Pros Holdings Inc (PRO) 2017 Q1 法說會逐字稿

Greetings, and welcome to PROS Holdings First Quarter 2017 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now turn the conference over to Mr. Stefan Schulz, Chief Financial Officer for PROS Holdings. Thank you. Mr. Schulz, you may now begin.

Thank you, operator. Good afternoon, everyone, and thank you for joining us. With me on today's call is Andres Reiner, President and Chief Executive Officer.

Before we begin, note that some of the information we will discuss during this call will consist of forward-looking statements, including, without limitation, our guidance, our strategy, future business prospects, revenue, margin and market opportunities. Actual results could differ materially from our current forecast. Please refer to the risks and uncertainties as well as other factors described in our filings with the SEC for more information. PROS assumes no obligation to update any forward-looking statements to reflect future events or circumstances.

Also during the call, we will discuss financial results in accordance with Generally Accepted Accounting Principles or GAAP as well as certain financial results and 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 at pros.com. A replay of today's call is also available there, and we encourage everyone to review this additional information.

So with that, I will turn the call over to Andres.

Thank you, Stefan. Good afternoon, everyone, and thank you for joining us on today's call. I would like to start by thanking our PROS team for a strong start to 2017.

We continued to execute on our growth strategies to drive momentum and deliver value to our customers. In the first quarter, we exceeded the high end of our guidance for both total revenue and subscription revenue. We also passed another important milestone in our cloud transition. We returned to year-over-year revenue growth for the first time since we began this transformation, reflecting our success in driving value to customers and making it easier for them to buy, implement and expand our solutions. I could not be more proud of our team for this incredible accomplishment in our strong first quarter overall.

We feel we're hitting our strides as a cloud company as our momentum builds with each quarter of execution. Our team is galvanized around our mission. Our customers are getting outstanding value for more solutions, and our growth strategies are working.

Today, I will share a few highlights of how we're driving our land and expand business through our innovation and industry go-to-market strategies.

First, on innovation. We believe we're in the strongest market position we've ever been. We sit at the intersection of 2 major forces in the market, modern commerce and machine learning algorithms.

In modern commerce, B2B and B2C buyers expect personalized, frictionless and consistent buying experiences across all channels. We help companies adapt to this new reality with real-time dynamic offers, prices and quotes, powered by machine learning algorithms. In fact, according to Forrester Research, more than 50% of B2B companies are moving towards dynamic pricing and offer personalization to meet the demands of modern commerce. Let me share one example of this exciting transformation.

A European utility company recently selected PROS to help protect and grow their B2B market share after deregulation changed their competitive environment. Their strategy is to compete with better personalization and improved responsiveness for B2B customers with our solution, including a more robust self-service e-commerce experience.

For more than 3 decades, we have pioneered the data science needed for modern commerce. Real-time forecasting, dynamic pricing, cross-sell, upsell, offer optimization, opportunity detection and mixed optimization are just a few examples of our machine learning innovations. We believe no other company in our space can match our decades of experience in trained algorithms, combined with industry expertise, breadth of offering and/or track record of creating real tangible value. Let me illustrate how this came together to help a customer in the food industry outperform.

Last year, Food Services of America adopted our Price Guidance solution to deliver personalized prices and quotes. They recently expanded to our new opportunity detection solution, which uses machine learning to uncover cross-sell opportunities from customer buying patterns. The customer estimates that opportunity detection has driven more than 100 basis points of incremental revenue after just a few months, all from a solution that we can deploy in less than 30 days.

Innovation is an important part of our land-and-expand strategy, and we're pleased with our progress in the first quarter. As we look ahead, we will continue to invest in innovations that power modern commerce. In fact, next week at our Outperform conference, we will showcase our latest innovations in cognitive computing, virtual reality, opportunity detection and much more.

Our second strategy for driving land-and-expand business is our industry-focused go-to-market approach. We're infusing industry expertise into our sales and marketing efforts to drive new wins, then using our industry Quick Start packages for faster starts and expansions. I'll share an example.

In the first quarter, a new industrial manufacturing customer went live with our Price Guidance solution in 4 subsidiaries of a U.S. business unit. Using our industry Quick Start program, we delivered the solution in just over 120 days. Before the initial implementation was even done, the company decided to extend the solution to another separate business unit in Europe, and now they're evaluating additional business units and additional solutions. This rapid time to value and expansion is exactly what we expected from our cloud strategy and industry approach. It's exciting to see our vision unfold.

