Pros Holdings Inc (PRO) 2015 Q4 法說會逐字稿

Welcome to the PROS Holdings, Inc. fourth-quarter 2015 earnings conference call.

Today's call is being recorded.

At this time, I'll turn the call over to Stefan Schulz, Chief Financial Officer. Please go ahead.

Thank you operator. Good afternoon everyone, and thank you for joining us on today's call. 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 fourth-quarter and full-year 2015, and then I will review the financial results and our outlook before we open the call to questions.

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

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. 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. We encourage everyone to review this additional information.

Finally, I would like to point out, that in addition to reporting financial results in accordance with generally accepted accounting principles, or GAAP, PROS reports certain financial results, as well as forward-looking guidance on a non-GAAP basis. A reconciliation of each non-GAAP measure to the most directly comparable GAAP measure, to the extent available without unreasonable efforts, is available on the press release distributed earlier today and in the investor relations section on our website.

With that I would like to turn the call over to Andres.

Thank you, Stefan, and thank you to all joining us on today's call.

First I'd like to briefly update you on our results. We came in at the high end or beat the preliminary results for the fourth-quarter and full-year 2015, that we announced on January 14. Stephan will provide more details. PROS enters 2016 a much stronger company, where market opportunity continues to crystallize, and I couldn't be more excited about where we are headed.

2015 was a pivotal year for PROS, in which we embarked on our cloud-first strategy, to align with the market and deliver even more value to customers. I would like to acknowledge our incredible PROS team worldwide for their passion and commitment in making this transition possible. I'm proud to be part of a team so fully committed to helping customers outperform.

I would also like to express my appreciation for shareholders. We are deeply committed to creating shareholder value. We are not satisfied with the pressure seen lately. Our bookings performance the past two quarters was disappointing, as we did not deliver on our guidance.

We underestimated that our cloud-first changes would have on deal execution. We believed external market forces were not a factor, as demand remains strong, and we saw no changes in competitive dynamics. This was about the pace of change in our business, and it was within our control. In fact, we performed well in areas where we introduced fewer changes, like CPQ and travel, which were both up more than 50% for the full-year.

At sales kickoff last month I spent a lot of time with our sales team. I heard how excited they are about 2016. They see the opportunities and they're eager to deliver. We provided them with additional training and tools, and we simplified our processes to get deals done more easily. We also strengthened our sales leadership team with a seasoned PROS sales leader in Americas. I'm proud that we have incredible people across the business, who are passionate about helping us realize our potential.

Last year was a transformational year for PROS and we had success in many ways. We committed completely to our cloud-first strategy and made great progress in laying a foundation for growth. We organized and trained our teams on the cloud model. We aligned our products around cloud additions, and we drove focus and differentiation on industries. And we helped our customers understand the value our long-term cloud innovation strategy has.

Customers such as Austrian Airlines, Access Systems, Avis Budget, Fonterra, and Qantas Airways, among others, all expanded their footprint with us in 2015. We're excited to see how our cloud-first strategy is creating momentum in the business.

Let me share some examples. First, the mix of SAAS in our pipeline grew from less than 20% at the end of 2014, to approximately 80% now. Faster than we expected. Second, we posted a record number of deals in 2015, up more than 20% year over year. As expected, ASBs came down as we made our solutions more consumable. Third, we're starting to see some examples where smaller starts have led to more land and expand opportunities.

Let me share an example. A large global company headquartered in Europe purchased one of our cloud solutions in the first quarter of 2015. They initially targeted their self-serve channel in the German market. After going live, they started seeing faster response times and more wins. In the fourth quarter they came back and added more subscriptions as they expanded their use of our solution across two more European countries.

They are now putting plans in place to apply our solutions to more products in their portfolio and to expand into Asia. Our cloud model aligns with, and enables, their growth strategy. This was just one of many new customers we added in 2015, which will open even more land and expand opportunities.

