Pros Holdings Inc (PRO) 2018 Q2 法說會逐字稿

Greetings, and welcome to PROS Holdings Second Quarter 2018 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Shannon Tatz, Senior Director of Investor Relations.

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; and Stefan Schulz, Chief Financial 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 will also be available on the website, and we encourage everyone to review this additional information.

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

Thank you, Shannon. Good afternoon, everyone, and thank you for joining us on today's call.

I'm pleased to report that we delivered another outstanding quarter, exceeding the high end of guidance on all metrics.

I'm also excited to share that we're seeing strong momentum in our business, and we finished the first half of 2018 with a 32% increase in our deal volume, which gives us a confidence to raise guidance on all of our 2018 growth metrics.

As we further accelerate our growth, I wanted to spend some time today talking about the market opportunity in front of us and how we're in a really strong position to capitalize on this opportunity.

Companies need speed, intelligence and precision to win in their markets. And our experience tells us that this need is most acute as businesses face disruption. We first saw this with airlines. Their industry was deregulated, and their markets transformed overnight. We helped airlines push the limits of modern compute at the time, to arm them with the real-time intelligence needed to win in their new reality, and ultimately, pioneered digital selling.

Today, our opportunity spans well beyond airlines, as the explosion of e-commerce is causing incredible disruption across all industries. Buyers expect a fast, frictionless and digital buying experience no matter what they're purchasing, and our real-time AI helps companies meet the demands of today's buyers.

I'd like to share a few examples of how we're enabling digital transformation across the industries that we serve.

In the manufacturing space, we're helping companies win based on their digital sales experience. Last quarter, a global multi-billion-dollar building materials company selected PROS to power its digital transformation, as they fundamentally change how they interact with their customers. They're rolling out a mobile buying experience for their building materials customers and distributors, and will leverage our AI, to deliver personalized offers and real-time prices to customers on their mobile devices across all channels. Our strong partnership with Microsoft was a critical factor influencing this customer's decision to partner with PROS as they recognized the value of leveraging our technologies together to drive digital transformation. This is a great example of how our partnership with Microsoft is capturing the attention of our market. And the momentum that we're driving together helped us win Microsoft's Manufacturing Industry Partner of the Year Award for 2018. Moving forward, we see a tremendous opportunity to further accelerate our joint go-to-market momentum.

In the distribution space, we're helping companies like Office Depot drive speed and precision within their customer portfolio. In the second quarter, Office Depot selected PROS to support their sales strategy. Our next generation software will enable Office Depot to quote thousands of lines in real time, dramatically reducing their cycle time.

In the logistics space, we're helping companies like Union Pacific use AI to gain a competitive advantage. Last quarter, Union Pacific selected PROS to optimize revenue across their network, which includes more than 38,000 destinations, spanning across 23 states. To give you a sense of their scale, the largest passenger airline in the world serves only about 1% of that volume.

And finally, for migration strategies helping our customers across industries expand even quicker and capture more value with our next-generation AI. For example, in the second quarter, McCain chose to move to the cloud and expand their solution internationally to further improve their agility in responding to market changes globally and drive even more value with PROS across their business.

These are just a few examples of how customers across industries are using our solutions to transform how they do business. And we believe the need for solutions is stronger than ever as companies risk losing if they don't transform how they sell. This makes us even more confident in the greater than $30 billion market opportunity that we believe we have in front of us. We believe we are exceptionally well positioned to capture this market opportunity since our solution sits squarely at the cross-section of 2 defining business change agents of our time, digital transformation and AI. We believe that we have one of the few and most advanced solutions on the market that brings these 2 forces together to drive real economic value for customers.

We're also confident in our ability to capture market opportunity because of the tremendous team that we have leading our innovation strategy. I'm so proud of our amazing R&D team, which continues to pioneer how businesses use AI to create economic value.

I'm also pleased to welcome Michael Wu to the team as our Chief AI Strategist. We're excited to work with Michael to draw on his expertise in data science, social media and the digital experience to continue to set the standard for AI innovations in the market.

We believe we have an incredible opportunity in front of us as we bring to market the intelligence powering digital selling.

I'd like to thank our team worldwide for their commitment to bring our vision to market and congratulate them on another truly outstanding quarter.

