Andres Reiner – President & CEO Charles Murphy – EVP & CFO.

Chad Bennett - Craig-Hallum Capital Scott Berg - Northland Securities Jesse Hulsing - Pacific Crest Securities Greg McDowell - JMP Securities.

Good day, ladies and gentlemen and welcome to the First Quarter 2014 PROS Holdings Inc. Earnings Conference Call. My name is Crystal, and I will be the operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct the question-and-answer session.

(Operator Instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to your host for today, Mr. Charlie Murphy, Executive Vice President and CFO. Please proceed..

Thank you, Operator. Good afternoon everyone and thank you for joining us today for the PROS Holdings’ financial results conference call for the first quarter of 2014. This is Charlie Murphy, Executive Vice President and Chief Financial Officer of PROS. Joining me on today’s call is Andres Reiner, President and Chief Executive Officer.

In today’s conference call, Andres will provide a commentary on the first quarter of 2014 and then I will the review the financial results and our outlook before we open up the call to questions.

Before we begin, we must caution you that some of today’s remarks, including our guidance for the year, our competitive position, future business prospects, revenue growth, market opportunities, as well as statements made during the question-and-answer session contain forward-looking statements.

These statements are subject to numerous and important factors, risks and uncertainties, which could cause actual results to differ from the results implied by these or other forward-looking statements.

Also, these statements are based solely on present information and are subject to risks and uncertainties that can cause actual results to differ materially from those projected in the forward-looking statements.

Additional information concerning risks and other factors that may cause actual results to differ can be found in the Company’s filings with the SEC. Also, please note that a replay of today’s webcast will be available in the Investor Relations section at our website at pros.com.

Finally, PROS has provided in its earnings release and will provide in this conference call forward-looking guidance on a non-GAAP basis. We will not provide any further guidance or updates on our performance during the year, unless we do so at a public forum.

PROS does not assume any obligation to update the forward-looking statements provided to reflect events that occur, or circumstances that exist, after the date on which they are made.

I would also like to point out that in addition to reporting financial results in accordance with Generally Accepted Accounting Principles or GAAP, PROS reports certain non-GAAP financial results.

Investors are encouraged to review the reconciliation of each non-GAAP measure to the most directly comparable GAAP measure in the tables accompanying the press release distributed earlier today, which can also be found on our website in the Investor Relations section. With that, I’d like to turn the call over to Andres..

Thank you, Charlie, and thanks to all who are joining us on today’s call I’m pleased to report that PROS started 2014 with a strong performance in the first quarter. The market for big data application continues to build as more companies count on PROS to help them outperform in their markets.

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

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

We have integrated our sales and marketing organizations with a unified go-to-market approach and our product teams are on a common innovation strategy. Across the business, our people are coming together under a shared culture of innovation, collaboration and commitment to customer success.

We are benefiting from the addition of strong people from Cameleon and SignalDemand, with a number of promotions already taking place in key roles. So overall, we’re excited about the many opportunities to drive growth, differentiation and value for our customers. We continued to strengthen the sales organization in the first quarter.

We’re investing in hiring, onboarding, and training programs to further improve sales execution in B2B such as in Europe where we’re making progress and still have work to do. We’re starting to see a positive impact from the initiatives we have underway and expect continuous improvement throughout the year.

I’m grateful to our many customers and partners across more than 40 sub industries who worked with PROS to turn their big data into a selling advantage. As the pace of business accelerates and competition intensifies, the need for prescriptive real time solutions to drive sales only gets stronger.

PROS offers a unique and powerful way for companies to overcome their growth challenges.

According to a recent study by the Aberdeen Group, an average of 60% of sales reps obtain quota when their companies use big data applications for pricing and quoting, compared to only 35% of sales reps obtaining quota for those who do not invest in this technology.

This 71% improvement confirms that B2B companies simply win more when using big data applications like those from PROS. Our B2C customers also enjoy the advantages of our data science and solutions to drive better performance.

For example, in the recent Investor Day presentation, one of our B2C customers attributed approximately $50 million of incremental earnings to fleet optimization and pricing optimization, both provided by PROS.

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

We’re confident we will grow 20% plus per year for the foreseeable future, driven by our investments to accelerate awareness and adoption, extend our product leadership position and expand our global reach and scale. I will share a few highlights of the progress we’ve made in each of these areas during the first quarter.

Our investments in accelerating awareness and adoption are working as demonstrated in the first quarter by new customer signings, increased interest from prospects and an uptick in our fees. We enjoyed record attendance at our 2014 Outperform events in the U.S and Europe.