Other new customers for the year included Aeromexico, Citgo, Harmonie Mutuelle, McCain Foods, WABCO, and the commercial truck tire division of Michelin North America. Overall, we are pleased with the progress we made in 2015. And now we turn to 2016 with great momentum and confidence that we will drive greater share of our large, underpenetrated market.

We started strong with a record level of attendance, up more than 40% over last year, at our Outperform Americas conference a few weeks ago. We will continue to focus on driving consistent execution, continuing our transition to the cloud, and driving market-leading innovation. In 2016, our innovation strategy will focus on smart applications to help companies improve their customer experience across their direct partner and e-commerce channels.

More companies are competing on the basis of their customer experience than ever before, and we can help. For example, we're helping a glass manufacturer reduce friction in their customer buying process. They are leveraging our Smart CPQ solution to power a self-serve e-commerce app. Building contractors looking for a bid can now configure and process an order in real time from their mobile devices while on job sites. Our customer expects to drive more preference for their products with this differentiated buying experience.

I am proud of our team for delivering such powerful innovations that deliver real and tangible ROI for our customers. 2016 is going to be an incredible year for PROS. We're confident about our outlook because the fundamentals of our cloud strategy are in place. Our innovations align with how customers compete. Our cloud strategy aligns with how companies want to consume technology. And our team is adapting on how we operate as a cloud company.

The momentum and energy we're seeing in the market, and the value our customers are getting for our cloud solution, emphasizes the importance of the transition we're making. The future has never been brighter and we're grateful for your support.

I will now turn the call over to Stefan so he can provide you with an overview of our financial results, and our outlook for the first quarter and full year of 2016.

Thank you Andres.

Before I get to my comments, I want to remind everyone that I'll be discussing non-GAAP results, unless otherwise noted. 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. Additionally, we have provided a table of key metrics for this quarter, and past quarters, that can be found on our website in the investor relations section.

As Andres mentioned, we came in at or above the numbers we provided for ARR, ACB, TCB, total non-GAAP revenue, and subscription revenue that we announced in our preliminary results on January 14. While we are disappointed in the shortfall of our bookings for the last two quarters of 2015, we have made solid progress towards our cloud-first transition.

Our year-end ARR of $98.2 million was up 16% from the prior year and better than we initially expected. Throughout the year we communicated that we expected to start seeing better year-over-year and sequential growth and subscription revenue in the fourth quarter. That's what happened, with 14% year-over-year growth in the fourth quarter and 16% sequentially.

Maintenance revenue was in line with our expectations, up 16% for the fourth quarter year over year, and up 15% for the full-year 2015. Combined, subscription and maintenance revenue make up our recurring revenue. In the fourth quarter, our recurring revenue was $25.1 million, which represents 59% of total revenue compared with 39% of total revenue in the fourth quarter of last year.

For the full year, recurring revenue was $93 million, up 14% versus the prior year and representing 54% of total revenue compared to 42% for the full-year 2014. As expected, license and service revenue was down year-over-year for the quarter and down for the year as we transition our business to cloud.

Our non-GAAP EPS in the fourth quarter was a loss of $0.09, which was $0.10 better than the high end of our guidance. For the year, our non-GAAP EPS was a loss of $0.45.

As we committed to you when we announced our cloud-first strategy, our focus has enabled us to be much more efficient in our spend, reducing our costs. We also had some variable expenses such as incentive compensation and commissions that were down, due to lower bookings and revenue.

I also would like to make a comment regarding an impairment charge in the fourth quarter that affects our GAAP earnings per share. As result of executing our cloud-first strategy and narrowing our focus, we wrote off $2.9 million of internal use software related to one particular product.

Turning to cash, our cash and investments totaled $164.3 million at the end of the year, which is an all time high for PROS. Our free cash flow in the fourth quarter was $6.8 million, and $8.5 million for the full-year in 2015, which is better than our previous expectations. This result in the fourth quarter was largely driven by improvements made by our team in the timing of our collections, as well as lower operating expenses. We are pleased that we drove positive free cash flow in the first fiscal year of our cloud transition, and we are on track with our initial expectations of free cash flow burn during the first two years of our transition.