Another key adoption in growth driver is our technology partners strategy. Our solutions are accessible through our customers' existing technology platforms such as CRM and e-commerce systems. For CRM, in the first quarter, we added several new Smart CPQ customers such as a global utility company, a chemical manufacturer and an airline. Our solutions are also available on leading e-commerce platforms such as Salesforce communities, SAP Hybris and CloudCraze, who we're collaborating with to power Purina Animal Nutrition's B2B e-commerce platform.

We continue to extend our reach into market through our Microsoft partnership. Recently, we showcased our machine learning innovations through Microsoft customers and sellers at the Microsoft CXO Summit, eXtreme365 and the CRMUG Summit, where global feel the engagement strategy with Microsoft has driven a solid uptick in referrals and coselling opportunities. Through Microsoft Azure, we're extending our global cloud reach such as leveraging Microsoft's new data centers in Germany to serve our European customers with local data privacy and security.

We're off to a good start this year, and we're confident with our outlook for the rest of 2017. Our strategies for driving growth and adoption are working as more companies make the shift to modern e-commerce. We believe we have a powerful home field advantage with our decades of experience in machine learning algorithms.

You can hear more about this at our Outperform conference next week where customers are eager to share their own modern commerce success. You can see firsthand why we're named a winner of the CRM Watchlist Award for the fourth year in a row and why Saint-Gobain won a prestigious award for their digital transformation powered by PROS.

This is an exciting time for PROS and for our customers as our machine learning solutions take center stage in modern commerce. We're grateful for your support, and we hope you can join us next week.

With that, I'd like to turn the call over to Stefan to comment on our financials.

Thank you, Andres. Before I discuss our performance, I would like to remind you that we will be holding an analyst briefing next Thursday, May 11, during our Outperform conference in Chicago. The briefing will also be available via webcast. You have a chance to hear from several members of our leadership team about how we are executing on our growth strategy. We hope you can join us.

Now, turning to our first quarter performance. I would like to start by thanking our team for a strong start to 2017. Our focus on driving growth while becoming more productive and efficient is helping us to reach new milestones and helping us to stay on track with our key cloud transformation goals.

As Andres mentioned, the first quarter was particularly rewarding because we returned to year-over-year revenue growth less than 2 years after starting our cloud transition. This is a testament to the strength of our people and our products as well as the loyalty of our customers.

Now with this milestone behind us, we expect to deliver year-over-year revenue growth on a quarterly basis going forward, and we remain on track to achieve 20-plus percent revenue CAGR over the next 5 years.

Another goal we set was to drive better than 40% subscription revenue growth in 2017 and then accelerate that growth in 2018. With nearly 50% subscription revenue growth in Q1, we are ahead of that pace early in 2017.

We also set a goal to cross over to positive free cash flow in late 2017, setting us up for full year free cash flow in 2018. Even though we had free cash flow burn of $13.2 million in the first quarter and will burn cash in the second quarter, this is consistent with our model, and we are still on track to our goal of turning the corner on free cash flow in the latter part of 2017.

Now for more details on our P&L results. Total revenue for the first quarter came in at $40.1 million, up 6% year-over-year and above guidance. As indicated, revenue outperformance was driven by strong subscription revenue of $12.2 million, which also exceeded the high end of guidance.

Subscription and maintenance revenue together make up our recurring revenue. In the first quarter, our recurring revenue was $30.3 million, up 22% year-over-year. We had a particularly strong quarter for maintenance revenue with strong collections in the quarter on accounts that begin revenue recognition when cash is received. This led to approximately a $1 million onetime benefit to maintenance revenue.

Our recurring revenue made up 75% of total revenue as compared to 66% last year. This keeps us on track with our long-term target of better than 85% recurring revenue mix.

The recurring portion of our deferred revenue was $68.1 million at the end of the first quarter, up 27% over the same period last year.

Non-GAAP gross margins were 61% in the first quarter, relatively flat when compared to last year. We continue to see short-term downward pressure from the subscription and services parts of our business. As we have discussed, we believe these are short-term headwinds resulting from us building a global infrastructure for our subscription business.