Guests heard customers such as Arrow Electronics, Celanese, Ecolab, Gates Corporation, HP, Johnson & Johnson Depuy, Merck Millipore, NewPage, and Pearson shared their success stories. One customer explained how they reduced deal quote turnaround times by 25% in the reseller channel, resulting in more wins and better buying experiences.

Another described how they achieved payback on their investment in just six months. Impressive ROIs like these are getting noticed. Recently, PROS won the prestigious CRM Watchlist Award in recognition of standout technology companies that have a meaningful, positive impact on their customers' business.

We’re pleased to be recognized as a leader in the CRM space. Throughout 2014, we are a leading sponsor of nine Salesforce 1 World Tour events across North America and Europe, followed by our platinum level sponsorship at Dreamforce.

We will showcase our next generation sales effectiveness solutions designed for and delivered directly to the Salesforce.com community. We are pleased with the impacts our investments in accelerating awareness and adoption are making and we will continue to invest in this area going forward.

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

Our acquisition Cameleon and SignalDemand also creates further value for our customers and further product differentiation for PROS. For example, bringing PROS analytics into SignalDemand’s pricing mix optimization solution drives greater visibility into performance and better agility in responding to shifts in the market.

We believe this is a unique combination. Similarly, we’re setting a new standard of innovation in the CPQ market, with the combination of PROS and Cameleon. By bringing data science and analytics through CPQ, we deliver world class quoting with prescriptive price guide. And so it gives sales reps a better chance of winning deals and heading quota.

These unique capabilities also help companies deliver a better customer engagement and experience across multiple channels such as e-commerce and mobile. Our innovation in this market is driving increased demand for our CPQ solutions and further extending our product leadership position.

Gartner Research even reported the PROS and Cameleon combination would pose a real threat to pure play CPQs and price optimization vendors. The third pillar of our growth strategy is to extend our global reach and scale through direct sales coverage in our partner ecosystem.

We ended the first quarter with 52 quota-carrying personnel and we’re continuing to grow the team as planned throughout the year. As we’ve stated in previous calls, we expect system integration partners to help us expand our global reach and scale by leading more PROS implementations going forward and by contributing to demand generation.

We’re pleased to be on track in both of these areas. We have seen a number of opportunities coming from system integrators increase in each of the last three quarters.

With more than 60% of our B2B customers running SAPs, we continue to invest in our SAP technology partnership by achieving the latest certification for technology integration, setting the standard for most complete and seamless integration experience in the market. We believe this is one reason why so many SAP companies use PROS.

We look forward to showcasing our solutions at the upcoming SAP SAPPHIRE conference. Overall, we're pleased with the progress we’re making in our partner ecosystem and we will continue to invest in this area. Q1 was a good quarter for PROS. We delivered strong financial results and executed on our growth strategy.

Looking ahead, we remain confident in our business for the rest of the year and beyond as more companies recognize the power of PROS’ big data applications to drive growth and out perform in their markets Now let me turn the call over to Charlie so he can provide you with the review of our financial results and our outlook for the second quarter and full year of 2014..

Thanks, Andres. I will be discussing our financial results on a non-GAAP basis. Our full GAAP to non-GAAP reconciliation is included in our earnings release which can be found on our website in the Investor Relations section.

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

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

Total recurring revenue, which includes maintenance, SaaS, and term license contracts, was 42% of total revenue in the first quarter. Non-GAAP gross margins for the first quarter were approximately 68% as compared to 70% in the first quarter of 2012.

Excluding the impact from our two acquisitions, gross margins for our organic business would have been approximately 70%. As a reminder, our gross margins can vary from period-to-period, primarily due to the level of implementation services required relative to the total contract value.

We expect the acquisitions to continue to impact gross margins in a similar proportion throughout the remainder of 2014. Total non-GAAP operating expenses for the quarter were $42.1 million compared with $29.5 million a year ago, an increase of 42.7%. Non-GAAP operating income in the first quarter was $800,000 compared with $4.1 million a year ago.

Non-GAAP operating margins for the quarter were 1.7%, primarily due to the dilutive impact of our recent acquisitions. Our non-GAAP operating income exceeded guidance as a result of revenue outperformance and better expense control management.

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

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

Non-GAAP earnings per share exceeded guidance and were $0.01 per share compared to $0.15 per share a year ago. GAAP earnings per share for the quarter was a loss of $0.29 compared to a profit of $0.06 per share a year ago.

The changes are primarily the result of the deferred revenue write downs required on the GAAP accounting, the amortization of intangibles, and acquisition and integration related costs, and an increase in non-cash stock-based compensation expense.