Now turning to guidance for first quarter and full year of 2016, I will start with our guidance for ARR. As I mentioned in the past, we view growth in ARR as a good leading indicator of our cloud-first progress and the best leading indicator of our growth in future recurring revenue, and ultimately, total revenue. We expect year-end 2016 ARR to be in the range of $117 million to $119 million, representing approximately 20% growth over 2015 at the midpoint. We expect a relatively consistent level of quarterly year-over-year growth throughout the year.

Turning to ACV bookings, we expect Q1 2016 ACV to be in the range of $4.5 million to $6.5 million. At the midpoint, this would be a 34% growth over the same period last year. For the full-year, in 2016, we expect ACV to be in the range of $25 million to $27 million, reflecting growth of 21% at the midpoint over last year. Internally, we have made the full switch to measuring our growth on ARR and ACV. Our TCV metric is no longer a meaningful reflection of growth this far into our cloud transition. As I mentioned previously, we will not report TCV bookings going forward.

Now turning to revenue, we expect subscription revenue in the first quarter to be between $8 million and $8.2 million, representing a 10% year-over-year increase at the midpoint of guidance. For the full year, we expect subscription revenue to be between $34 million and $36 million, representing a 20% year-over-year increase at the midpoint. We expect first-quarter total revenue to be between $36 million and $37 million, a 19% decline year-over-year at the midpoint of guidance.

For the full year, we expect total revenue in the range of $150 million to $153 million, a 12% decline over 2015, also at the midpoint. This total revenue range is lower than the color I provided on last quarter's call. The primary difference is from a lower professional services revenue estimate, and to a lesser extent, a smaller subscription revenue estimate. We anticipate that both revenue lines will be impacted in 2016 by the lower bookings in the fourth quarter of 2015.

In addition, and as we mentioned the past, we've seen a larger mix of travel customers adopt our cloud offering, and the period of time between the initial booking, and the period in which revenue recognition begins, is longer for travel deals. Therefore, our services revenue estimate is expected to be down year-over-year in 2016 by a similar amount of the decline experienced in 2015, even though we are anticipating more ACV bookings.

Our current estimate for license and maintenance revenue has not changed from the color we provided last quarter.

Moving to our profitability and cash flow metrics, we expect EBIDTA in the first quarter to be a loss between $13 million and $14 million, and a loss between $45 million and $47 million for the full year. Our earnings per share loss is expected to be in the range of $0.34 to $0.36 in the first quarter. We expect free cash flow burn to be between $37 million and $39 million for the full-year 2016.

As we transition to a cloud business, we anticipated negative free cash flow during the early period, as we traded short-term license revenue and near term cash flow, for recurring subscription revenue and long-term cash flow. We communicated last year that 2016 would be the most significant period of cash flow burn, as we started layering the effect of revenue and cash flow from selling subscriptions. With positive free cash flow of $8.5 million in 2015, and anticipated free cash flow burn of between $37 million and $39 million in 2016, we still expect to burn approximately $30 million during our cloud transition between the two years 2015 and 2016.

Before I turn the call over to the operator, I too would like to express my appreciation for our shareholders. We know we are undertaking a complex business model transition. And while not everything has unfolded exactly as we had expected, we are learning and adapting as quickly as possible to make us stronger in 2016.

We are holding ourselves to a high standard of transparency through this transition, including reporting our bookings, which are lumpy from quarter to quarter, as we discussed in the past. What hasn't changed this past year is our complete conviction that we are making the right move for our business over the long run. In fact, I'm even more certain now that this is the right business model for us.

