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

Scott Berg - Northland Capital Markets Chad Bennett - Craig-Hallum Tom Roderick - Stifel Nicolaus Greg McDowell - JMP Securities Ken Cowan - JPMorgan.

Good day. And welcome to the PROS Holdings Third Quarter 2014 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Charlie Murphy, Executive Vice President and CFO. Please go ahead, sir..

Thank you, operator. Good afternoon, everyone and thank you for joining us today for the PROS Holdings' financial results conference call for the third 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 third quarter 2014 and then I will 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 risk and other factors that may cause actual results to differ can be found in the Company's filings with the SEC. Also, please note that a replay of today's webcast will be available in the Investor Relations section of our website at www.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 we had a strong third quarter, with non-GAAP revenue exceeding the high end of guidance at $48.7 million, a 32% year-over-year increase, non-GAAP operating income was $5.5 million and non-GAAP EPS was $0.11 per share.

Both exceeding the high end of guidance. I'm proud of the entire team of PROS for delivering these great results. We are pleased that our business is strong as we continue to execute on our long-term diversified growth strategy. We have added a record number of new customers through the first nine months of the year.

Our sales pipeline continues to strengthen and demand continues to grow with record number of RFPs year-to-date. Our Partner ecosystem is contributing with an increasing number of opportunities sourced by partners in each of the last five quarters, resulting in partners source wins and partner led implementations.

Our team in Europe has done a great job bringing sales execution back in line with our expectations. And we are confident they will continue to perform. We are setting the pace of innovation in the market with recent product releases for both our B2B and B2C customers. We made great progress integrating both Cameleon and SignalDemand.

Our teams are working together under unified strategy to continue creating unmatched value for customers and further differentiating PROS in the market. All of these incredible accomplishments are just a few reasons why we are confident in our long-term growth outlook.

And why we believe we are in a strong position to capitalize on the larger market opportunity. We believe PROS is uniquely suited to help companies increase revenues at a time when growth is a top concern among CEOs.

According to PwC's 17th Annual Global Survey, 84% of CEOs are making changes to their customer growth and retention activities to capitalize on global trends that will affect their business. Moreover, 75% of CEOs have plans to change how they are using data and data analytics to capitalize on their market opportunities.

We believe these data points favor PROS. Given our decades of experience helping companies across more than 47 sub-industries turning their data into revenue. For example, in the third quarter Rexam selected PROS to help drive growth by using data to improve their customer experience and increase agility.

Headquartered in London, Rexam is one of the world's leading beverage can makers with 55 manufacturing sites in 20 countries. The company operates in a highly competitive global market place subject to raw material and currency fluctuation that can affect revenue, margins and customer satisfaction.

PROS Global solution helps to increase responsiveness to market changes. By enabling real time, rapid price changes across all markets, product lines and customers, all powered by our productive and prescriptive analytics. PROS best-in-class integration with SAP ensures seamless integration with Rexam ERP system.

We are honored to have been selected by Rexam and look forward to helping them better navigate the volatile markets with precision and speed while also improving their customer experience. Since our last call, we've made great progress in extending our product leadership position through new innovations.

We acquired Cameleon with the vision of delivering a single end-to-end sale effectiveness solution that combined to power predictive and prescriptive analytics with simplicity of quoting automation.

We are excited to deliver on that vision with a recent release of Cameleon CPQ Fall 14 setting a new standard for what customers should expect in CPQ solution. This unique solution embeds prescriptive price guidance powered by data science into the automated quoting process.

Sales reps enjoy seamless, streamline experience that gives them greater confidence in speed when quoting. We believe intelligent business application that combines automation with data science offer the best opportunity to improve performance and gain an edge in the market.

In fact, researchers at MIT predict that companies have figured out how to combine domain expertise with data science will pull away from their rivals. And this is exactly what we offer. Another new innovation in a recently announced Group Sales Optimizer for travel customers.

