreciate the clarity. Just one more for me.

Just on Cameleon and the CPQ product out of the gates here, I guess first question is, I assume you're doing more stand-alone CPQ deals. There isn't, probably, a ton of cross-selling, up-selling happening right now. That would be the first one.

And then secondly, who are you seeing competitively in the CPQ market?

Then I'll jump off. Thanks.

Yes, so in the CPQ right now, our strategy, we've integrated the sales organizations, and our strategy is to sell what customers need. In some instances we are seeing customers want to license price optimization and CPQ together. In other instances, they're starting with CPQ or price optimization, and later have plans to expand, which is really aligned with our strategy. So, I would expect opportunities in the first half where we are selling both of our solutions together.

And then, with respect to the competitive landscape, it really hasn't changed in their space. You can imagine it's typical competitors like BigMachines and APTTUS and Callidus, for example.

And then on the price optimization, it's the same typical competitors.

Okay, thanks.

All right, thank you.

Our next question will come from the line of Scott Berg from Northland Capital Markets. Please proceed.

Hi, Andres and Tim. Congratulations on what appears to be a well-managed integration so far.

Thank you.

A couple quick questions, Andres. First of all, can you help us reconcile the organic pricing optimization and revenue management businesses? It sounds like it's coming in a little bit lower than your expectation 90 days ago. What's changed in that couple month period?

Yes, I guess I can start with that, Scott. It's Charlie.

The change is likely going to be modest, it's just that we're saying in Europe we're still not quite getting the traction we'd like to see. And, as you know, under our rev rec model, for the vast majority of our business, it's percentage of completion. So, you really have to close the business in the first half of the year to get that revenue really moving in 2014. So, with a continued bit of a slowdown in Europe, that would be organic, and that's having an impact on the organic revenue.

We'd still like to think and we still fully expect and it's still early is that the organic revenue will be somewhere in the mid-to-high teens for 2014. We'd be pleased with that, coupled with our ability today to be able to reaffirm our guidance at $190 million to $194 million. To have revenue growth at over 30%, that's actually 33%, for the year, with still fundamentally no change in the business -- and the business hasn't changed. The fundamental characteristics of the organic business really hasn't changed. It's as strong as -- strong as it always has been.

Yes, I would say two other things. I would say the SaaS deals or recurring-revenue-based deals, the term deals that were signed in Q4, that's, as Charlie explained before, that may have an impact in the first half of the year, for sure.

But overall, if we look at the metrics, I commented on our RFPs we're seeing significant increase, especially over the last three years, but meaningful last year over this year in the overall demand metrics, also, opportunities that we're getting from system integrators we've seen increase over the last three quarters. So, overall, momentum and activity remains very, very strong, and we're very confident.

One area that we're looking is we're looking less at the individual organic versus inorganic. We're really looking at it as one business. Our customers don't see us as price optimization and CPQ. They see us as a combined offering, and we put all of our emphasis on creating one company and ensuring that we're aligned from a go-to-market strategy and onboarding our sales reps globally across one PROS. And I think that's what's going to help us capitalize on this large market opportunity.

Yes, this is -- Scott, this is Charlie. I'd like to just pick up on a point Andres made, and that is measuring the organic versus inorganic, with the integration of personnel and the products is becoming less meaningful for us.

Here's an example. We're already seeing situations where we can promote Cameleon's CPQ over our existing deal optimization solution. We're going to give the market what it needs. We've got great product on deal optimization. Cameleon has a great CPQ product. But if there's an opportunity to promote the CPQ over our existing deal optimizer, then we're going to do that.

And that's just an example of where the bucketing of where that revenue really falls it gets increasingly difficult as we go forward. And we're going to have all of our sales people selling Cameleon products. So, you get the integration of the personnel, you get the integration of the products. So, this is going to become less meaningful as we go forward.

But we're pleased to talk about it as we come out of the gate, because we do think it's an important discussion.

Yes.

