Pros Holdings Inc (PRO) 2016 Q1 法說會逐字稿

Good day and welcome to the PROS Holdings, Incorporated, first-quarter 2016 earnings conference call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Stefan Schulz, Chief Financial Officer. Please go ahead, sir.

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 the first quarter of 2016, 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, our 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 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 effort, is available on the press release distributed earlier today and in the Investor Relations section of our website.

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

Thank you, Stefan, and thanks to all who are joining us on today's call. I'm pleased to report that we're off to a strong start in 2016. We finished the first quarter with $103.2 million of ARR, up 22% over the prior year and above internal expectations. ACV came in at $7.3 million, up 76% year over year and above guidance. I'm proud of our team worldwide for these great results.

We're excited to see our vision continue to unfold as we start 2016. More companies are turning to data science-driven solutions to help them compete in the modern marketplace, where customer experience is quickly becoming the new competitive playing field. We're ready to lead our customers to outperform in this new reality with innovations that enable a personalized and frictionless customer experience across all channels. We believe our experience in data science and our innovations in e-commerce, dynamic pricing, quoting, and mobility uniquely position us to capitalize on a large and expanding market. We're driving adoption and growth in our business by continuing to execute on our innovation strategies and on our cloud transformation. Let me share a few highlights.

First, on innovation, I've spent a lot of time with our customers in the first quarter. I heard great enthusiasm for solutions that enable our customers to deliver a frictionless buying and selling experience across direct, partner, and e-commerce channels. Many of our customers shared their experiences with our solution at our Outperform conferences in the Americas and Europe.

One of our customers, a medical device distributor, described how they use our price guidance on more than 2.5 billion price items. Initially, the science-driven guidance was delivered to their direct sales reps to help them win more confidently. After the results exceeded expectations, the company then expanded the use of guidance to their emerging B2B e-commerce channel. This helped the company drive growth in the online business while reducing friction in the customer buying experience.

At Outperform, the company described their solution as critical to their digital strategy, even stating that without PROS -- I quote -- "we could not be driving as much online business." I'm really proud of that! It's a great example of how our innovation delivers tangible ROI and drives higher customer lifetime value.

The depth and breadth of our platform is a big reason why companies choose PROS and why they continue to expand with us over time. One of our recent innovations illustrates the power of our platform delivered with simplicity to the user.

In the first quarter, we introduced a new capability for customers who are impacted by volatility in commodity prices. As the market changes, quotes can quickly become out of market and create a disconnect between buyers and sellers. To improve the experience and help our customers win, we added a real-time feed of commodity prices right into our solution, allowing sellers and buyers to align on prices based on the most current market data available.

This is just one example of how we're leveraging external data across our platform to help customers outperform, and we see many opportunities to innovate even further. We're collaborating with Microsoft, for instance, to combine our rich data science with the Cortana Intelligent Suite to deliver prescriptive guidance to Dynamics CRM customers. For Salesforce.com customers, we've extended the reach of our data science through new contract renewal capabilities in Salesforce, and we've achieved Lightning Ready designation for Smart CPQ solution. By driving our intelligent selling and pricing capabilities through CRM solutions, we can help even more companies outperform.

I would now like to update you on our transformation to the cloud, and will first comment on sales execution. The changes we made with our simplified packaging and additional training are helping our sales teams adapt and execute in the cloud selling model. With more than 80% of our deals in the first quarter going cloud, our team continued to build a solid foundation of cloud selling experience.

From a big-picture standpoint, we made the bold move to the cloud last year, with the vision of making our solutions more accessible and delivering even more value to customers. And now our conviction for this vision is even greater. I'm personally hearing great excitement from our customers about the possibilities the cloud gives them. We're seeing customers leverage the cloud to connect their direct partner and e-commerce channels. We're seeing cloud customers get value from new innovations, such as a market simulation capability for a revenue management solution. Customers are extending our solution across their business through the cloud -- even across their partner networks, as we're seeing in the airline space.