We're almost eight months into our cloud transition and seeing some of the early advantages. Customers and prospects are responding even better than we expected to our cloud-first strategy, which has created more land and expand business and higher lifetime values. And our people are excited to make our solutions more consumable, and our company more efficient with this model. With such strong support from our customers and employees, I am confident that over time we will deliver long-term recurring revenue growth, the cash flow generation, and subsequent value creation expected from a SAAS business.

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

Thank you.

(Operator Instructions)

Ben McFadden, Pacific Crest Securities.

Thanks. I will start with Andres. I think quite a few of us were down at your Outperform conference a couple weeks ago. And I definitely walked away with, thinking that a fair amount of your existing customers and prospective customers are positive on your solutions as far as your revenue optimization products.

Maybe you could help us understand the disconnect between what factors you think are creating a disconnect between what you're seeing out there as far as positive feedback from customers and potential customers versus the results that you are actually achieving? Is this a market awareness issue in that revenue optimization space? Is it just too complex sales process because you need too many people to sign off? How are you thinking about those factors that are causing that particular segment to disappoint?

Now. A couple of points. Let me start with the one thing I've been always most proud of is our people and our team. Our team didn't forget how to sell our products.

We introduced a lot of changes last year, and I would say three key changes, our sales team had to learn how to sell SaaS. Our sales team had to learn how to sell core packages, the new packages that we introduced. And they had to focus on converting many of their deals that were initially structured as perpetual deals into cloud midway through the deal.

In fact, all those changes in combination, and really they added, starting in Q3 and Q4, where we introduced the most changes, that's what brought friction to our selling process and slowed deals down. What we've done so far to solve this issue is that sales kickoff we introduced even more training, a lot more video-based training and peer-based training on how to sell our cloud offerings in our packages. We also simplified our packages which we initially launched.

And predominantly we've converted all of our deals now over to SaaS. As we commented, at the end of 2014 we had about 20% of the deals that were SaaS. Today we are approximately 80%. So we have already aligned everyone back into our SaaS packages. Overall, the input from customers as you noticed in Outperform has been very positive, even more positive than we expected. And the values that they are achieving are more significant for our offerings.

Great.

Stefan, as we look at your guidance for ARR, you got it to 20% at the midpoint, which is solid base going into the year, but then you quided to a similar 20% on subscription. And I just would of thought subscription would grow a little faster than ARR, given the maintenance components of ARR. Is this is a function of the SignalDemand issues that you had in 2015? Is it the fact that you're forecasting for the year to be backend weighted, as far as when these subscription bookings are coming in? How do you thinking of that disconnect there?

Yes. And, it has nothing to do with the SignalDemand affect that we had talked about last year. We feel like that is behind us.

What's really driving the slower growth of subscription, relative to what you would think to ARR, has to do with the timing of when the recognition actually starts subsequent to the booking. And as I mentioned in a couple of my comments earlier, we saw towards the end of 2015, a larger portion of our travel business adopt the cloud and subscription offerings.

And that has had an impact on our model, because as we previously mentioned, our travel -- the length of time between a booking and when the revenue period begins on travel deals is typically a little longer. That actually pushes some of that subscription revenue into later periods in 2016. That combined with the lower bookings number in Q4 of 2015, those two things are the drivers to what our subscription revenue looks like in 2016.

Having said all that, it doesn't go away. It's just being shifted out a few periods. And we will start to see that a little later on in the cycle.

Okay. Great. If I could just ask one more quick question.

It's been probably nine or ten months since you announced this cloud-first strategy, as you were putting together this guidance going into 2016, how comfortable were you with your ability to predict which deals would be coming in as subscription versus license?

Well, that's a good question. We were off on that initial assumption, obviously. The good news is that we were off assuming that fewer customers would adopt the cloud versus license.

In fact, more customers have adopted subscription over license. That's been the good news. And that's what gives us confidence in this model going forward, is that as we work through the issues that Andres just covered on first question you asked, and as we start getting our rhythm to us, the payback associated with this with greater lifetime value is really going to start showing itself in the financials here in the not so distant future.