Great. And then I guess on the other side of the coin is the two acquisitions outperformed in the quarter. How did they outperform? Was it purely just on implementations that were completed sooner than expected, or was it something from a sales perspective that outperformed in the quarter? I'm trying to understand the delta there.

Yes, so definitely from a sales perspective they outperformed in the quarter, and in this first quarter, if you even think about Cameleon, growth being within first quarter, we wanted to be cognizant of that in our guidance, and we thought with the recent acquisition that there could be near-term execution challenges, and we didn't experience that. And we were able to capitalize new business in the quarter that drove revenue in the quarter.

Yes. No, that's right, and I do think we were, perhaps, a bit conservative on the outlook as we went into this, because the acquisition just occurred in January and our acquisition of SignalDemand just occurred in mid-December. So, we didn't have a lot of time to assess all the risks associated with the revenue for this year. So, we're pleased that the performance is better than we expected. We wanted to be prudent, and we were cautious about any disruption, but that doesn't seem to be happening.

And it's still early. It's only May, but with that, we're really seeing, really, the strategies working well, the opportunities to go to market together, between us and our acquired companies is working well. So, we feel good about the acquisitions, and their opportunity for this year.

Great. And I guess the last question for me at the moment is, selling through partners, I know, has been part of the strategy. Charlie, you and I have talked, I think recently, that you're expecting some sales to potentially come through partners this year. Are we still expecting to see that? And is that really more of a back half of the year versus maybe a second quarter event?

Listen, I think it's certainly more in the back half of the year. I think we said that on the call. But we're pleased. We had a positive experience in the first quarter. I think Andres can give more color on this. But no, we're pleased. We had a good experience in the first quarter. But we expect this is going to be something that's going to be growing over time. So, if you talk to us in the third quarter, I think we'll have more positive things to say, and probably more in the fourth. Andres?

Yes, no, we definitely were very pleased with the business that we closed in the first quarter that was through our partner ecosystem. So, definitely on track, as I commented, and are continuing to see the pipeline of opportunity and the demand of opportunity that's coming from system integrators increase, which is promising.

Great. That's all I have. I'll jump back in the queue. Thanks for taking my questions.

Great, thank you.

The next question will come from the line of Jesse Hulsing from Pacific Crest. Please proceed.

Yes. Thanks for taking my questions, guys. Europe -- you mentioned that you think it can back as we move into the second half and that you expect trends to improve there. First, what kind of expectations do you have for that business in your guidance, moving into the second half?

And second, building on that, what are you seeing, if anything, from an inflection point or from an activity perspective that gives you confidence that you'll see improvement there?

Thanks.

Yes, so that's a great question. In Europe we focus on integrating Cameleon and PROS, and, in fact, the Cameleon marketing leader is now our global marketing leader, and we're aligning, as well, in sales, and in services. And the Cameleon marketing leader is the EMEA marketing leader for all of PROS.

And we're seeing in terms of our execution improvements in building out the sales organization and improving their execution in training and onboarding. So, overall, the early indicators in the demand we've seen definitely an uptick and a lot of activity in the market.

In terms of what we expect for that market, we're trying to be conservative now, and want to see the execution improve before we increase our expectations for Europe. But overall, on the demand side, we definitely see a lot of opportunities coming within Europe.

On an organic basis, do you expect it to grow for the year? And can you give us a sense of what the growth rate range would be? 5%? 10%? Higher? Lower?

Yes, I think it's early to quantify the rate of growth, but the answer is yes, we do expect to see organic growth in Europe this year.

And, Charlie, when you've talked about this transition to more services work being done by partners and that changing how you recognize and when you recognize revenue, was there an in-period contribution in Q1, or was this a similar percentage of completion basis relative to last Q1?

There was a contribution in Q1, and I made a comment on that on my earlier calls. We have an expectation this year as to how much in-year revenue we'll be able to drive, and we're pleased with our progress in Q1. We believe we're right on plan for the full year, and some of that in Q1 did come from our partners, as well.