And finally, we're increasing our reach and scale in global markets through Microsoft Azure, which helped us add another new B2B cloud customer in Australia in the first quarter. Our vision for our cloud-first strategy is materializing with each quarter of this transition, and I'm proud of our entire team for our progress. And I firmly believe we're in a stronger position today to drive adoption and growth as a result of our cloud transformation.

Overall, we're pleased with our great start to 2016. As we look ahead, we're confident with our expectations for the rest of the year based on the health of our pipeline and continued improvements on sales execution. We will continue to drive adoption and growth going forward by focusing on innovations that drive the future of selling. We believe we have the right people, the right solutions, and the right strategies to continue to deliver great ROI for our customers, putting us in a strong position to capitalize on our large market opportunity.

With that, I will now turn the call over to Stefan so he can provide you with a review of our financial results and our outlook for the second quarter and full year of 2016.

Thank you, Andres. Before I discuss the details of the quarter and our outlook, I would like to touch on a couple of goals we are focused on this year. The first goal relates to accelerating growth in our recurring revenue. We have a tremendous opportunity and believe we are well positioned to drive adoption and growth in a large and under-penetrated market. As we've stated in the past, ARR is the best leading indicator of future recurring revenue. And while we will continue driving increases to our ARR balance, we also understand the importance of seeing ARR growth manifest itself in our recurring revenue, and more specifically, our subscription revenue.

In the first year of our cloud-first transition, our subscription revenue grew 13%. This year we expect that revenue line to grow 20% at the midpoint of our guidance range, and our goal is to have that growth rate double to 40% in 2017. While we're not prepared to quantify a growth rate for 2018 at this point, we also expect our subscription revenue growth rate to continue expanding in 2018. Based on our ACV bookings to date and our visibility in our pipeline, we believe this accelerated growth is achievable.

In order for our subscription revenue line to grow, the ACV bookings and the related ARR must be recognizable, which means our customers must have access to our subscription services. To be clear, though, meeting the revenue recognition standard of having access to our products is not our objective. Our mission of helping our customers outperform with our solutions is really our objective, and this leads me to the second goal I want to discuss.

As customers experience better financial results with our solutions, we become a part of their business for a very long time, and this in turn provides us with sustainable cash flow. I'm very proud to say that we have helped many customers outperform, and as a result, we have many long-term customer relationships. It is through these relationships, along with acquiring new customers, that we will be able to achieve greater cash flow.

We have set a goal of achieving positive free cash flow in the latter portion of 2017. By achieving this goal, we will have transitioned our business from a perpetual-based company to a cloud-based company and returned to a quarterly cash flow in less than two years. From there, we will continue to drive towards our long-term goal of achieving 20% free cash flow margins with adjusted EBITDA margins tracking closely with that. I will provide more insights into these goals throughout the year and in our next Investor Day, which we are still targeting to hold during the last half of 2016.

Now I'll get back to the first quarter. As Andres mentioned, we're off to a solid start this year. The continued emphasis in our growth strategy and sales execution helped us deliver better-than-expected Q1 performance in both ARR and ACV. ARR for the first quarter came in at $103.2 million, up 22% over first quarter of 2015. Growth in subscription ARR continues to be the primary driver of overall ARR growth, both sequentially and year over year. Our ACV bookings came in above our guidance range, at $7.3 million, up 76% from the first quarter of last year.

We are pleased with stronger growth in our pricing of ACV bookings in the first quarter, which was the area most impacted by changes associated with our cloud-first strategy. We believe we made solid progress on simplifying and improving our sales execution in the first quarter, and we will continue to drive for more improvements over the coming quarters.

Turning to our P&L, revenue for the first quarter was $37.9 million, above our guidance range and a 15% decrease over last year. The better-than-expected revenue was driven primarily by higher-than-expected maintenance and, to a lesser degree, higher service revenue.