For example, we recently achieved the ISO/IEC 27001: 2013 certification for information security. We believe these investments in data security and privacy are key to scaling our cloud business over time. As we better leverage our global infrastructure, we will see our subscription margins improve.

In addition, our margins have been impacted by our investments to reduce implementation times such as our new implementation packages that can reduce implementation efforts by 20% and deliver value in less than 90 days. We expect our services margins to improve as we scale using these packages. We remain focused on achieving our long-term gross margin target range of between 69% and 72%.

Now, turning to free cash flow. In Q1, our free cash flow burn was $13.2 million. Our cash balance and short-term investments at the end of the first quarter totaled $117.9 million.

As I mentioned earlier, our first quarter and projected first half burn is consistent with our plan, and we will continue layering our subscription billings on top of existing recurring billings while driving further productivity and efficiency in the business to achieve our full year free cash flow burn estimate of between $19 million and $21 million.

Now, turning to guidance. For the second quarter, we expect total revenue to be in the range of $38.5 million to $39.5 million, a 5% year-over-year increase at the midpoint. We expect subscription revenue for Q2 to be in the range of $13 million to $13.3 million, up 44% over the second quarter of 2016 at the midpoint.

We expect our adjusted EBITDA loss for the second quarter to be in the range of $11.5 million to $10.5 million. With an estimated non-GAAP tax rate of 36% in the second quarter, we anticipate a non-GAAP loss per share between $0.27 and $0.26 per share based on an estimated 31.4 million basic shares outstanding. For the full year, we are reaffirming our guidance estimates on all financial metrics as well as ARR of between $147 million and $149 million.

Overall, we are pleased with our first quarter 2017. We're confident we have the right team, innovation strategy and industry focus in place to achieve our long-term growth and profitability goals. We are grateful for your support of PROS, and we look forward to speaking with you in our analyst briefing next week.

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

(Operator Instructions) The first question is from Ben McFadden of Pacific Crest Securities.

I want to start -- I mean, it seems like a solid quarter on the recurring revenue -- recurring deferred revenue growth, that's a mouthful, 27% growth. But, Andres, I want to start, I guess, from a qualitative perspective, maybe you can give us some sort of color on as we look at the strength that you had in Q1 and that number. How much of that came from this vertical focus or industry focus, sales reorg that you've done essentially over the last year?

Yes. Ben, yes, we're very happy with the momentum we had in Q1, especially following the best orders that we've had in our history in Q4. To have a strong start in Q1 was very good. And obviously, I think a lot of our initiatives that we put in place from our industry packages and our industry go-to-market are definitely resonating in the market. And in our capabilities around our Smart CPQ solution and the differentiation around that with our PricingPRO were seen really resonate in the market.

And then, I guess, second question for Stefan. I wanted to return to this free cash flow discussion, the $13 million burn versus the guidance for $19 million to $21 million. Maybe you could kind of help us walk through where you're seeing those efficiencies and improvement in productivity that will get you significant improvement as we head to the second half of the year on that free cash flow number.

Yes. So, Ben, I'll tell you that when you look at our first quarter, that's when you see a fairly significant cash outlay when it comes down to payroll taxes. That's when they reset for the year. You also have -- that's when a lot of the variable compensation is paid out.

So when you look at the first quarter, there's a concentration of those types of payments that are made that actually make that number look a little worse than what you might be expecting, at least from a quarter perspective for the full year.

So we still feel very good about the guidance we gave for the full year of the $19 million to $21 million burn. We won't see the same level of cash expenditures that we saw in the first quarter of this year repeating themselves in the second, third and fourth quarter. So that's going to be obvious tailwind to us. But the second piece of that tailwind is, as we continue to layer in more and more of our SaaS bookings, our billings are going to go up as well, and we'll start to receive more absolute cash.

One final comment on that is you may look back to last year and say, “Well, I didn't see a big burn last year.” Well, last year was the bonus in the variable comp payments coming off of the 2015 year where we didn't pay a lot of the variable compensation because we were not on our plans because of the Q4 quarter that we had. And so, therefore, we didn't have a lot of these same cash expenditures impacting us in Q1 of last year.

The next question is from Scott Berg of Needham.