Now moving to the balance sheet; we ended the first quarter with unrestricted cash and cash equivalents of $47 million, an increase of $2.4 million from the end of the fourth quarter. At quarter-end, there was restricted cash on our balance sheet of $2.6 million related to the Cameleon Software tender offer.

Capital spending for the first quarter, which includes infrastructure and facility improvements, was $1.7 million. We expect capital spending in 2014 will approximate $8 million. Gross accounts receivable at the end of the quarter were $50.5 million.

Days sales outstanding were approximately 104 days, within the range that we have experienced in previous quarters. We generated operating cash flow of $3.4 million in the quarter, yielding a cash flow margin of 8%. Finally, at the end of the quarter, headcount, including outsourcing was 986, which increased 33% from March 31, 2013.

This reflects the addition of SignalDemand and Cameleon and our increased investments in sales, marketing, professional services, engineering and administrative personnel to drive growth. Before providing guidance for the second quarter and the year, I would like to provide some additional information related to our business.

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

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

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

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

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

We expect total non-GAAP expenses to be approximately $43 million, up from $30.6 million in the second quarter of 2013 as we continue to make strategic investments in our business as well as the increased expenses coming from our two acquisitions. We expect non-GAAP operating income margins of approximately 5.5% at the midpoint of revenue guidance.

With a tax credit of approximately 40% in the second quarter, we anticipate Non-GAAP earnings per share of $0.03 to $0.05 based on estimated 30.4 million shares outstanding.

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

Our confidence in our business for the full year is based on several factors I would like to spend a moment on. First, we continue to have good visibility into the full year.

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

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

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

In fact, they’re slightly ahead of our expectations for the first quarter. Market receptivity is positive, driven by customers understanding of the increased value they can derive from the expanded PROS value proposition.

As we continue to move forward with our sales integration efforts, it will become increasingly difficult to assign bookings or revenues to organic versus inorganic. What is important is that we believe the opportunity to grow our business is expanding.

We are delivering more value to our customers with our combined CPQ and PROS offerings and we are driving revenue growth across the organization. In summary, this was a good first quarter for PROS and we believe we remain positioned for strong performance in 2014.

We are confident that our growth strategies and investments across the business have been working and expect this to continue in the future as we capitalize on our expanded market opportunity and improvements in our go-to-market initiatives. With that let me turn the call back to the operator for questions.

Operator?.

(Operator Instructions) And your first question comes from the line of Chad Bennett from Craig-Hallum. Please proceed..

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

You guys did reasonably well, and the acquisitions, in particular, first quarter out of the gate did well.

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

Chad I guess right now we don’t want to get ahead of ourselves. But yes we kind of think now that that may be closer to the level of contribution that may come from these acquisitions. We’d like to note that Cameleon is moving to SaaS and they still have some perpetual revenue say last year.

So we have to be a little guarded about the contributions from Cameleon continuing at the rate that it has because we prefer that they move more to SaaS than having a mixed model of perpetual in SaaS. So with all that said, we are pleased with the performance and the run rate may be indicative of what the rate is for the full year. .

Okay. And the alternative to that, the flip side, is your pricing business was obviously, closer to, I think, a 10% growth rate, year over year, in this quarter.

So, is it to safe to say that in the year guidance that you reiterated maybe the acquisitions are a little bit more and organic growth is a little bit less than what you thought?.

Yeah, I would say that’s reasonable. We’ve always expected just so you know that he guidance we provided say for the first quarter would be below the full year expectation for the organic because we expect to see organic growth in the back half of the year.

And we also are confident in our ability long term to certainly generate 20% growth through that the business over the long term. I think part of what I think we explained it yearend that needs to probably reiterated, this is mix change that occurred in 2013 relative to our bookings.

As we mentioned, we had a very significant uptick in recurring revenue bookings, particularly the fourth quarter of last year. Those bookings necessarily are not going to drive near term revenue. So we’re fully expecting an impact on our organic growth rate in the first quarter compared to previous quarters.

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

But with that said, the organic -- given the challenges that we’re continuing to have particularly in Europe, the organic is likely going to be less than our initial expectations were, but again the acquisitions running a little ahead.

So net-net we’re pleased with the overall full year guidance of $190 million to $194 million or 33% revenue growth at the midpoint..

Yes. No, that's great.

I just on that point, Charlie, the bookings mix in last year, especially in the fourth quarter of last year shifting to more term or recurring, I guess is there -- what is the timing on the revenue rec, especially those Q4 bookings? Is it based on when the implementations start? Or why are they back half weighted?.

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

Under GAAP revenue recognition, if you sign a term agreement, the term agreements we have licensed the rights for a period of time, there’s a significant difference of revenue recognition on that contract that you would if you just had a straight up perpetual contract.