As we've stated in the past, service revenue can be lumpy due to timing of implementations. Subscription revenue came in at $8.2 million for the quarter, at the high end of guidance and an increase of 11% over last year. Maintenance revenue was $16.7 million, up 7% for the first quarter year over year. Combined subscription and maintenance revenue make up our recurring revenue, which was up 8%. Approximately 66% of Q1 2016 revenue came from recurring business, up from 51% a year ago. The continued growth in our recurring revenue is a positive trend in our business, and we expect this will drive cash flow in subsequent quarters, creating long-term value for shareholders.

Also, our costs and expenses were slightly lower than the guidance range we provided as we focused on leveraging investments made in previous periods. Our free cash flow burn in the first quarter was $6.3 million, substantially better than expected. This was driven primarily by another quarter of strong execution on collections as well as continued focus on expense management. As we continue to invest in key initiatives to drive growth in the business, we remain committed to driving efficiency and scale for the future.

Now turning to guidance. For the second quarter, we expect ACV bookings to be in the range of $5 million to $7 million. Cumulatively, this guidance represents an increase of 25% for the first half of 2016 versus the same period last year and more than halfway to the midpoint of our full-year ACV guidance of $25 million to $27 million. We expect subscription revenue in the second quarter to be between $8.5 million and $8.7 million, representing a 25% year-over-year increase at the midpoint of guidance. As you can see, we are starting to show the growth in subscription revenue that accurately reflects momentum in our cloud-first strategy. This is what we projected would happen, and we're tracking with our growth goal.

Total revenue is expected to be between $35 million and $36 million, a 17% decline year over year at the midpoint of guidance. We expect to see license and services decline. As I mentioned earlier, we do expect to see continued variability in services revenue due to timing of project completions as well as continued lower services revenue driven by lower services attach rates for our cloud offerings.

We expect Q2 adjusted EBITDA to be a loss between $12 million and $13 million. Our earnings per share loss is expected to be in the range of $0.32 to $0.34 per share in the second quarter.

For the full year, we are reaffirming our guidance estimates for revenue of $150 million to $153 million, and improving our free cash flow and EBITDA guidance for the year. We are now estimating our free cash flow burn to be between $35 million and $37 million for the full year, an improvement of $2 million from prior guidance.

Lastly, we're estimating that our adjusted EBITDA will be a loss between $44 million to $46 million, a $1 million improvement from the guidance given last quarter.

Overall, we are pleased with the first quarter of 2016 and the progress we have made. Our results reflect our continued commitment to deliver value to our shareholders through recurring revenue growth and cash flow generation, which ultimately comes from happy customers who are getting tangible value from our cloud solutions.

As we look ahead, I am confident in our outlook, based on the health of our pipeline, the improvements we are seeing in execution, and the strong preference for cloud offerings in the market. We believe we are making the right investments for the long term, and that we have the people, the technology, and the customers to capture our share of the large market opportunity. We are grateful for your support, and we are happy you are joining us on our mission of helping people and companies outperform.

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

Thank you, sir. (Operator Instructions.) Bhavan Suri, William Blair. Scott Berg, Needham.

Hi, Andres and Stefan. Congrats on a better quarter here. Yes, a couple of quick questions here is, first of all, Stefan, you commented on your goal to achieve breakeven to free cash flow in the second half of 2017. I wanted to see if you can expand on any of your assumptions around that goal. Trying to understand maybe your level of visibility into achieving that, understanding that we're still a year-plus away from that timeframe.

Yes, no, it's a good question, Scott. We spend time every six months or so refining our long-term model internally and looking at how our business has progressed. And when we looked at the latest run of our long-term model, one of the things that we were able to see was the strong execution we've had in cash collections that our team has been able to perform over the last six months. By applying that and the growth that we're seeing in our subscription line item gives us confidence that we're going to see the inflows of cash that are going to come in over the next several quarters.

At the same time, we're also looking at the level of investment and expense that we need in order to generate those recurring revenues. And as we said in the prepared remarks, one of the things that we're looking at is how we can invest in the right areas, but also make sure we're driving to the scale and operating benefits that we'll need in order to drive profitability and free cash flow in the future. And when put all those things together in the model and look at where things come out, we definitely see a path towards, to generating a free cash flow number in the second half of 2017.