Great. Thank you very much.

Bhavan Suri with William Blair.

Thank you for taking the questions. Can you hear me okay?

Yes.

Just to start off, on macro, obviously a lot of concerns in the markets about where the US economy is headed, Europe, etc. We know what is happening in AsiaPac and Latin America. But, your exposure to manufacturing, to the airlines, to other sorts of CapEx, what are you seeing out there from customers? Are you seeing any pressure on CapEx spend or tech spending when it comes to your solutions or analytics?

Yes. So we haven't. And we have spent a lot of time, obviously, with the field, and also looking at our analytics. And when we look at the top end of the final or within our pipeline, we haven't seen any impact.

We continue to see pipeline growth, much more significant than our bookings growth. And we continue to see a lot of momentum and activity in the field. So we haven't seen any macroeconomic effects in our business at all.

Okay. Okay. The new head of sales in North America, Chris Jones, it's good to bring him back, but maybe you've had a couple of quarters now where sales execution was an issue, and now he's been back a little bit. Any sense of what are the changes you are making to realign the team, or is it all around how the products are bundled?

Yes. I would say that the great thing is that Chris has been part of the team for a long time and he sees the details. He focused on the partner ecosystem. As we look at strategically being a cloud company, we wanted to align our partner in sales team under one. And he took over that Americas role. So he will continue to own the alliances, plus North America sales. And he's been working hand-in-hand with the team.

The changes that we've done are behind us. At kickoff, we had an amazing kickoff, and I think the team is pretty upbeat about the opportunity ahead and that we've gone through the hard part of converting the pipeline, learning how to sell our new packages, in training on that. We believe that with the strength of the team that we have in place, we have a great opportunity to execute successfully this year.

Great. That's helpful.

One of the pieces of integrating the core data science piece with CPQ, obviously, is the value of the data science piece. Are you seeing any of the competitors that play in CPQ, whether it's SteelBrick or Apttus, or any of the other guys, starting to add data science or look at the data science component to play in the extra complex revenue optimization space, or pricing optimization or sales enhancements space?

Yes. We haven't seen it anybody really add data science. We've seen some of our competitors add to their line items for target in expert similar to what we do. But there's really obviously no data science underneath.

We think that our messages are resonating. The companies want to get guidance. And I think, one thing we hear in the market a lot is a lot of customers are concerned about ensuring that the sales team is armed with tools that give them prices they know they can win at.

I think one thing that's pretty common when we talk, whether its manufacturing or any of the industries we're going in, is there is a lot of pricing pressure. And they are looking for technology that gives them with higher precision, a price point where they believe they can win the deal. And I think our data science continues to be a huge differentiation for us.

Okay. And one last quick one for me for Stefan. Deferred was down, is that because of the lower delivery of billings in the fourth quarter? Or is there something anomalous that happened there?

No, nothing anomalous. It just happens to be with the timing of when we have a billing that occurs, relative to our deferred, our recurring revenue stream.

So can you go into maybe a little bit of what the puts and takes were there?

Basically, what we have is our deferred revenue wield is variable, based on the timing of when an invoice goes out to a particular customer. So depending on when that occurs, with such a large maintenance stream, that can have an impact on what your deferred looks like.

What you have to do is look at it over a period of time and look at it more year-over-year because of the anniversary of when those things occur. And so, I would not read anything into the fact that our deferred happened to be down, because you still have a relatively big tail from the maintenance timing that is impacting that.

But I would tell you that, as we're still going through this transition, the better way to look at what's happening from the recurring revenue perspective is to look at our ARR. And as subscription becomes a bigger and bigger component, I think deferred revenue will become a metric that you look at a little more with a little more analytical purpose.

Sure. That's fair. All right. Thank you for taking my questions.

Yes. Anytime.

Scott Berg, Needham & Company.