So, both the partner opportunity to contribute to Q1 revenue and just our own implementations and contracts with license recognized at contract contributed, as well.

We saw good progress in the fourth quarter. I think we mentioned that. And we've seen good progress in the first, and based upon everything we see, we think our in-year revenue is tracking well and it'll come from both partners as well as our own led deals. So -- and we're pleased with that mix.

That part of the mix model we're pleased with. The part that's having a negative impact on organic growth this year is the great recurring revenue that we booked last year that just is not driving much revenue in 2014.

Okay. And I guess the follow up to that, that would imply -- is it fair to say that your like-for-like organic revenue growth was probably mid single digits or lower, if you consider the fact that you recognized more revenue in period?

No, I would say not. I mean -- No, I would say not. This has been building over time through last year. I think we had talked, we had already set the stage for this in 2014, and we saw some really good uptick in the fourth quarter of the year.

So, I mean, it's higher than it was in the first quarter of last year, but, again, I don't think it's -- at this point, it's not that -- it's important, but it's still principally a percentage of completion revenue recognition model that we're on.

Got it. Thanks, guys.

Thank you.

(Operator Instructions). Our next question will come from the line of Greg McDowell from JMP Securities. Please proceed.

Great. Thank you very much. My first question has to do with quota-carrying sales reps. I guess it came in a little below what I was modeling, and so I wanted to ask if you feel like you're on track with ending the year around 64 sales reps, or if you feel like you still have -- or if you didn't hire as many as you wanted as you originally anticipated? Thanks.

Yes, no. We're definitely on track for the 64 for the full year and are really focused on recruiting the right talent. Q1 we wanted to focus on aligning our whole sales organization between the acquisitions and our internal sales and build the right process for integrating more in the enablement.

I think definitely we're on track, and we're continuing to hire pretty aggressively towards those plans.

Okay, great. And then another question, I guess I understand that Europe came in a little bit below expectations, and it sounds like revenue from the acquisitions was certainly above expectations. But I just want to get a clear sense on sort of the North America pricing optimization business, and whether or not you're sort of satisfied with the bookings levels within North America for the pricing optimization business? Thanks.

Yes, we are. We had a solid booking performance in the North America US business, and, yes, that's an area -- US is our strong market, and that's a market that we still see a lot of demand moving forward. We feel that there's a large opportunity in North America.

We also believe -- I mean, Europe we feel we've had a few challenges in execution, but we feel that the demand is there, and the demand -- the top end of the funnel we see opportunities increasing, and we feel with improvements that we've made already we should be able to capitalize on that.

Great. And just one quick one, Charlie. I think I missed it at the beginning of the call, but that non-GAAP adjustment for the acquisition-related deferred revenue write-down, are we adding back -- adding that back in to the license and implementation line or the maintenance and support line?

Well, it's actually in both lines. The biggest component of it is going back into the L&I line. And the non-GAAP adjustment, we're tracking well. We had said we had an estimate of about $10 million of non-GAAP revenue for 2014, and $2 million of that was recognized in the first quarter.

Okay. Is there any way you could break out the $1,966 by line for us? And I could talk to you about it later, too.

Well, yes, the maintenance component, I think, of it was slightly less than -- I'm trying to think through the numbers. Let me come back to that. Let me check and I'll come back. I can definitely answer it, though.

Okay. Okay, thanks, everybody. That's all I have.

Thank you.

And with no further questions, I'll now just hand the call back over to Andres Reiner for closing remarks.

Thank you for your participation in today's call and for your support of PROS. We are well positioned to capture on our expanding market opportunity, and believe our diversified growth strategy is serving us well. The integration of our acquisitions is on track, and the market receptivity to our enhanced value proposition is strong.

I would like to thank our PROS team worldwide for their hard work and commitment to innovation and customer success. Thank you also to our customers, partners, and shareholders. We look forward to speaking with you on our next call. Thank you and goodbye.

Ladies and gentlemen, that concludes today's presentation. You may now disconnect. Have a great day.