This real time group working solution integrates dynamic pricing with powerful sales effectiveness, revenue management and contract management capabilities. This is the great example of leveraging our B2B expertise and capabilities for B2C customers.

Innovations such as our CPQ release and Group Sales Optimizer are the foundation of our growth strategy and the hallmark of growth. We will continue investing in product innovations to further extend our product leadership position in the market. We continue to execute on strategies to increase awareness and adoption.

Our Platinum Sponsorship at Dreamforce is a recent example. Our strong presence and visibility of the events supports our strategy of aligning with a large [TRNE] ecosystem and resulted in a record number of leads from this even.

In line with our vertical data market strategy PROS were showcasing three demo centers in manufacturing, automotive and telecom areas that salesforce.com industry pavilion. PROS success stories were spot lighted a numerous education sessions led by customers.

Bausch & Lomb, Blackboard and Medtronic held the panel discussion on how our CPQ solution improves their sales effectiveness. HP presented how Accenture and PROS partner together to help HP increase win rate and improves margins by more than 200 basis points.

Merck Millipore shared how they are harmonizing the lease order process by connecting sales force, PROS and SAP. We are honored to have such great customers and partners share their experiences at event like Dreamforce. Customer success is central to both our nation and our growth strategy.

For that reason we were especially pleased to have been recently recognized as one of the Top 3 IT vendors of the year by Coles, an Australian customer in the food industry. Coles purchase our mix optimization solution last year to improve margins.

The customer specifically cited that no other vendor delivered ROI to pay for a project that's fast as we did, which was an approximately 60 days. This recognition underscores our relentless commitment to customer success. In the magnitude of win pack or solutions can have on our customers' business.

From a people stands point we continue to scale our leadership team for long-term growth. I am pleased to share that Tim Girgenti, who has served as a Chief Marketing Office for the past four and half years is now our Chief Strategy Officer. This is not new for Tim, as the CMO he led strategy in addition to sales and marketing responsibilities.

His experience with customers and the market make him a natural fit for this role. I am also pleased that we promoted within our deep bench of leaders to fill the CMO role. Our new Chief Marketing Officer is Patrick Schneidau, a 10 years veteran of PROS who has held leadership positions in sales, product and marketing.

Patrick is a proven and successful leader whose passion for sales and marketing matches his experience working with customers. Patrick is well suited for this role and I am excited he will now contribute as our new CMO. Overall, we are pleased with our strong performance in the third quarter.

Investments we are making and driving awareness and adoption, extending our product leadership position and expanding our global reach and scale are working. The fundamentals of our business are strong and we are confident with our long-term growth outlook.

We believe we are uniquely positioned to meet the increasing demand for solutions that can turn big data into revenue. We will continue to invest in our growth strategies to capitalize on our large market opportunity.

I'll now turn the call over to Charlie so he can provide you with a review of our financial results and our outlook for the fourth quarter and full year 2014..

Thanks, Andre. I will be discussing our financial results on a non-GAAP basis. As I mentioned at the beginning of this call, a full GAAP to non-GAAP reconciliation is included in our earnings release which can also be found on our website in the Investor Relations section.

We are pleased with our performance in the third quarter, with total non-GAAP revenue of $48.7 million exceeding the high end of our guidance and an increase of 32% from a year ago. $48.7 million on non-GAAP revenue includes organic revenue growth of $41.7 million, or 13% organic growth over the same period in the prior year.

While we report on the revenue contribution from acquisition separately to the end of 2014, we are already operating as one organization with a single sales force and integrated product development change. We are pleased to see the improvement in our organic revenue growth from Q2.

And as previously discussed on our last earnings call, we expect these trends to continue in the fourth quarter. License revenue was $11.9 million, an increase of 9% from the same period a year ago. License revenue recognized when contract execution was approximately 3% of total revenue for the quarter.