I would also like to thank our customers, partners and shareholders for their continued support as we deliver on our mission of helping people and companies outperform.

Now with that, I'd like to turn the call over to Stefan to comment on our financial performance.

Thank you, Andres.

I, too, would like to congratulate our teams across the organization on another strong quarter.

We've driven considerable growth in the first half of this year, as evidenced by our calculated billings growth rate of 26%. And I'm pleased to report that our teams have supported this growth exceptionally well. I'm seeing cross functional teamwork and faster turnaround times from many groups, including our cloud, customer success, finance and legal teams to ensure that we're well positioned to continue our growth, while also delivering a great experience for our customers.

Now turning to our second quarter results.

We had a major inflection point in our cloud transition last year, as we returned to year-over-year revenue growth, and we've continued to accelerate that pace in 2018. In the second quarter, total revenue was up 17%, driven mostly by subscription revenue growth of 64%, which indicates the momentum we have in our cloud business.

Recurring revenue was up to 81% of total revenue in the quarter, which is up 5 percentage points year-over-year, and up 3 percentage points just from last quarter. This is a result of improvements in our operational processes and represents strong progress towards our long-term goal of a recurring revenue mix of 85%. The recurring portion of our deferred revenue was $90.4 million, and as I mentioned earlier, our calculated billings were up 26% year-over-year, providing us with added confidence in our future revenue growth potential.

Moving on to profitability. We've highlighted in the past that we see strong opportunity to improve our profitability by layering in more cloud customers as we scale, and focusing on operational efficiencies throughout the business. Our teams have embraced our efficiency initiatives, and during the quarter, we took additional steps towards our goal.

First, our subscription gross margin was 66% in the quarter. This is the highest level since our cloud transition in 2015, and was a 6-percentage-point improvement over last year, as we continue to bring our cloud infrastructure and support to scale. Second, in EBITDA, our adjusted EBITDA loss was $5.4 million, which is more than a $4 million improvement year-over-year. This is a credit to our growth in revenue and the efficient delivery of that growth. Our operating expenses have only increased by 3% over the first half of last year.

Third in free cash flow. We reported a free cash flow burn of $5.2 million in the second quarter, bringing our first-half cash burn to $12 million, which is an $11 million improvement over the first half of 2017.

At the start of our journey to the cloud, we mentioned that the fourth quarter of last year would be a major inflection point in our free cash flow performance. Since that time, we've improved free cash flow by $25 million, which puts us on the right trajectory to deliver the $26 million year-over-year free cash flow improvement in 2018, that we discussed at the beginning of the year.

So the combination of our strong second quarter and first-half performance, as well as our large market opportunity, is leading us to improve our outlook for the rest of 2018.

Accordingly, we are increasing our full year guidance for total revenue by $3.5 million to $192 million to $194 million.

We are increasing our full year guidance on subscription revenue to a range of $91.5 million to $92.5 million, which is a 52% growth year-over-year at the midpoint.

We're increasing our 2018 guidance on ARR to a range of $187 million to $190 million.

We are also slightly improving our outlook on our adjusted EBITDA loss by $1 million to a range of $24 million to $26 million and reiterating our free cash flow guidance for 2018. While we are committed to delivering on our profitability and free cash flow goals, we clearly have opportunities for growth, and are reinvesting into our go-to-market and R&D teams, but only to the extent we outperform our initial sales plans.

Now moving on to the third quarter. We expect subscription revenue to be in the range of $23 million to $23.5 million, up 47% over the third quarter of 2017 at the midpoint. We expect Q3 total revenue to be in the range of $47.5 million to $48.5 million, driven by our strong improvement in subscription revenue.

We expect our third quarter adjusted EBITDA loss to be in the range of $6 million to $7 million. And with an estimated non-GAAP tax rate of 22% in the third quarter, we anticipate a non-GAAP loss per share between $0.18 and $0.20 in the third quarter, based on an estimated 32.8 million basic shares outstanding.

Overall, we are very pleased with our second quarter financial performance and our outlook for 2018.

Thank you for your support of PROS, and we look forward to speaking with you at our upcoming events.

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

(Operator Instructions) Our first question is from Scott Berg with Needham & Company.