But having said that, we know that in the first half of 2017 and then throughout 2016, we'll be burning cash as we get through this transition. But we're happy to see the light at the end of the tunnel. And as I said in my comments, happy to see that we can get to free cash flow positive results within two years of last showing positive cash flow.

Great. And then, Andres, you had talked about sales execution in the quarter that was more in line with your expectations and exceeded the last two quarters, at least. Can you comment on where you are in that cycle? Are those sales execution efforts exactly where they need to be, or are you still trending towards that direction and there may be some timeframes to get back to what we'll call it, quote-unquote, 100% horsepower kind of effort?

And then any comments on bookings in the US versus maybe Europe or Asia-Pac on a geographic-regional basis?

Yes. Those are great questions. So we've continued to make progress but expect to continue to drive improvements through the year, to drive the right productivity metrics that we expect from our field. And we're very, very focused on that. But I would say the foundation that we built is great, and now it's continuing to fine-tune.

We did see across North America, Europe, on the global on the MDS as well as travel, very consistent execution. And I would say this was a very good quarter for us, because every area delivered to our expectations, which was great to see. So we didn't see any softness in any area or any mis-execution in any area. And it's exciting to see all of the efforts that we put in place in transitioning to the cloud and how we package, how we train our sales teams, start to come to fruition.

We also were very pleased with the mix of subscription bookings, which I talked about, more than 80% being cloud-based bookings, and starting to see more linear bookings through the quarter. So I would say it wasn't all back-end loaded. And we're continuing to see that trajectory going forward.

Great. That's all I have at the moment. I'll jump back in the queue. Congrats again.

Bhavan Suri, William Blair.

Nice job there. I just wanted to drill in a little bit. Obviously, the strength in cloud was nice. Andres, just a little color on the deal sizes you're seeing and the modular approach and the verticalization. Is that playing along the lines of what we thought? So there was obviously some bumpiness in Q3, just the bundling and things like that. But is that starting to see an uptick? Are you starting to see a little bit of an inflection with that approach for the cloud solutions? Just some color around that would be great.

Yes, so we've started to see a more consistent deal size across different parts of our business, and it's continuing to play out. We are seeing, obviously, and Stefan commented on this, less services attach rate to some of our cloud bookings because it takes less services to implement. But we're seeing more consistency in the types of bookings and the size of bookings across both MDS and travel.

And we're really pleased that from a pipeline perspective, we had commented last quarter that we had about 80% of our pipeline cloud. Now we're more than 90% of our pipeline is cloud. So as we move forward, we're really seeing, frankly, very positive reception to our cloud editions, even from existing customers as well.

Great, great. And then when you look at the quarter and you look at the beats and then you look at the second-quarter guidance of fully maintained, just some sense of is there conservatism built into it -- which you know I love that. So that's the nature; we are building in some cushion here. But you didn't raise full year. It feels like a little softer in Q2. Just help me understand how you're thinking through that. Given the strength in the pipeline that you're commenting about, given the strength in the cloud bookings numbers, how should we think about how you guys are thinking about that?

Yes, Bhavan, this is Stefan. I'll take that. When we set forth to look at the complete Q1 and look forward to the rest of the year, one of the things that we wanted to make sure we contemplated was we have one data point, which is Q1. And we also are cognizant of how our year ended last year between Q3 and Q4. And we really wanted to make sure that we had another data point that we could point to of solid execution before we did anything related to our guidance.

That said, you probably do note that we did make a change to our cash flow and our profitability guidance. And we do feel confident that we're going to be able to beat those original numbers. I would tell you that we feel very good about the strength of our pipeline. We talked about our sales execution and how much that's gotten better. But we've also commented that we still have work to do, and there are still areas for improvement. But I'm happy to say that we are seeing signs of improving as we go forward. But really want to make sure that we're executing at the right level, and a level that we're expected to execute.