This is less than a prior quarters primarily because of the higher mix of the existing customer booking with percentage of completion accounting in the quarter. As a reminder, license revenue recognized the contract execution does not go into our backlog and our backlog to revenue metric disclosed to year end.

Services revenue was $14.9 million, an increase of $2.7 million or 22% from a year ago. For the third quarter, non-GAAP subscription revenue which is comprised of cloud services, SaaS and term license contracts was $7.4 million, an increase of $5.4 million or 276% increase over the prior year.

Our acquisitions for the primary contributed to our subscription revenue growth. Maintenance revenue was $14.6 million for the quarter, a 24% increase over a year ago and represented the largest component of revenue from recurring sources. Total recurring revenue represented 45% of total revenue driven by both organic and inorganic sources.

This compares to 37% of total revenue in the prior year. For the nine months ended September 30, our recurring revenue increased from $40 million to $59.8 million, or 49% increase over the same period in 2013. Non-GAAP gross margins in the third quarter were approximately 72% as compared to 71.5% in the third quarter of 2013.

Total gross margin vary from period-to-period primarily due to the level of implementation services required relative to the total contract value and the timing of license revenue recognition. Total non-GAAP operating expenses for the quarter were $29.6 million compared with $20 million a year ago, an increase of 49%.

Non-GAAP operating income in the third quarter was $5.5 million compared with $6.3 million a year ago. Non-GAAP operating margins for the quarter were approximately 11%. Our non-GAAP operating income exceeded guidance primarily as a result of our modestly higher revenue and modestly higher gross profit performance.

Note that in addition to the $6.1 million of non-cash stock based compensation expenses excluded from our non-GAAP results. We now have the amortization of intangibles and acquisition and integration related expenses which are also excluded from our non-GAAP results, which total $1.9 million.

The non-GAAP effective tax rate up 34% for the third quarter was lower than we anticipated and compares to 28% last year. Non-GAAP net income is $3.4 million for the quarter, a decrease from $4.6 million in the prior year.

The increase in the 2014 effective tax rate is primarily due to the expiration of the research and experimentation tax credit in 2013. Non-GAAP earnings per share were $0.11 per share compared to $0.15 per share a year ago.

The non-GAAP earnings per share of $0.11 exceeded guidance by $0.03 per share, upwards $0.02 was achieved through revenue and operating results exceeding expectations and $0.01 related to a decrease in our non-GAAP tax rate. GAAP earnings per share for the quarter were a loss of $0.13 compared to a profit of $0.03 per share a year ago.

The earnings per share decrease are primarily the result of acquisition related expense including $1.3 million amortization of intangible, and the $1.8 million increase in non-cash stock-based compensation expense.

Now moving to the balance sheet, we ended the third quarter with unrestricted cash and cash equivalence of $40.4 million, an increase of $10.4 million from the end of the second quarter. At quarter end, there was restricted cash in our balance sheet of $2.3 million related to the Cameleon software tender offer.

In October, we commenced the second tender for the remaining outstanding shares of Cameleon, we now own our control all of Cameleon's outstanding shares and de-listed Cameleon from the Euronext Stock Exchange earlier this week.

The cash paid in the fourth quarter to achieve a 100% ownership was $5 million of which $2.3 million was from our restricted cash balance as of September 30. Capital spending for the third quarter which includes infrastructure and facility improvements was $1.3 million. We expect capital spending in 2014 will approximate $8 million.

Cash flow from operations for the third quarter was $12.2 million and benefited from a favorable mix with license invoicing in the second quarter and the commencement in the second quarter of improved collection process. Cash flow provided by operations was $3.1 million for the nine months.

Year-to-date cash flow was impacted principally in the first half of the year by one time items related to our acquisitions and first half seasonal items. We expect cash flow from operations to be positive for the year. Gross accounts receivables at the end of the quarter were $52.1 million.

Day sales outstanding were approximately 107 days, an improvement over prior quarters primarily from improved collections. Finally, at the end of the quarter headcount including outsourcing was approximately 1,000, which increased approximately 26% from last year.