And we had a multimillion dollar term agreement in fourth quarter, and there’ll be no revenue recognized in 2014 on that deal. Now it’s interesting just to show you how GAAP changes, these new GAAP regulations are coming out. They’re expected to come out in the third quarter of this year.

In the future, not 2014, but in the future, GAAP is going to change revenue recognition for term contracts. So this shows it doesn’t – it doesn’t evidence the results that the company is actually achieving. So in one hand you have a term contract multimillion, no revenue this year.

When they change the rules, we’d have multi millions of revenue this year for the contracts..

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

Sure. Okay, what triggers it is that this is – what triggers it this is – is let’s take for an instance the customer licensed a suite of products. You have to have the last product in production before revenue recognition starts. So you can have four products in production, no revenue recognition.

When the fifth product finally goes into product, then the revenue recognition starts. .

Okay, got it. .

So, there’s an example where the health of the business was much stronger at the end of the year than there’s evidence in the organic growth for 2014. And this other example I like that as well, we had one that was even a bigger deal okay. Now fortunately on that one, we’re going to be using some revenue for that in the last half of the year.

No revenues in that one in the first half but some revenue in the last half. But those two deals between the two of the work, I mean substantial we’re talking multi millions, much higher than the average ASP for the company but very little organic revenue this year. .

Great. I appreciate the clarity. Just one more for me. Just on Cameleon and the CPQ product out of the gates here, I guess first question is, I assume you're doing more stand-alone CPQ deals. There isn’t probably a ton of cross selling, upselling happening right now, that’d be the first one.

And then secondly who are you seeing competitively in the CPQ market, then I’ll jump off. Thanks. .

Yes, and the CPQ right now is strategy, we’re integrated the sales organizations in our strategies to sell what customers need. In some instances we are seeing customers want to license price optimization in CPQ together.

In other instances they’re starting with CPQ or price optimization and later have plans to expand, which is really in line with our strategy. So I would expect opportunities in the first half where we are selling both of our solutions together. And then with respect to the competitive landscape, it really hasn’t changed in their space.

You can imagine it’s a typical competitor it’s like Big Machines and APPTUS and Callidus for example. And then on the price optimization it’s the same typical competitors..

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

Hi Andres and team, congratulations on what appears to be a well management integration so far. .

Thank you..

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

What's changed in that couple month period?.

Yes..

Yeah. I think I can start with that. It’s Charlie. The change is likely going to be modest, it’s just that we’re seeing in Europe, it’s still not quite getting the traction we’d like to see and as you know under our project model for the vast majority of our business it’s percentage of completions.

You really have to close the business in the first half of the year to get that revenue really moving in 2014. So if it continues – bit of a slowdown in Europe, that could be organic and that’s having an impact on the organic revenue.

We’d still like to think and we still fully expect and it’s still early, is that the organic revenue will be somewhere in the mid to high teens to 2014. And we’d be pleased with that, coupled with our ability today to be able to reaffirm our guidance at $190 million to $194 million.

To have revenue growth over 30%, that’s actually 33% for the year, but still fundamentally, no change in the business. And the business hasn’t changed, the fundamental characteristics of the organic business really hasn’t changed. It’s the strongest it always has been..

Yeah, I would say two other things. I would say the SaaS deals or recurring revenue based deals or term deals that we’re signing Q4 that as Charlie explained before that may having an impact in the first half of the year for sure.

But overall if we look at the metrics I commented on RFPs, we’re seeing significant increase specially over the last three years, but meaningful increase last year over this year and overall demand metrics also opportunities that we’re getting from system integrators. We’ve seen increase over the last three quarters.

So overall, momentum and activity, remains very strong and we’re very confident. One area that we’re looking is we’re looking less as individual organic versus inorganic. We’re really looking at it as one business. Our customers don’t see us as price optimization in CPQ. They see us as a combine offering.

And we put all of our emphasis on creating one company and ensuring that we’re aligned. Some may go to market strategy and onboarding or sales reps globally across one PROS. And I think that’s what’s going to help us capitalize on this large market opportunity. .

This is Charlie. I’ll just pick up on a point Andre’s made. Now there’s measuring the organic versus inorganic with the integration of personnel and the product is definitely less meaningful for us. Here’s an example, are we seeing the situations where we can promote Cameleon’s CPQ over our existing deal optimization solution.

We’re going to give the market what it needs with that great product and deal optimization Cameleon has a great CPQ product. That there’s an opportunity to promote the CPQ over our existing deal optimizer, then we’re going to do that.

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

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

Yes..