Great. It's great. And then one quick last one from me. Just have you seen any impact, positive or negative, either way, of Salesforce's acquisition of SteelBrick, and just to follow up with that, how has the competitive environment been trending on the CPQ side?

Yes, so we haven't seen a big change, other than maybe on the Aptos front, trying to find a place. But in general, we haven't seen a trend. We see a good opportunity for us to differentiate in the Salesforce ecosystem and in the Microsoft Dynamics ecosystem. And we believe we have a unique opportunity, given that we have a hybrid solution that integrates with both that can bring intelligence and data science. So we think that the combination of Salesforce technology with PROS, and data with intelligence, like I talked about the contract renewal guidance, we think drives unique differentiation, especially around large enterprise. In our industry strategy, we feel we're in a very strong position. So I think from both on the Salesforce ecosystem side and on the Microsoft side, I think we have a lot of opportunities by focusing in our market.

Okay, that's very helpful. Hey, guys, nice job there, and thanks for taking my questions again. Appreciate it.

Greg McDowell, JMP Securities.

It is nice to see the improvement in bookings. My first question, I would like you to expand a little bit on the linearity in the quarter, because I know there could have been some component of some of those Q4 deals rolling into Q1 and closing those deals early in the quarter. So I was just wondering if you could just comment on how the selling environment felt throughout March. Did it feel healthy throughout the quarter, given that you may have had that little boost at the beginning of the year? Thanks.

Yes, so we did feel strength at the end of the quarter like we always do. But we're seeing more consistency across every month. And I would say part of that is also our sales focus and how we're executing in sales. We're really focused on executing to monthly goals and really improving the way that we execute towards monthly goals and not quarterly. We think this continued improvement in execution will lead better results long term and healthier results long term. And I'm really pleased of the progress the sales organization has made around their focus, around their monthly targets.

But overall, we saw good strength at the end of the quarter and continuing on to the current quarter.

And one quick follow-up, and maybe this is more of a modeling question for Q2 and the rest of the year. I know license is going to continue to decline, but it feels like the Q1 drop, almost $3 million -- how should we think about both the drop in license and the drop in professional services for Q2? Because it certainly seems like the subscription line and maintenance line are the easier lines to model at this point. But Stefan, if you could help us think through that in any way, that would be helpful. Thanks.

Yes. No, absolutely, and you're right. And the services line, I'll talk about it first. Because I talked about it being a bit lumpy, depending on when projects are completed. Because when a project completes, we typically get an influx of revenue that is recognized upon the milestone of completing the project. And so we can have quarters where there's a larger number of completions, and that helps the services number. And that, combined with the fact that on our travel services projects, the SaaS travel projects, we are deferring all of that service and all of that subscription revenue until the implementation is final.

So what's happening there is we're having projects that complete, and the normal projects that would come in and fill that void in the services revenue that are now gone are now being deferred until the SaaS project goes live. And so that's creating more, an acute variability in our services revenue than what we've seen in the past. And so that's why you're seeing -- we had a little better services revenue in Q1 than we thought, and we're guiding you to a little lower than probably what you were thinking when you first did your model.

So to answer your question directly, I would say modeling a little more of a services decline is probably the right way to go with it, and only a slight license decline. And I'm talking about a sequential move. I'm not talking year over year. But from Q1 to Q2, a slight decline in license and a little heavier decline in services, just given the phenomenon that I was talking about earlier.

Yes, fair enough. Thank you very much. That's helpful.

Ben McFadden, Pacific Crest Securities.

I just want to start with -- I know you don't guide or give data on each individual business. But maybe if you could start by providing just color on how we should think about how much of this strong ACV bookings was driven directly by the B2B revenue optimization space instead of these other businesses that have been doing a little bit better for you. And then maybe also, just as a follow-up, how much of the business was driven by partners in the quarter?

Yes, so we saw the mix between B2B and travel to be a higher mix on B2B than travel for Q1. And as we said, quarter to quarter, that can vary. Overall, it's trending in our typical norms. So that stayed fairly consistent.