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 fourth quarter in the year.

I would like to provide some additional geographic information related to our business as well as commentary on variability from one period to another that is inherent in our business model. Revenue from the United States was $15.7, a decrease of 3% year-over-year and represented 32% of total third quarter revenue in 2014.

In Q3, moderately less license revenue was recognized a contract done last year, contributing to the decrease. While percentage of completion bookings was strong in the quarter. Overall, the US continues to perform well.

Revenue from Europe was $13.8 million, an increase of 83% year-over-year and represented 28% of total revenue in the third quarter as compared to 20% in the prior year. This increase was driven primarily by organic revenues from Europe as we bring the execution back in line with our expectations.

Revenue from the rest of the world was $19.1 million and represented 39% of total revenue as compared to 36% last year, an increase by 57% as compared to the prior year. Rest of the world revenue while predominately travel is benefiting from an increase in B2B revenue as well.

Overall, our business continues to be strong driven by increasing need for companies to better leverage big data to help grow revenue and improve profits. In addition, we are benefiting from the investments we've made to drive awareness and adoption and expand our solutions to address a larger market opportunity.

We are also pleased with our ability to add new customers and expand our solutions across our existing base as well as increase our recurring revenue streams. Now turning to outlook for the fourth quarter.

We anticipate non-GAAP revenue in the range of $52 million to $55 million, approximately 38% growth at the mid-point from the fourth quarter of 2013. We expect for acquisitions to contribute approximately $8 million and our organic growth to be approximately19% at the mid-point and better than 20% at the high end of our guidance.

We expect total non-GAAP expenses to be approximately $46.5 million up from $32.4 million in the fourth quarter of 2013, as we continue to make strategic investments in our business and incurred the increase expenses coming from our two acquisitions.

We expect non-GAAP operating income margins of approximately14% at the midpoint of revenue guidance, with an estimated tax rate of approximately 37% in the fourth quarter. We anticipate non-GAAP earnings per share of $0.14 to $0.17 based on estimated 30.5 million shares outstanding.

For the full year, we expect revenue growth of approximately 32% at the midpoint of our revenue range of $190 million to $193 million. As previously guided, we expect our acquisitions to contribute approximately $29 million of revenue for the full year and our full year organic growth to be approximately 13% at the midpoint.

Our non-GAAP operating margins for the full year are expected to be between 9% and 10%. Our confidence in the fourth quarter continues due to several factors. First, we have strong pipeline with good visibility into fourth quarter of booking opportunities.

Second, from the seasonality perspective our business is historically stronger in the fourth quarter of each year. Third, we have good visibility in the B2B deals with license revenue recognized at contract signature.

We expect this to be our largest quarter of the year for license and contract revenue, and also expect this portion of our revenue to have more traditional enterprise sale seasonality associated with it going forward.

Finally, we believe the sales improvements we've made together with the expanding leadership focus on sales and partners will have a positive impact going forward. In summary, we are confident that our growth strategies and investments across the business are working.

We are pleased with our performance in the first nine months and outlook for the year. With that, let me turn the call back to the operator for questions.

Operator?.

(Operator Instructions) We will go first to Scott Berg from Northland Capital Markets..

Hey Andres and Charlie congratulations on a very good quarter. First question, housekeeping, Charlie.

What was your organic revenue growth rate in the quarter, I missed it?.

The organic revenue growth was 13%..

Okay. Thank you. And then couple of questions on the guidance. You beaten Q3 on the revenue range for the year you brought the top end of the range down a million obviously kept at bottom.

I am trying to think about how we should view the fourth quarter opportunity relative -- it's a minor difference, or it's kind of still within the range, but given the outperformance I guess I would have expect you to bring the bottom up maybe a little and maintain the top end of the -- for the range?.