Andres and Stefan, congrats on a great quarter. I have 2 questions. First of all, first question is, Stefan, you had made the comment about that you feel very confident or feel very comfortable with your 5-year outlook for 20% revenue growth CAGR. I guess, what happened either in the quarter or the last couple of quarters to continue kind of giving you visibility into what that number or the confidence into what that number looks like over the next several years?

Yes. So -- yes, when we, I guess, rolled it out more officially, I guess, it was back in November. And when we wrapped up Q4, now we've wrapped up Q1, Scott, what we're seeing is we're seeing basically the dominoes coming in, in exact alignment with how we were thinking they would when we sat down and talked in November. So the biggest domino to come over was the -- was returning to year-over-year subscription and total revenue growth for Q1, and we actually achieved that. And we would have achieved that even without some of the tailwind benefit we received from some of the maintenance revenue that you probably saw in the numbers as well. We would actually have achieved that year-over-year growth.

So what I'm basically saying is this is very much in line with the overall plan. We're seeing the model come into play. And as we lay out our guidance for Q2, knowing what kind of subscription revenue is in Q and the maintenance revenue that's in the Q, we feel like we're very well aligned to that 5-year plan that we had laid out.

Great. And my follow-up question for Andres is I know you're not giving quarterly metrics around sales, ACV, ARR, et cetera, like you have the last 2 years during the transition. But considering the recurring deferred revenue number was up nicely in the quarter, 7 -- 27% year-over-year, can you add a little color in terms of some of the sales traction you're getting maybe on a geographical basis? We still hear about some challenging environments in Europe. I didn't know if you're facing any of those similar challenges.

Yes. So overall, we were very happy with the momentum that we've seen and good momentum across all of the regions. And frankly, especially Europe was strong for us in the quarter. So we continue to see very good momentum and good interest in our solutions across Europe. So that was an area that we were actually quite pleased to see.

The next question is from Jackson Ader of JPMorgan.

So the first question for Andres, if -- on -- in your script, you pointed out that one of the customers, I think it was in manufacturing, actually, decided to expand their deal before the implementation was even through. I'm just curious, how did they know that the product was going to work? Why did they expand if the implementation wasn't even finished?

Yes, that's a great question. I think as part of our strategy in our industry go-to-market approach is using our industry packages in this industrial manufacturing deployed, as I communicated, and about 120 days, just over 120 days. Way before that, they're already getting value. So the over 120 days is when they have fully deployed and everything lies. But in a very short amount of time, they were actually able to see analytics and start making decisions in their business that actually positive impact their business.

And I think the successes that they can see, the value that's going to generate even before going live, which gives them confidence to go ahead and expand in other geographies. And this is an area that we've seen across -- this is just one of the examples we've seen in several cases of deals that have closed in the last, say, 18 months, where they started to get value and they've expanded in following quarters, which is something that really we're very pleased to see and we've known for many years that the value that we drive is very tangible. And as you're implementing, they can see how much value potential there is.

Okay. I got you. Then my follow-up for Stefan. And I understand that the $1 million onetime benefit in maintenance is going to skew it a little bit, but what's the main driver for the sequential decrease in adjusted EBITDA and the widening, I think, of the loss in the second quarter versus the first?

So yes, I don't know if you've got a beep or not. We just had a feedback on the other line here. So yes, you're right. To start with, when you look at our revenue number, we had a onetime benefit from some cash collections that were -- that drove a better-than-expected Q1, and we're not going to see that again in Q2. But it really was -- if you think about it, it was really more of an acceleration of the revenue. And so we really were expecting it to happen in Q2 and Q3.

So from a year's perspective, it didn't really impact us. But moving then on down then to the overall expense line and overall profitability line, we're still doing a good job of managing our expenses, we're doing a good job of making sure that we're more productive and we're gaining efficiencies in our organization.

And when you look at our overall model and if you look at how this falls to the bottom line, to your earlier point, our profitability really isn't changing much from what we delivered in Q1, even though we're seeing a, call it, $1 million decline at the midpoint from a revenue perspective. But we will continue to see some investments in our cost of sales, especially on the subscription line item. That will be a cost that does inflect as you see more and more subscription revenue.