Hello, Andres and Stefan. Couple questions.

First of all Andres, you talked about the changes in the sales team are behind you. How would you view the initial success in the first quarter, first month of the March quarter here? Are you seeing any incremental change four or five weeks into the quarter, versus what we saw in Q4, or is this still something to be realized throughout the quarter?

We feel good about our start for the quarter. And we feel like we started, we commented in the pre-announcement that we had booked at that point 2.6 in ACV. And we've continued to see momentum through the quarter and feel good about the quarter and the year.

Okay, great. From a deal size opportunity, you discussed how the subscription deals are little smaller, on a year-over-year basis. How do view the overall sales opportunity in that land and expand model? I think the metric historically that you have given before is if you sold a dollar license today, over five years you'd sell them three additional dollars. Trying to understand that even if the deals are smaller, does that total sales opportunity change much?

Yes. We feel what, it's still early, but what we're seeing is very positive. Where we are seeing companies that have bought in the last year are already expanding and expanding in multiple areas. So we're seeing one, they are getting value faster because they are not trying to boil the ocean; they are starting in a division, in a location.

And we are seeing them start with our smart CPQ, powered by our price guidance technology, so more complete end to end solution for a small area. And as they are seeing value, they're able to very quickly, without friction from the IT organization, adapt our technologies in other regions and other divisions.

So I would say it still early, but we see a lot of promise of customers continuing to expand. I think one of the things, and you attended Outperform event a couple weeks ago, one thing is clear is that every customer that presented shows tangible value that they generated from our solution. And I think that speaks volume. As they are driving value, it gives them a way that they could continue to expand globally. So we feel it's probably exceeding what we expected this early on.

Great. And the last question for me, this is for Stefan, if you look at the framework you rolled out at your investor day in June 2015 here, and you talk about cash flows and growth assumptions. As you look to 2017, given what you know today, and I know you're not guiding for 2017, but are there significant differences or changes to how we should view the cash flow mechanics moving into 2017?

Scott, I would still say as we look out into 2017, remember when we did the cloud-first day back in June, we referenced a chart, we called it the smiley face chart. And we talked about 2017 being the inflection year, where you started to see the benefits of the model starting to come into play.

And we felt that way from cash flow revenues, margins, and we still feel that way. Now, the extent of which the inflection point occurs we know has been impacted slightly as a result of where we are from the bookings and where we are in the progression of our cloud-first transition. But what we would like to do, is we would like to give an update on that, not only on 2017, but our longer term model.

We'll probably look to do that in the third quarter time frame. We are actually thinking about hosting another analyst day where we could provide that kind of update. But to answer your question, we still see 2017 as that inflection year.

That's all I have at the moment. Thank you.

Thank you.

Tom Roderick, Stifel.

Matt Enblade on for Tom. Thanks for taking my question.

I wanted to first address the partner network, specifically with the large SIs and what the outlook you've heard from them, regarding large projects in 2016 and beyond, and what their outlook is and maybe what you have in the pipeline now, in terms of mix that has been generated by them, versus your deals that you have worked out and started to bring some of them into?

Yes. Overall, our partner ecosystem is continuing to strengthen. And we saw at Outperform a significant increase in participation from the partner ecosystem, the large SIs like the Accentures and Deloittes of the world, and other SIs like Acumen, and many others that are working closely with us.

I think the world of trying to get large transformational deals, I think that's changed dramatically and I don't think from an SI perspective or PROS we're trying to go in and do a transformational deal. And I think that's what our cloud strategy is allowing us to do, is start smaller, drive value, and continue to land and expand.

I think we are both very aligned with our partner programs and having our partners believe in that same way that they can start driving value and continue to help through that journey without always thinking that you were going to do a global CPQ and price optimization deal all at once. So I think we have pretty good strategies between our partners and us, and having Chris in the Americas now, who's leading sales and partners as we've been bringing in that ecosystem closer to ensure we're both being successful in the market.