Yes. Certainly we wanted to proceed -- there is really no substantial change, it was currently within the range we discussed all year. And actually we are pleased with the guidance that we provided. But we wanted to be prudent and we've taken a very measured approach to our guidance as we do every quarter.

And we are very pleased that overall at the midpoint the revenue growth yield to be 32%, and we are also please that for the fourth quarter organic revenue is likely going to be greater than 20%. So we were pleased overall with the composition the guidance we are providing.

And we really think it is a good way to end the year and a good way to start next year. .

No, I'm pleased with the progress, but just trying to understand what the nuance or the differences obviously. And then as I look at operating margins, your prior guidance was for 10% operating margins, the new guidance indicate for the year indicate 9% to 10%.

I'm sorry, 10% before now 9 %to 10%, what's different in the -- I guess, the operating expense lines in terms of assumptions for Q4 that looks like you are spending just a little bit more money?.

Yes. It's partially true. It's some of the little bit more in the expense but also by bringing down the midpoint, they are modestly, that does an impact on the operating income by about half a point. And that's why we thought [setting] at approximately 10%. We thought it was more prudent to guide the 9% to 10%.

And give us little bit more of range here for Q4 as it contributes to the full year. .

Okay. Fair enough. Then on the execution side, Andres, you really called out Europe which is performing better and in line with recent commentary. What would you contribute the biggest reason for that.

Is it focus or see no changes there and how should we view that business say going forward over the next 12 months?.

I would say that obviously bringing Blair and Jake into the business, they made several changes within organization to improve the scale and performance.

We brought in Sebastian as GM in Europe and he and his organization have continue to performing -- in the last quarter I commented that we had team good performance in the first half, we continue to see good performance in the third quarter and we believe they are back on track. And we are very confident in their performance moving forward.

But I would tell overall we are very confident with the performance of the sales organization, North America and Europe and globally. The changes that we made we are starting to see the results. .

Great. Last question from me then I'll jump in the queue is on the partner strategy you called that out as well. I think sales cycles and processes and deals certainly progressing well there.

But can you give us any sense on size of deals, geographic nature of deals trying to understand where these partners are having success in bringing deals to you today, which is still a relatively new venture for you guys?.

Yes. We have closed deals globally, North America, Europe and rest of the world with our Partner ecosystem. And I would say that the deal size we haven't seen a major change in ASP on the deals that we've closed through our Partner ecosystem.

So we are very pleased with the progress, we thought about demand continue to increase over the last five quarters. But more importantly seen deals go through and us working with partners on implementation. So I would say still early stages but it is continues to improve.

And that helps us feel stronger about long-term growth and having the Partner ecosystem contribute towards that long-term growth. .

And we will go next to Chad Bennett from Craig-Hallum..

Hey guys, nice job on the quarter. So, just digging into a couple of things.

And in Europe specifically, can you speak to the organic growth in Europe? Was it in line or better than the overall organic growth of the business this quarter?.

Yes. Clearly, we are pleased with the European performance and as you can see that performance was organic driven. So we are pleased with that. And I think overall Europe did well in the quarter. I think as we commented in the call the US was a down a bit the reasons I mentioned, it was really a mix of business.

So Europe done -- Europe, we are very pleased with the performance and the answer is yes. It contributed nicely for the year. Great quarter performance.

What I would add from a sales execution, North America is performing very well and very strong year-to-date and continues to be our strongest market. So very pleased with the US and North America sales execution, it's continued to improve and it is performing very strong year-to-date. .

I guess the question is more going forward.

Do we think Europe is going to be in line with the organic growth of the overall business or still a bit of a drag?.

I don't believe Europe is going to be a drag at all. I believe Europe is back on track based on the pipeline of opportunities and that we see in the market, we are pretty confident in continuing to be a growth driver for our business in the future. .

Okay, great. And then into the US growth that you talked about, I don't know if there is a way to do this, Charlie. But if we were to normalize the year-over-year kind of upfront revenue and looked at just kind of a normal bookings year-over-year.