And so that's probably the one area that you're seeing have a little bit of an impact in Q2 versus Q1. That trend should start to change as we start to see an acceleration of subscription growth and total revenue growth, which shall start happening as we go throughout the year.

The next question is from Bhavan Suri of William Blair.

This is David Griffin on for Bhavan. Nice quarter, guys, and I appreciate you taking the questions. Just a couple for us. First, I want to touch on the land-and-expand strategy. So as you've kind of transitioned to the cloud, you've also moved to more of a land-and-expand model. It's obviously pretty early days here, but I'm hoping you can talk a little bit more about how both land and expand transactions have trended versus your expectations. And specifically on the land side, are you seeing land activity accelerate this year and expecting full year growth versus 2016?

Yes. So we're definitely seeing deal volumes are growing faster, so definitely have seen an uptick in deal volume. And that's really part of our strategy moving to cloud is starting small landing and being able to expand faster.

And really, a lot of our investments continue to be on the trialability. How do we make it even easier? We just announced, for example, a trial version of our Smart CPQ on the AppSource in the Microsoft Dynamics community, and we're really pushing for more of these models where customers can start using it in a small scope and expand.

And we expect, with our success of driving real tangible value, to drive growth, especially in the back half and as we enter into '18 and beyond through these expansions.

Great. That's helpful. Secondly, just a quick question on revenue mix. So services revenue came in about $1 million lower than we are expecting. I just wanted to follow up there and see if that was kind of in line with your expectations. And also, it'd be helpful to get an update on how we should be thinking about services growth for the full year.

Yes. So this is Stefan, David. I'll answer that. In all honesty, services was a little lighter than what we had thought but not to the extent of $1 million, just a few hundred thousand dollars. And a lot of that had to do with the mix of bookings that we had.

I think we've mentioned in the past that there are certain deals, and especially in the B2C area, where we'll close on some services. But because of the accounting rules, we're not really able to recognize that services until a later point in time when the customer goes live with the solution.

So that had a little bit of an impact on us in Q1, and that's what drove, in our case, from what we were thinking, just a couple to $300,000 difference in what we were thinking. But that is a part of what occurred in the first quarter.

Got it. Just one final one, if I could, on CPQ attach rates. So I was wondering if you could just give us an update on those attach rates and talk about whether you're doing a meaningful number of deals that don't include the price optimization piece.

Yes. What I would say is we're doing both. We're seeing very good traction in CPQ, especially in the first quarter. And overall, I would say what we're seeing is not in all cases. There's -- we're selling Smart CPQ with our PricingPRO. But I believe in most cases, that's one of the reasons we're winning is because of their value that they see in being able to drive pricing guidance, cross-sell/upsell and machine learning capabilities to their field and as well expand to e-commerce for their partner strategy. So I think that, definitely, in many of the cases, having the combined offering is what's differentiating us in the market.

The next question is from Nandan Amladi of Deutsche Bank.

So, Andres, since you launched the cloud program 18 months ago, how has the average number of modules at initial purchase trended? I guess, asked another way, average deal size? But you've talked obviously about the sales cycle having shrunk a little bit, but how about on the product side?

Yes. What I would tell you is the average deal size is a little bit smaller, and that's why we're seeing the number of deals be greater than the growth, and it's part of that. Our strategy is really to start smaller.

Our strategy in the cloud is not to sell every module all at once for a larger scope. We want a land. We want to drive value quickly in 90 days, 120 days and then expand from there, and I think that strategy is working.

No, I was asking simply over the last 18 months, not compared to the old model. Just within the last 18 months.

Yes, I know. And that's what I've said. In the last 18 months, we've seen -- continue to see, including in the last quarter, we're seeing -- continuing to see more deal volume. And I would say you can imagine in the early stages, even though we're selling cloud from a sales motion, we were still trying to sell more of our modules in larger scope. As we've refined our sales processes, we're starting more with land that are smaller in expanding. So we're continuing to see more deal growth, and obviously, that's our intention all along and our strategy all along. Does that makes sense?

Yes. And then on the product side, as far as your R&D focus, with your theme becoming now modern commerce, would e-commerce be a natural extension to your portfolio after you build out CPQ?