Okay, great. And then, Stefan, just a follow-up to a question that was asked earlier on the guide around the conservativism attached to it. Just specifically on the free cash flow guide, Q1 came in much better than expectation. You're taking up the free -- or you're decreasing the free cash flow burn, I should say, for the year. How much should we think about that being conservatism around cash collections versus where you view investments to be made throughout the year in this cloud transition?

Yes, I would tell you it's going to be more along the lines of the collection and a little less on the investment side. So we're going to continue to make investments in areas like our cloud infrastructure. We're going to continue to make investments in some of our development teams, and even in some of our sales and marketing teams, although we have talked about the fact that we want to drive more efficiency in our sales and marketing area and in other areas as well.

So don't look at it as we're going to be spending a lot less. That's not where our focus is going to be. We've made a lot of progress on our execution, and we think there's still more to be made in terms of getting better at our collection efforts.

So the other thing I'll point out is there's a couple of other things that are benefiting us, and we've talked about them in the past. But having a very high renewal rate, or call it a small churn, is also benefiting us because we're actually outperforming what we had originally modeled back in the day. And so we're actually collecting more than what we had originally modeled. That's another part that's actually helping us. And so that's another thing to look at that's driving some of our collections.

Great. Thank you very much.

Nandan Amladi, Deutsche Bank.

The first question's on the billings cadence. I know we're not at a point where we can reliably use billings, but deferred revenue was up almost $9 million sequentially -- a little over $9 million, actually. So how much of that was just maintenance renewals versus SaaS bookings or SaaS collections?

Yes, so, Nandan, this is Stefan. Good observation. We were happy to see our deferred revenue jump up as well. And we're not really commenting on it right now because of the fact that we're providing other metrics like ARR and ACV. But yes, as subscription becomes a bigger part of our business, it's a number that I think we'll be able to more increasingly focus on.

But to answer your question directly, maintenance is still the largest component of our deferred revenue. And it represented right at about a third of the overall -- a little over a third of the overall growth in deferred revenue.

Okay. And then on payment terms, I know last quarter I think you touched on this, trying to get more prepay, annual prepay agreements. How's progress on that, and are the sales teams aligned on that approach?

Good. Actually, that's gone well. And again, going back to the sales execution work that's been done, there's been so much positive of traction and momentum that I think we've had over the last 90 days as we've worked on it, and that is -- I'm glad you brought it up -- that is one more data point that I think we can point to. The teams have been very receptive to it, and we spend quite a bit of time talking with the field organization about that and a number of other initiatives that we have to drive more benefit to us on the P&L and on the cash flow.

Great. And one last one, if I might, Andres, for you. You talked about new bookings being 80% cloud, and then in the pipeline, over 90% is cloud. How much of this is push versus pull from the customer side?

Yes, what I would say, it's been, obviously, on net new, it's really selling only cloud. But on the existing, it's really pull. It's customers really are liking the new model or liking our vision, our capabilities. And there's excitement from the customers on what's going to be possible with the cloud.

I will tell you some examples. Some are looking at expanding into other geographies or across other business units and see a significant value of consolidating into a cloud environment that allows them to move faster. And they see a higher opportunity to drive even higher ROI and for us, obviously, driving a higher customer lifetime value. So it's really been much more positive received than probably what we expected at the beginning.

Great. Thank you.

Tom Roderick, Stifel.

Nice job on the good start to the year here. I want to piggyback on, I think it was Bhavan that asked the last question, just around SteelBrick. And I'm curious to hear how the CPQ business for you guys is progressing this year, what the demand is like out there. And I'm very interested in how CPQ deals tend to dovetail or overlap with your existing core pricing optimization type of deals. Are they selling as natural add-ons to the installed base? Are they driving lead gen? Maybe you can talk about that segment of the product set and competitive dynamics and lead gen on that.

Yes, so we're continuing to see CPQ in our price optimization be sold as an end to end in some cases, and drive differentiation across industries in the large enterprise. For example, in food and ag, we're seeing a lot of interest in a combined offering in driving specific capabilities to that industry. We talked about, in one of my prepared remarks, about commodity prices, and we're seeing that's actually an example in the food industry, where we're building real-time commodity price feeds into our solution so that they can have a very current real-time optimized price. And that competitive advantage around intelligence and the speed to sell with precision, it's driving clear differentiation.