Hi Andres and Stefan, Congrats on a really strong quarter. I've got one and a follow-up. We'll start with the first one, Andres, you had mentioned deal close of 32% year-over-year. I just want to clarify, was that number of deals, values? I think you said it, I just didn't write it down properly. And then commentary on maybe how ASPs are trending relative year-over-year and what products had the best rank in the quarter.

Yes, so a great question. It was related to deal volume. So a number of deals were up 32%. From an average KSP, we haven't seen a meaningful change, it's maintaining the same and it's been quite healthy, as we've always said, where we now have greater distribution between smaller and good-sized deals and larger deals.

In terms of the products, we're seeing a lot of demand to power e-commerce, a lot of our guidance solutions, our CPQ solutions as well as our search and merchandising capabilities in the airline industry. But I would tell you that a big theme we're seeing is areas around powering digital transformation in e-commerce from a B2B perspective, that's an area of significant strength.

Got it. That's very helpful. And then on my follow-up question, I just wanted to touch on the guidance a little bit. You had a solid beat in the quarter. Looks like you're guiding third quarter above of the 3 consensus, but the biggest jump in your guidance looks like it's going to fall onto the fourth quarter of this year. I wanted to try to understand what's happening with that. My guess is that it's in travel contracts that are going to kick in that quarter. But just wanted to know what's causing that, I guess, fourth quarter kind of jump?

Yes, Scott, this is Stefan. You're right. That is a part of it. But the other part of it is we've had good strong momentum in the bookings through the first half of the year and the cumulative effect of those bookings are starting to take effect in Q3 and Q4, more specifically Q4 to your point. So it's really 2 things, it's the travel deals that we have several going online, as you referenced, but we also have a nice buildup of business that we've seen throughout the year that's also going to help us in the fourth quarter.

Our next question is from Jason Celino with KeyBanc Capital Markets.

I wanted to kind of ask about the migration customers. I know it's going to be a long kind of process, but kind of how are those conversations going with the customers? And how does the pipeline kind of look for the rest of the year and into next year?

Yes, so we feel pretty confident around migrations, I think we're exactly where we expected to be. We're on track to deliver what we said we will deliver this year. And I would tell you, I've spoken in my prepared remarks about McCain moving to the cloud and also expanding. And I would tell you that what we're seeing a lot of customers that want to migrate, want to migrate not just to adopt the latest generation technology and our new AI capabilities, but also use that as an opportunity to expand into other regions. So overall, we're really pleased with what we're seeing from a migration standpoint.

Okay. And then kind of my follow-up is kind of more macro related. Kind of given your position in the software market internationally and some of the B2B end markets that you serve on the industrial side, are any of your clients talking about impact on tariffs? What exactly are you hearing around that topic?

Yes. So that disruption, what we're seeing is a lot of our customers are needing more technology like ours to be able to make changes quickly and understand what the impact is going to be to their business. And I think, really, the volatility helps us in this market because a lot of companies need the tools like PROS to be able to make changes and understand how those changes are going to impact their profitability and what strategies they're going to apply. And I think we've seen our customers look at PROS as a way to help manage this volatility.

Our next question is from Tim Klasell with Northland Securities.

My question sort of is a follow-on to the prior migration question. Sorry, maybe you covered this during your call. But is there any specific functionality that seems to really be driving the customers towards thinking about migration? Obviously, there's a whole slew of features you offer in the cloud that you can't get on premise, but is there any 1 or 2 that we should be focusing in? Or that seems to be driving the customers towards migration?

Yes. That's a great question. I think there's a lot of new capabilities now. I would tell you, some of the capabilities and our customers are most excited about are our next-generation guidance technology, also our opportunity detection. We also, in our cloud edition or pricing PROS solution, had some real-time capabilities to support e-commerce. And as I talked a lot in my prepared remarks, a lot of the new main logos, as well as customers that are migrating, want to upgrade to our Real Time Dynamic Pricing capabilities to be able to power their B2B e-commerce channels. And then on the travel side, we're seeing a lot of interest in the shopping and merchandising. Again, very much tied to their digital commerce strategy. And those are the areas that we're seeing quite a bit of interest.

Okay. And then just one final question on the cash flow guidance for the second half. Obviously, you normally see a little bit of seasonality on that. Anything -- I know you aren't giving next year guidance, but any changes in the seasonality pattern from this year that we shouldn't model in for next year?