Yes. Absolutely. E-commerce is an area that we're partnering. And as I discussed in my prepared remarks, for example, CloudCraze is a company we're partnering with. Hybris on the ASP front is another technology that we're integrating with. I would say these are technologies that we integrate with to help power our e-commerce solutions to our end customers.

And we're seeing a lot of customers really wanting to step back and think about their sales strategy end-to-end and think about e-commerce not just being a channel that's for certain sized customers but more a model in which customers want to engage.

And that's something that we believe is part of the future modernizing sales is really thinking about the capabilities you need to learn about your customers, their preferences and to drive this friction at selling motion. And those same capabilities, obviously, you want to use to drive your sales team as well and to give your sales team guidance.

The next question is from Tim Klasell of Northland Securities.

Let me throw in my congratulations as well. Most of my questions have been asked, but let me throw a couple ones out. First of all, on the growth on the reoccurring side, they're pretty impressive. I don't know if you guys track at this closely and will be willing to share, but how much of that growth came from new lands and, obviously, people taking the new SaaS offerings? And how much of that growth came from maybe converting an existing maintenance customer over to the SaaS platform? I'd love to hear that if you have it available.

Yes. No, that's a great question. What I would tell you right now, most of the growth is being driven by net new, and it is part of our strategy. We've said that expansions is an area that we're going to put more focus as we get into '18. And as we drive more invitations, it's an area that we're continuing to put effort. But right now, our focus is net new and not migrations. It's less of a focus.

Okay. Great, great. And then just one other question. Obviously, not Q1, but you had a pretty nice quarter, yet the full year guides now seems rather conservative. Did some deals pull in? Or are you just keeping it 3 quarters to go, keeping it conservative?

Yes. So, Tim, this is Stefan. We're looking at the year very similar the way we did last year. Last year, we also started off with a good quarter, and we talked about the fact that we want to get 2 dots and create a line from there and then build an update to guidance from there. We're going to do the same thing this year.

So we have a -- we were very pleased with our first quarter. Especially as Andres said, coming off of such a strong Q4, we feel like the momentum is there. And so we're excited about where we're going for Q2 and the rest of the year.

However, we just feel like let's get the second data point for the year in the books, and then at that point, we're going to look up and tell you where we think we'll be for the full year. But no, we feel very good about our start to the year and how we're trending towards the half point -- the midway point of the year.

The next question is from Rishi Jaluria of JMP Securities.

It's nice to see a return to revenue growth in the quarter. Just a couple of quick ones here. Stefan, when you're talking about subscription margins, I guess, can you help me understand what the drivers are behind the subscription gross margins kind of taking down in the quarter and how we should be thinking about subscription margins going forward?

Yes. So yes, overall, subscription margins, if you kind of look back over the last several quarters, they've been in the mid- to upper 50s. And to your point, they were a little bit down from where we saw in Q4. We do see that trend starting to change as we go through this year. Essentially, we are planning and we're expecting to see some leverage that's built out of a lot of the investments that we've been making over the course of the last several quarters.

I talked about one of those investments, which was really ramping up our security profile and building the processes and architecting the systems in such a way that our customers can really count and rely on the fact that we were running as tight of a cloud operation as possible. And reaching that 27001 ISO certification is arguably the most stringent requirement that any cloud company can achieve, and we're pleased to say we've actually passed that. That's part of the investments that we've been making, is making sure that those are available.

You probably also saw in our earnings release that we are -- together with Microsoft, we've actually opened up shop in 2 more regions within Germany to fulfill the growth that we see in the European region and, more specifically, within Germany.

So those are things that are actually being laid out and planned as part of our infrastructure that we really think is going to be highly leverageable as we go throughout the year. So while we're not completely through with all of the investments, we've done a fair amount of them, and we do think there's a lot of leverage that can be built out of them. So as we progress through especially the latter part of this year, you should start to see those margins actually get into the 60s as we exit this year.

Okay. And I know the metric, at least at the last Analyst Day, that you told us to look at or pay attention to is this trailing 12 months recurring calculated billings metric. Now, obviously, we don't have too much of a history with that under our belt, but I just want to know, a, what's the right way to think about the change in that metric. I mean, is it a year-over-year sequential type of deal? And, b, I mean, it looks like it picked up maybe the growth in that on a sequential basis slowed down from the past couple of quarters. So maybe just help me understand the right way to think about that metric and how we should be tracking it going forward.