And then digging specifically into the CPQ market, obviously a lot of news out there. One of your leading technology partners in Salesforce just made a large acquisition. How do you view the potential conflict of interest out there as you try to push into more deals with CPQ? And that seems to be a more highly contested market at the moment.

Yes. Now, we think it's a great thing. We think SteelBrick's acquisition by Salesforce is a great thing for PROS. I think it validates the importance of CPQ, and how important it is for the rest, not just to use CRM as a pipeline management, but to complete the transaction.

And although we respect Steelbrick's technologies, predominantly a mid-market play, we think the differentiation in our partnership with Salesforce continues to be strong. The differentiation that we bring in is our enterprise experience, around configuration, around core price optimization, cross sell, up sell. The other capabilities that really differentiate between winning and losing and how we are driving prescriptive guidance through the sales organization, all integrated not just with the CRM but on the backend with the ERP systems, like SAP or Oracle or other major ERP vendors.

I think completing the end to end is where we have a lot of strength and differentiation in the enterprise. And that's why we are still working very closely with Salesforce to target the right industries and the right markets where they know that our solution has a much better fit.

Great. Thank you.

Thank you.

Tim Klasell of Northland Securities.

Yes, most of my questions have been asked already. I went to hit on a couple detail questions here. If you take a look at your B2C travel business versus your B2B business, what's growing stronger? Are you seeing any differentiation in there from the international versus the domestic type of business?

Tim, this is Stefan. I'll take that.

Andres did comment, in his prepared remarks, that when you looked at our travel and our CPQ business, both saw better than 50% growth year-over-year. And those would be two examples on two of the extremes that you are talking about.

CPQ being on the B2C side -- I'm sorry, I got it backwards. Travel being on the B2C side and CPQ being on the B2B side.

I don't know that you can draw the distinction, just make it that simple. There's other components to it, and what we have said, is that areas of our business where we introduce more change, that's where we saw more of a challenge in terms of growth year-over-year. And most of that would have been in the pricing B2B space. I would tell you that overall, we saw good healthy growth in those areas of B2C and B2B where we didn't have that big of an impact from our cloud-first transition and the packaging and new solutions that we rolled out.

Andres?

We see strength across all of our markets. And I think the key thing is the areas where we have the most changes were on the B2B pricing. That's where we introduced new packages and that's where we saw customers buying in smaller pieces, even though the deal growth was very strong, that's where we saw pressure on the bookings.

But overall, we are experiencing very strong demands across -- we are actually surprised on the travel side, where we saw very positive demand on the SaaS, and we exceeded, or significantly exceeded our expectations.

Okay. And then that leads well to my next question. On the travel side, you know people have been early concerned about the global macro. And my experience has been travel retracts on CapEx really quickly, in this type of environments.

Have you seen that so far? And how, I know this isn't a question for you specifically, but in the overall macro, where do you see the whole travel spend going?

So travel we see as very strong. We continue to see very strong, and I think travel is very strong because there is lot of disruptive innovation that we are bringing to the market.

For example, with our group sales optimizer, where we are actually bringing an e-commerce passenger field to the group booking process, we are seeing that is very positively accepted in the market. Also our PAV and our real-time technology, our dynamic pricing optimization technology. So overall, we're seeing very strong demand.

I think we continue to see a significant potential going forward in the travel. And I think a lot of it is leading that we are always innovating in that space. We are always been a very strong innovation company and we continue to drive new innovations that are driving significant value.

We had one of our airline customers that adopted our GSO product speak at Outperform two weeks ago, and talked about a 15% increase in group bookings in the first quarter of launching the technology. And I think these tangible results make it very easy based on direct ROI to continue to invest in the technology. And we've always been significant innovators.

Great, thank you. Helpful. I appreciate it.

Thank you.

Sterling Auty, JPMorgan.

Thanks. It's Darren Jue, on for Sterling. Stefan, a question for you.