Yes, Tim, this is Stefan. Yes. I think if you've looked at the year so far, you've seen about a $5 million to $7 million improvement in the first quarter and in the second quarter. And I think you'll continue to see that happen as we go to Q3 and Q4. So our goal was to have a $26 million improvement at the midpoint throughout the year, and the $5 million to $7 million trend that we're seeing each quarter kind of plays into that. So it's a long way of answering your question that seasonality is expected to be about the same, Q4 is expected to be a really strong cash generating quarter for us just like it was last year, but just, obviously, much better.

Our next question is from Tom Roderick with Stifel.

So I'd love to hear a little bit more about the partnership with SAP and the Hybris ideas. Started talking about it last quarter, pretty interesting with respect to where that can go especially with demand in Europe. I would love to hear sort of what the milestones you've kind of put in place on go to market look like? How that's progressing as a partnership? And then a follow-up on that is, as you look at other opportunities and other ecosystems with Salesforce acquiring CloudCraze on the B2B e-commerce side, does that open up opportunities for you here more than the U.S.?

Tom, those are great questions. I would tell you, a lot of the partnerships we've been focused has been around the e-commerce integration and SAP's Hybris is particularly focused on that as we launch that partnership. Really focus on how we integrate with Hybris, which we've integrated on the B2B side for quite some time. But now also our shopping and merchandising solutions in the travel industry and help them actually have a stronger end offering into the travel industry that integrates with our shopping, merchandising and revenue management solutions. And that partnership's progressing well. We're pretty excited about the opportunity and our go-to-market differentiation jointly. As you also expressed, CloudCraze being acquired by Salesforce. We integrate with CloudCraze. We actually have live customers, and it's an area that we're continuing to partner. In areas that are critical, it's how you power Real Time Dynamic Pricing because as we've talked about in the past, the moment you move to e-commerce, you can't just have list prices or customer specific, you need to be able to drive those request. One, you need to be able to handle the volume end requests, and one, you need to drive the precision request, and that's where our AI platform is really built to handle and really differentiated. So we see that as a big opportunity.

Outstanding. That's really helpful. This is kind of going to build on Tim's question that he just asked around cash flows, but it's a little bit more in the scope of how both new and installed customers are committing with annual contracts or annual payments, I should say, as they make that switch to a cloud-first type of model. So I don't know if you can kind of speak to new versus existing. Are any and all customers paying 1 year upfront? Are you seeing multiple years of payments upfront? To the extent that you're not right now, does that play into some of the cash flow seasonality and perhaps we end up sort of seeing longer billing term commitments with your bigger fourth quarter deals? Just maybe talk through the dynamic of billing as it relates to that cash flow guidance.

Yes. So Tom, we've resisted the temptation as we've gone through this cloud-first transition to do a multiyear invoicing. And believe me, it was very tempting when we first got into this. But we decided to stick with an annual and advanced type of a model with the idea that we didn't want to solve a problem by creating another problem further down the line. And so whether it's a new customer or an existing customer, it's the same type of structure for the most part, it's annual and advanced.

Fantastic. Andres, last one for you, apologies if this one got asked, but just thinking, again, about the transition with the installed base. And I know you've been providing more and more tools to ease the pain of that transition to the cloud, particularly as they go to an Azure based type of environment, which might be different from natively how you set them up years ago. Talk about some of those tools and how they're being embraced by your installed base.

Yes, so we've done quite a bit of innovation to help accelerate customers migrating to the cloud. And also from a services perspective, how we manage those migrations to the cloud. But I would tell you that one of the key areas in our success is that we're not trying to create a carbon copy of what they have. We're using these as opportunities to really bring them to the next generation platform and getting them excited. Because we put so much effort in our platform to drive much shorter implementations and there's a lot less configuration, it makes it very easy for them to migrate to this platform in a faster time. And now not just see exactly the same configuration that they had, but see even more value because they're much more powerful technology solutions. So overall, I think the big impact for our customers is they see that not only once they move, they can move quickly because these platforms have been designed to implement much faster but also expand across geographic locations. In the case of McCain, I talked about expanding internationally. Well, they would be able to expand much faster by migrating to the cloud than if they were even going to deploy the on-premise model and roll that out internationally. So I think that, that's the real benefit for them is that now they have a new next-generation modern platform and it allows them to be more nimble and expand at whatever pace they want. It also allows them to add other solutions pretty seamless. So once you have our guidance solution, if you want to embed opportunity detection, for example, and start feeding sales, cross sell, upsell recommendations, this can be done in days, which obviously in their on-premise model, that couldn't happen.