So I would say is we expect SteelBrick to continue to provide capabilities. And my perspective is they will become more of a platform play, where other solution providers can continue to extend their capabilities to provide solutions that really help the large enterprise around industries. And we see ourselves as the glue in between the CRM and the ERP systems, but by providing intelligence and guidance in the more complex configuration capabilities that they don't have today.

So we think it's a good opportunity for us to continue to partner. I think they're going to, for simple floating, I think they're going to take more of that share in the overall market in the Salesforce ecosystem. But for enterprise companies that need more complex configuration and want intelligence and want to drive better precision in their selling, that's where we differentiate. And we're seeing both companies, when they start with a combined end to end, we're seeing some companies believe in the vision and knowing that at the beginning, they want to automate. But they know they want to help their sales team be more successful, and the integration with our data science or integration with SAP on the back end, all seamless -- it's a huge differentiator.

Got it. That's helpful detail. And then perhaps piggybacking on another prior question -- I think there was a question about push versus pull -- I'm curious, as you've made some management changes over the past few quarters in the sales organization, and now that you've gone through sales kickoff and set in quotas and territories and all that fun stuff for the year, what can you share with us about how you've organized the sales force and how you're incentivizing that sales force to go out and seek out cloud deals first and how management plays into that process. Thanks.

Yes. So we've obviously changed our compensation, and it's purely ACV based, so only on ACV of subscription bookings. And we've organized around industries. We're very, very focused. We have target industries that we're going after, and that's how we've organized, which we believe is how you differentiate in this new economy.

One other thing I will add to your previous question that I think is important is barriers around e-commerce and being able to handle multi-channel. I think that's another area we're seeing a lot. I could tell you at Outperform, that was one area that there's a lot of excitement in B2B around digital transformation, and there's digital strategies in realizing that selling is not just the tools for sales; it's what tools do we have for our partners, what tools do we have for our customers? So on the mobile and e-commerce, it's another area where we're greatly differentiating.

And our sales team has been aligned around those industries, focused on those industries to be able to help them see how we can really transform the way they're selling.

Got it. Thank you, Andres. It's great.

Tim Klasell, Northland Securities.

Congrats on the quarter as well. My question has -- most of my questions have been answered, but I want to talk about moving existing customers over to the SaaS offerings. First question is, are you having fairly broad success there, or are there certain product sets that customers seem to be more eager to move over to SaaS?

So I will tell you we've had more of customers asking us to move than us really program going after cloud migrations. And we've seen success, both on the travel and on the B2B side. But it's not been by us putting a program around how do we move as fast as possible our customers. It's been more customers pulling and wanting to move to our cloud editions.

Areas like e-commerce and solutions that require e-commerce -- those areas we're seeing a lot of receptivity. So in the travel, for example, we have our path technology that integrates directly with the search technology for travel. As you can imagine, airlines are thinking of how the growth of search is going to be in the future and how they have helped support their different channels. Those areas, we're seeing very strong receptivity and adoption.

Okay, great. And then you've had your sales kickoff. Are you compensating -- because that's probably one of the most profitable transitions, in going from on-prem to SaaS -- are you compensating your sales force at all differently, or are they just ACV uplift is what they're compensated on? Maybe you could walk us through that.

Yes. So for net news based on ACV and renewals is for net new is how the compensation, anything above the renewal amount. And part of that is because historically, we have very high retention rates. Therefore, we don't compensate on the full renewal, only on net add to ACV.

Got it. Thank you very much. It's very helpful.

Chad Bennett, Craig-Hallum.

So I jumped in on the call halfway or towards the end of the call, so it might be redundant. ACV growth was really good, so can you give me some indication on the ACV guide for this current quarter? Did you pull a little from this quarter, and that's the reason for the guide, or can you give me some color there, which has probably been asked before.