I'm wondering about the margin guide for 2016. It seems like the level of expenses you're assuming for the year are going to come around $10 million higher than what we were modeling. So I'm just wondering if there any incremental expenses that you are now expecting relative to when you gave us margin guidance back at the cloud-first day?

Yes, so the amount of expenses we're projecting really are mostly changes that are occurring as a result of a full complement of variable cost. I commented earlier where some of our variable costs were reduced because of where we landed from a bookings perspective.

You have that. You also have the standard cost of living increases that we have in there. Beyond that, there's not much in the way of growth.

Now, that's in total. More specific to particular line items, yes, we are continuing to invest in our cloud solutions. And so we are continuing to invest in that team. That was part of the plan all along. And that is one of the areas that we're going to continue to invest in.

What I would tell you, as you look at the model, and as you lay it out and as you look at the relative profitability and free cash flow, early in 2016 will be the low watermark. That's when you will see the impact of this model hit its depth. We talked about 2017 being more of an inflection point.

You can actually say, from a quarter to quarter perspective, we'll start to see signs as we go throughout this year, where that trend is going in the right direction. But we're really not growing expenses in total, very much at all with the exception of things that are already in flight. To recap, the amount of investments that we're adding on a gross basis are very small. But we are adding more resources and more capabilities to our cloud solutions.

All right. Thank you.

Joe Fadgen with Craig --Hallum.

Hello. I'm here for Chad today. First question, if you go back two or three years, it seems like all the talk was that the pricing market is 20% growth market, long runway, you get into CPQ market, now it's 25% growth market. Do you still think those are the right numbers to think about end market growth at 20% plus?

Yes. We believe that market can grow higher, frankly. We're very confident with 20% plus. And we believe it can grow higher. We think that our solutions, the way they resonate and how we make it more consumable, where they can start smaller than before, I think we've actually opened up the market.

Okay. The second one, around guidance, over the last few quarters, obviously you have been guiding quarter to quarter basis, it's been mixed. Some quarters, the bookings are doing better, the revenue not so much, so back and forth.

Is there anything that you've changed in terms of your forecasting methodologies? Maybe you have a better grip on what data you should be looking at? Has anything changed to help investors believe, or that gives you more confidence that the numbers you put out there today for FY16 are the right numbers?

Yes. I completely understand where that question comes from, because as you pointed out, we have experienced some differences from what we had originally thought. And I will tell you, we have learned a lot as we've gone through the first nine or ten months of this model transition.

And I would say that we are much smarter today than we were before. You referenced where early on we were hitting our bookings numbers and we were modifying our revenue guidance. And that was primarily because the shift to cloud was much better than we anticipated.

Then in the latter quarters, we have had the opposite effect, where we've been more line with the revenue, but our bookings have been off. And you know the challenge is there, and the things we've talked about have been primarily around the things that we have done or not done to make that transition occur. And we have now, we believe we've identified them and addressed them.

What I would tell you is that what we've learned what the market receptibility is to our solutions, and we have learned more about what our teams are capable of executing and consuming in terms of change, we feel more confident that we have a better handle on how the business is going to react and perform to our new model.

So having said all that, we've put together a pretty rigorous process, where we are going through numbers with the field. We are looking at our models. And we haven't really changed much, other than we actually have incorporated the learnings that we've had over the last several quarters. And incorporated that in the process.

Okay. That's all for me. Thanks.

Thank you.

Thank you.

That will conclude our question-and-answer session. I will turn the call over to Mr. Reiner for any additional closing comments.

Thank you for joining us on today's call. This is an exciting time for PROS. The foundation we built in our cloud-first strategy puts us in a strong position to capitalize on our large market opportunity.

We believe we have the people, the technology, the customers, and the partners, to realize our potential and to drive long-term sustainable growth. I would like to thank our PROS team worldwide for their continued passionate 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.

That does conclude today's conference call, thank you for your participation.