Our next question is from Jackson Ader with JPMorgan.

My first question is around length of contracts. I know you guys have spoken in the past about how travel customers typically had longer contract duration. Is that still the case with these kind of refreshing of the contracts or renewals with travel customers moving to the cloud? Or are you kind of trying to standardize everybody on the same sort of contract length?

We do see some travel customers still want a longer contract term, so it's not uncommon for an airline to contract for a 5-year term. Some may do a 3 year, but I would say for the most part in travel, because they know the rich value they get from our technology, they feel more comfortable contracting for a longer term. But I would tell you on average, the mix hasn't changed in terms of our contract terms.

Right. Okay. And Stefan, I think that I caught you mention there were some additional steps you took, this most recent quarter in some cost efficiencies. Can we get just maybe a little bit more detail about what those were? Why you made those steps?

Yes. We looked at various parts of the organization in terms of where we were getting value and where we didn't feel like we were getting value. So we looked at some of the locations where we had resources and rationalized where those might be. We also looked at some of the activities that we were performing where we just didn't feel like there was as much value ascribed to those activities, and we kind of restructured that part of the organization. So it's little things like that, that we're doing each and every quarter. It's not something that I would say is transformational by any stretch of the imagination because the main thing we're focused on is growing the business, but like I said, we're always looking at ways in which we can do it a little more efficiently. And each quarter, we identify things that we can be doing more efficiently, and those are some of the examples where we look at -- like I said, we look at a location where we may have some resources that were not as strategic as it once was and we make some decisions around that. So that's how I would characterize it.

Our next question is from Rishi Jaluria with D.A. Davidson.

This is [Hannah] on for Rishi. I was wondering if you guys could provide us with any updates on the success of your new tiered sales approach that you brought up that outperformed this year?

Yes, so obviously, we're pretty excited about how sales is performing. I would tell you, still early stages of focus on the 3 tiers in our global account or enterprise and our solution selling. But I would tell you that in all areas, we've made really good progress. I would say that we -- we're doing probably a little bit better than what we expected, but it's continuing to be early innings of the change and we really like the improvements that we're making.

Great. And then just one more question. I was wondering if you can talk about any measures you've put into place to ensure compliance with GDPR.

So yes, this is Stefan. We have put a tremendous amount of effort into that, and it was , as you probably know, it was a companywide effort led by our legal team and that took place in May when that became effective. And yes, we have put new controls and new steps in place to make sure that we're following and adhering to the GDPR steps. I would tell you the hardest part of the whole thing is managing outside of our 4 walls. And that's where we spent the most time, is working with vendors and people we partner with, making sure that they are operating under the same cadence that we are. It was obviously an all-consuming type of a law, and I would say, I feel like we have done a very good job of positioning ourselves to be compliant with that. We take security and our customers' data very seriously, and like I said, that's a companywide initiative. So I feel very good about what we've done, and we're continuing to make improvements there. We're continuing to look at ways in which we can ensure compliance through that law. But we feel very good about what we've done.

Our next question is from Chad Bennett with Craig-Hallum.

So on the R&D side, at least relative to what I was thinking, R&D expense was lower than what I expected. I think it was down pretty decently sequentially and year-over-year, and I know you've been capitalizing more of your R&D or at a greater rate. Is it anything more than that? Especially considering you guys talk about AI and machine learning use cases and certainly there's a lot of investment industrywide going into AI and machine learning. I would have thought R&D would be an important driver of everything you're doing there.