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

Yes, so definitely from a sales perspective. They’re outperforming the quarter. And in this first quarter, if you even think about Cameleon closing within first quarter, you know we wanted to be cognizant of that in our guidance and we though with the recent acquisition that there could be near term execution challenges.

And we didn’t experience that, and we were able to capitalize new business in the quarter, that growth revenue in the quarter..

Yeah well that’s fine. And then I do think we’re perhaps a bit conservative on the outlook as we went into this. The acquisition just occurred in January and our acquisition of Signal Demand just occurred in mid-December. So we didn’t have a lot of time to assess all of the risks associated with the revenue for this year.

So we’re pleased that performance is better than we expected. We want to be prudent and we’re cautious about any disruption. But that doesn’t seem to be happening, and it’s still early it’s only May. But in fact we’re seeing the strategies working well, the opportunities to go to market together between us and our core company is working well.

So we feel good about the acquisitions and the opportunity for this year..

Great. And I guess the last question for me at the moment is, selling through partners, I know, has been part of the strategy. Charlie, you and I have talked I think recently, that you're expecting some sales to potentially come through partners this year.

Are we still expecting to see that? And is that really more of a back half of the year versus maybe a second quarter event?.

I think – and certainly more in the back half of the year, I think we said that on the call, but we’re pleased. We’ve had a positive experience in the first quarter. I think Andres can give more color on this, but no, we’re pleased. We had a good experience in the first quarter.

We expect this is going to be something that’s going to be glowing over time. So if you talk to us in the third quarter, I think we’ll have more positive things to say and probably more in the fourth. .

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

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

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

Yes. Thanks for taking my question, guys. Europe -- you mentioned that you think it can come back as we move into the second half and that you expect trends to improve there.

First, what kind of expectations do you have for that business in your guidance, moving into the second half? And second, building on that, what are you seeing, if anything, from an inflection point or from an activity perspective that gives you confidence that you'll see improvement there? Thanks..

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

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

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

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

Yeah I think it’s really to quantify the rate of growth, but the answer is yes. We do expect to see organic growth in Europe this year. .

And, Charlie, when you've talked about this transition to more services work being done by partners and that changing how you recognize revenue and when you recognize revenue.

Was there an in-period contribution in Q1, or was this a similar percentage of completion basis relative to last Q1?.

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

So both the partner opportunity contributed to Q1 revenue and just our own implementations and contracts with license recognized and contract contributed as well. We saw good progress in the fourth quarter, I think we mentioned that and we’ve seen good progress.

But first, and based on everything we say, we think our end year revenue is tracking well and it’ll come from both partners as well as our own led dead. So we’re pleased with that mix. That kind of a mixed model we’re pleased with.

The part that’s having a negative impact on organic growth this year is the great recurring revenue that we built last year, that just is not driving much revenue in 2014..

Okay.

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

No, I would say not. I mean – I would say not. This has been building over time through last year, I think we had talked, we’ve already set the stage for this in 2014 and we’ve got some really good uptick in the fourth quarter of the year. So I mean as high than it was in the first quarter of last year.

But again I don’t think at this point it’s not that – it’s important, but it’s still principally a percentage of completion, revenue recognition model that we’re on..

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

Great. Thank you very much. My first question has to do with quota-carrying sales reps.

I guess it came in a little below what I was modeling, and so I wanted to ask if you feel like you're on track with ending the year around 64 sales reps, or if you feel like you still have -- or if you didn't hire as many in Q1 as you originally anticipated? Thanks..

Yeah, no. We’re definitely on track for the 64 for the full year and are really focus on recruiting the right talent. Q1 we wanted to focus on aligning or whole sales organization. Between the acquisitions and or internal sales and build the right process for integrating more.

With and the enablement, I think definitely we’re on track and we’re continuing to hire pretty aggressively towards those plans..

Okay, great. And then another question, I guess I understand that Europe came in a little bit below expectations, and it sounds like revenue from the acquisitions was certainly above expectations.

But I just want to get a clear sense on sort of the North America pricing optimization business, and whether or not you are sort of satisfied with the bookings levels within North America for the pricing optimization business? Thanks..

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

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

Great. And just one quick one, Charlie.

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

Well it’s actually in both lines. The biggest component of it is going back into L&I line. And the non-GAAP adjustment, we’re tracking well the investment of about $20 million of non-GAAP revenue for 2014. And $2 million of that was recognized in the first quarter. .

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

Yeah, the maintenance component I think of it was slightly less than – I’m trying to think through the numbers. Let me come back to that, let me check and I’ll come back. I’ll definitely answer the phone..

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

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

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

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