Yes. No, it's a good memory because we did talk quite a bit about this at the -- in our last Analyst Day back in November, and I realized it's a new metric. But it is metric that we want to look at, and we think is the right way to look at it is on a trailing 12-month basis, to your point. And so when we look at the last 12 months, our calculated billings is about $126.7 million when you do the math there, and that would be up about 17% over the 12 months prior to that.

And what I will tell you is that, actually, the ARR is going to trend a little higher than that. They're very close and they approximate each other very closely, as you probably remember me talking about it at the Analyst Day. But just because of the nature of ARR versus the billing, a lot of times, we'll get the contracted -- a recurring revenue amount identified possibly even before it gets build.

And so that's why ARR is always going to be a little higher. And what I would tell you is as a result of that, the ARR growth rate is a little better than what the implied growth rate would be for the calculated billings. And I would also tell you that we expect to see an acceleration of that growth in the back half of the year.

Okay. Got it. Got it. And last one from my end. Just you talked about seeing subscription revenue acceleration into next year. What sort of visibility do you have into that? And what's giving you that confidence? I mean, is there a big portion of that, that's already contracted, maybe sitting off balance sheet? Or is there some other factors at play here?

Yes. So selfishly talking from a financial perspective, that's the beauty of the model, right? So a lot of what we're seeing, as we put our crystal ball in front of us and look out to several quarters out or even the next year, you're right. There is a lot of visibility that we have, and that's very comforting from my perspective as we look out for our model going forward.

However, that's not to say that we don't need to continue with the momentum, and we need to continue to layering more and more of the subscription contracts on top of one another to support the growth that we feel like is really available to us in this marketplace.

But I'm actually going to talk quite a bit about the layering impact and how that not only translates to growth from a revenue perspective, but how that also gives us confidence in our cash flow. And so I'll be talking about that next week when we're at Outperform. So that's a good lead into some of the things that we're going to talk about next week.

Yes. One other point that I may add to that as well is that, also, the mix of the bookings gives us confidence. And we talked about last year that 100% of the net new deals were cloud and subscription-based.

In Q1, we're very pleased to see that 100% of all deals were cloud. And I think as we continue to see the bookings be cloud-based, that also helps us drive confidence in the growth long term.

Okay, got it. Actually, could I -- let me sneak one more in and I promise I'll jump off then. But, Andres, just wanted to kind of talk about the CPQ with Microsoft Dynamics. And I know maybe a little bit more than a year ago, Salesforce bought SteelBrick, and now they offer CPQ as kind of part of the integrated platform based on that technology. Are any -- is there, I guess, potential for Microsoft on their own to be reselling or white labeling your CPQ solution as kind of part of an integrated platform to make it more competitive with Salesforce and what they offer on their platform? Or how should we be thinking about that?

I would say that we work very closely with Microsoft on our integration of our platform to have best-in-class. And I think one of the advantages that we have in our partnership, which spawned well over a decade, is that it is built on the Azure platform underneath. It integrates with Dynamics natively. It also integrates with Power BI and other Microsoft services around like the Datalight technology, the Cortana Analytics Suite. And this trial version of Smart CPQ is one that not just helps us and them selling their marketplace in an easier way, but it also allows their sales reps to see our solution integrated and be able to then [weighed] in our go-to-market. And I would say we're working very closely as partners from a go-to-market strategy, and we have a great relationship that we build over a long period of time.

The next question is from Tom Roderick of Stifel.

Yes. Matt Van Vliet on for Tom. I guess, just quickly on some of the industry Quick Start packages that you talked about. I guess, what have been sort of the first industries where you have a pretty robust product that is already being consumed pretty quickly? And, I guess, maybe what other industries that you've historically had pretty good success selling into? Are you still developing those packages?

Yes. So we have pretty robust solutions around industries like automotive and industrial manufacturing, high-tech food. There's many industries that we built pretty sophisticated packages that drive value in a faster time. And we believe from a go-to-market, we have the packages we need to really accelerate time to value in all of our target industries.

We're always continuing to innovate on those packages. For example, I talked about opportunity detection, which is one of the new solutions that we have launched as well, and this is also in a new package that we can deploy now in 30 days to add value. And this may be to a food customer, for example, that may have deployed or food industry package for price guidance and now it's expanding to add opportunity detection.