It is. And Chad, when I talked earlier -- when we had a question around some of the efficiency initiatives that we have within the company, I would say our R&D team is leading the charge there. And the management side of the organization has been very focused on growing our business at the same time, doing so at a more efficient rate and that's where you see it. But you may -- also make another good point. We are still innovating, and we still see one of our strategic advantages as an innovator in the spaces that we address and that's one of the reasons why you see the capitalization rate increasing because there's more and more new innovation that is being put together by the factory. And like I said, we are finding ways in which we can do other activities within the development organization just more efficiently, so that's what you're seeing come through there. Now having said all of that, another statement that I made towards the end of my prepared remarks is, we also understand that at some point, we will need to grow operating expenses beyond 3% when we're growing our business upper teens. And so as I commented earlier, we will see some of our excess cash that we're generating, and profits get reinvested back into the business, and some of that will be into R&D.

Okay. And then a couple quick ones, I think, for Stefan. So accounts receivables were up, I think low 30% sequentially. How should we think about those heading into the September quarter here just directionally?

Yes. Directionally -- I mean, our business is strong, as we commented, so I think directionally, you could assume that AR will continue to go up. And we have -- as you know, we put a serious effort and initiative on collections, I would say that, that will continue. But at the rate and pace at which we are signing business and growing our business, I think you can assume AR will continue to decline.

Perfect. And then last one for me. Subscription gross margins looked really good in the quarter. I guess, Stefan, how should we think about that kind of sequentially throughout the year here?

Yes. And yes, thanks for that. I mean, we were very pleased with the progress that we're making. And ironically, your first question really ties well into this one because a lot of the efforts that our development teams have been working on had been to drive more efficiency in that subscription gross margin line. And we've talked about our target being in the mid-70s as we're targeting subscription margins to be. Clearly, we're not there yet. But I would say, Chad, what you've seen us do over the last year, 1.5 year, you could expect to see that same trend line going forward. It's not always a linear progression, so it's not always 2 to 3 percentage points improvement each quarter, but sometimes we make a step -- 2 steps forward and a half a step back and then 2 steps forward again. You can continue to look for that type of trend as we go forward.

Our next question is from Greg McDowell from JMP Securities.

Two questions, one for Andres and one for Stefan. First, Andres, the hiring of Michael Wu as your Chief AI Strategist, I was just hoping you can elaborate a bit on his role and whether he's going to be in sort of a evangelical role of existing PROS AI solutions? Or whether he's going to really get in there and try to build new product for you and figure out new products that PROS can attack the market with? And then I have one quick follow-up.

Yes, so both. Definitely he's going to play an evangelical role, but I would say first and foremost, helping us continue to innovate. There's a lot of new innovations that we've been working on that he complements our team quite well. And I would tell you, my belief is we have a world-class team. I don't know any company that has the depth and the level of science expertise that we have, and it just got stronger. And I think one of the reasons he joined PROS was because of the depth of AI that we're working on. And I think he's going to help us really unveil a lot of our differentiation and be able to tell the story because I think part of the market -- a big challenge is a lot of companies talk to AI but some maybe just doing [cap bot], some are doing small components, whether you see machine learning in an area, which is really not true AI to what -- compared to what we're doing. So I think he's going to help us continue to innovate pretty aggressively as that's an important component as we really power this digital economy through intelligence. But I think he's going to make pretty big contributions to the organization.

Great. And Stefan, one quick follow-up, sort of a mechanical question on calculated billings. I -- obviously, 26% growth is a strong growth rate, and I think the strongest in about 3 quarters. But I noticed when we looked at deferred from Q2 to Q3 a year ago, you had a pretty substantial increase. And I just want to make sure we're tight on our models and at least understanding what happens in the year-ago quarter on deferred, just recognizing you face a pretty tough calculated billings comp from Q3 '17. And I recognize you don't guide to billings or deferred, but maybe just help us understand the puts and takes of what transpired a year ago.

Yes. So last year, it's -- in the third quarter is when we acquired Vayant, so that's -- that is the biggest reason behind the increase. So I wouldn't expect to see that same level of increase this year. Although, you will see a nice -- we're expecting to see a nice increase in the third quarter deferred revenue, which would again drive the calculated billings.

Ladies and gentlemen. We have reached the end of our question-and-answer session. I would like to turn the call back over to Shannon Tatz for closing remarks.

Thanks for joining us today, and thank you for support of PROS. We look forward to seeing you at our upcoming investor conferences. And if you have any questions following today's call, please contact us at ir@pros.com. Thank you, and goodbye.

This concludes today's conference. You may disconnect your lines at this time, and thank you for your participation.