To make sure I understand your question, you're asking if we pulled some from Q1?

So is your Q2 ACV guide $5 million to $7 million?

Yes, it is.

Okay, and you just did $7.3 million?

That's correct.

So why is it down sequentially?

Oh. Well, so ACV bookings is -- we've talked about this before -- very lumpy. Depending on the timing of when a deal may get executed or not executed can vary an ACV booking quite a bit. But I wouldn't pay too much attention to the moves quarter to quarter. But stepping back and looking at it holistically, when you look at our guide for the year, at $25 million to $27 million, achieving even the midpoint of that range puts us beyond half of that annual goal. So even though you could look at it and say, well, we'd be down sequentially, I would tell you we're in great shape as we are chasing our $25 million to $27 million goal. And again, I wouldn't spend a lot of time looking at the quarterly ups and downs.

And I would say we're really pleased with our guidance, and we continue to be prudent on our guidance approach.

Yes, I guess I was giving you the benefit of the doubt a little bit. Did you do better? You've said in the text, but maybe you did a little bit better and closed more deals than you thought in the March quarter? Is that a fair assessment?

No, we actually commented that we felt we had -- we're starting to see more linear bookings. So we saw more consistency across January, February, and March and continuing into April and beyond. So we're starting to see more consistency and less hockey-stick, all back-end loaded. And I would say that's part of the model change, also part of our execution focus around monthly goals. So it's still early, but really, we're really pleased where we are. We know we have to continue to improve, but we're really pleased with this start.

And again, sorry about being redundant, if so. So in the bookings or ACV strength in the quarter, was it equal between pricing and CPQ, or was it skewed one way or the other?

What our comment is overall, I did comment that B2B was better than 50% overall. We saw pretty strong execution across the rest of world, EMEA and rest of world, North America, and travel. Both pricing and CPQ were strong.

Okay. Are you thinking any differently about your maintenance forecast for this year, Stefan?

No. No, we're thinking maintenance forecast that we've said from the get-go is about on. I did comment earlier that looking sequentially from Q1 to Q2, that maintenance would be relatively flat to Q1 as you look into Q2. And I also commented that services would be down sequentially due to just the timing of when certain projects are going to be completed. We actually had a few more in Q1, and that means the relationship between Q1 and Q2 will show Q2 being down a bit on the services.

Right. Andres, just one last one for me. So can you characterize how you think the sales execution has improved over the last quarter versus the prior quarter? Obviously, you talked about linearity, which is great, which was better and seems more, seems like you had a good cadence going. But what specifically has improved on the execution side, just tactical stuff that's changed?

No, that's a great question. If you think about the amount of change that we had last year -- we introduced new packages, selling both types of solutions. One big change that's also affecting, if we look at net new deals, we're only selling cloud. So if you look at just that perspective of not having both types of offers and then having customers compare and try to do the value case across a five-year return of investment, just selling one type of offering, we've seen much better. The training that we've done, we've simplified our packages. And all of that is just they've had multiple quarters of selling and adapting to this new model, and we think that's driving better results ultimately.

It's a pretty big change. If you think about it last year for a sales organization, it was like they were all new, selling these new packages. As much of experienced and incredible people we have, it was a big change. And meanwhile, we were converting deals from perpetual to cloud. So we're beyond that.

Yes. Are deal sizes changing much, Andres?

It's staying consistent to what we experienced in the back half of the year.

Okay, so SaaS deal sizes, or cloud deal sizes, haven't really changed much?

No. No, it's been pretty consistent.

Okay. Thanks, guys, for taking my questions.

And, ladies and gentlemen, that is our final question today. Mr. Reiner, I'd like to turn the call back over to you for any closing remarks.

Thank you for your participation in today's call and for your support of PROS. We believe we're well positioned to capitalize on our large market opportunity through our commitments to innovation and by executing on our cloud strategy. I would like to thank, once again, our PROS team worldwide for their continued passion 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, this does conclude today's conference. We appreciate your participation.