So we'll -- you can expect us to continue to innovate across our packages and our solutions to drive even more value to our customers.

Yes. And just a plug-in for Outperform. We're going to really highlight opportunity detection and talk about why that's such a value-add for our customers. So definitely make sure you're there for that. That will be a pretty cool thing to see.

All right. And then looking at the quota-carrying sales rep number, obviously, it climbed up a little bit here. But late in the year last year, you had sort of a big jump after a bit of a reduction. Can you give us an update in terms of sales efficiency maybe across the whole structure, and then also with some of those new reps, how they're getting up to speed, I mean, how that might further benefit later in 2017?

Yes. So what I would tell you is sales productivity has remained about the same, and we're still focused on continuing to drive more sales productivity.

So I would expect not a big pickup in quota-carrying personnel in the front half. I would expect more back half-oriented really to help for growth in '18 and beyond. But the team that we have in place is the team that we need to drive results for '17.

The next question is from Joe Fadgen of Craig-Hallum.

I'm here for Chad today. Kind of a follow-up to the previous question on the sales side. With the big addition in Q4 and a little bit of add here in Q1, I guess, I'm wondering, do you think that you're at a point now where if you're going to achieve that 5-year target of the 20% CAGR, I mean, do you think that the sales team was at a point where you can get that 20% CAGR growth while only growing the sales team like, call it, 10% or at a slower pace of a revenue growth? Or do you think it's more of a 1:1 ratio?

No, I think long term, we've said -- look, we've driven efficiencies, but we believe we need to drive even more productivity from our sales team. And thinking we're less than 2 years into this transition, which is a big change from a sales organization because, as we recall, we moved from perpetual to SaaS, plus we moved to an industry focus. And the longer that we are through this process, we're actually going to drive better productivity from our sales organization, and we expect that in our model.

And part of our focus even now is not to drive as much headcount growth but continuing to focus on our productivity improvement initiatives. So long term, we don't expect to have to hire at the same rate that our bookings growth -- revenue growth is expected.

Yes. And, Joe, just one more clarification. When you look at the historical numbers, note that there was a shift in definition that occurred between Q3 and Q4 of last year. So it really wasn't necessarily a big growth where all sales headcount that occurred in between Q3 and Q4. It was a shift in terms of how we're focusing on both the land and expand and care for our existing ARR customer base.

So what we're now telling you is that there's a number of people that are quoted to increase our annual recurring revenue on an annual basis, and so that's the shift that occurred late last year. So don't look at it as we had a significant growth, and therefore, we can slow down that growth going forward, because as Andres said, yes, we expect to see some efficiencies, but we do feel like we need to continue to grow sales headcount as we grow -- or as we expect to grow our top line as well.

Yes. I do actually remember you talking about that. So just looking for a little more detail. And then last one. I know you kind of touched on it earlier. I can't remember if it was in the Q&A or the prepared remarks. But just looking kind of by geography. I mean, from a revenue standpoint, it looks like the U.S. was pretty strong; Europe, down a little bit, sequentially up year-over-year; and Rest of World looks flattish. Can you just kind of give kind of a region-by-region quick summary of what you're seeing, whether it's in terms of pipeline build, deal activity, however you want to break it down? Just a little more color into kind of what you're seeing across the globe.

Yes. So overall, we're seeing good activity across all regions. I would say that we did comment that Europe, we saw particularly strong in Q1. And as we look at our pipeline overall, I would say that overall in all regions, especially in North America and Europe, we see good strength moving forward.

Okay. And then real quick. Well, I think about it. You had the $1 million maintenance benefit that you didn't expect. Was that U.S. revenues that's why it looked particularly strong this quarter?

That was part of it, yes.

Thank you. There are no further questions in the queue at this time. I would like to turn the conference back over to management for closing remarks.

Thank you for joining us on today's call and for your support of PROS. We're pleased with our strong start to 2017, and we're confident we have the right strategies in place to capitalize on our large market opportunity.

Please join us on the live webcast of our analyst briefing next Thursday at 2:00 p.m. Central Time. We look forward to speaking with you then. Thank you, and goodbye.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time, and thank you for your participation.