Is there a way to look at the growth that way?.

Yes. We could. And we purposely didn't on this Q3 because we really believe that the fourth quarter booking that we have last year with the high recurring revenue mix is having less of an impact as we go through the year. And as we said, we are pleased that Q3 organic growth ended up at 13% which is higher than the 8% we guided to at the midpoint.

So we think the big part of that mix story is getting behind us. And that as we get into the fourth quarter, you are going to see a strong growth. .

Yes. And then from a sales perspective, I know we commented in the first half the booking outpaced growth and I would say North America also a pace, the overall growth numbers and continues to be a strong driver from a sales perspective year-to-date..

Okay. All right. And couple more for me.

And then Charlie, can you give us a ballpark in the fourth quarter guide kind of where you think upfront license deals will be as a percentage of revenue?.

I think for the whole year we are going to be consistent, so we discussed at the end of Q2, we are at top end and the low teens maybe 12% to 13%, and we are still there 12% to 13% for the year. So it's only for the year, it is going to be an uptick in license and contract in Q4; we expect it at all along.

That it really hasn't changed from expectations from what we communicated at the end of the second quarter. .

Okay. Good. And should we think about operating margins any differently going forward considering pretty good operating leverage you're showing in the back half of the year relative to the first half. And if in fact we are seeing more of a shift to upfront licensing, which obviously probably helps margins.

Do we think about more operating leverage kind of looking out further?.

I think at this point we wouldn't want to be commented on that. We still haven't finalized our plans for 2015. I think there is an opportunity at the gross margin line perhaps to see some a bit of improvement as the mix continues to be going towards license and contract. But we really don't want to be talking at the operating income line at this point.

On thing I should have also said that Chad when you ask a question, that slip my mind is that as far as the license and contract in Q4, there is obviously there is an uptick that's needed. We are also very pleased with the start that we have already had like to Q4 with regard to that..

Okay. Last one from me.

Your competitor Vendavo has been re-capitalized or as a new majority holder, are there any expectations for any different change in pricing in the market or are you seeing anything early on related to the new ownership there?.

We haven't seen any change related to the new ownership and I think we've been focus on our growth strategy and we feel what we've been doing is working and materially we haven't seen any changes at all. We believe we are in a pretty strong competitive position..

And we will go next to Tom Roderick from Stifel Nicolaus. .

Hi, guys, good afternoon. I wanted to talk a little bit -- I wanted to ask you a little bit about Cameleon particularly with respect to your move to push Cameleon into the US both from a product and sales force angle.

How is that coming along? How is the US market responding to the CPQ product line? And at what point should we expect to start seeing some level of contribution in the US from that?.

Yes. I would say the market is resonating well especially with our launch of our new Cameleon solution. That has integrated price guidance in it. And I think that was a huge milestone for us.

If you think about the first part of the year, the first year-to-date, we've been focused on laying the foundation, all of the sales enablement tools training, integrating the product lines and we made a lot of progress on that front. We've seen a strong interest in the combined solutions and we sold a combined solution already.

And we expect that to continue to grow going into next year. So we are very pleased with the progress we made. Naturally, the Cameleon product was not as known in North America prior to the PROS acquisition, Dreamforce was a huge event for us. I think the market knows where we are there and starts to see the differentiation.

We are the only solution that really has the intelligent quoting capabilities. And I think it's just a matter of time that you will see that continuing to contribute more towards business. .

Great, okay. The US being down 3% year-on-year I know the question was asked earlier regarding the impact of some of the timing of rev rec on term basis, subscription-based deals.

What should we think about with respect to the timing for the US to get back to growth and maybe even double-digit growth? And are there any particular verticals you might call out that has room for improvement at this point?.

Yes. Well, I think as far-- this is Charles, as far as the growth, we are going to see it in the fourth quarter. And we are pleased with the position we have relative to pipe going into the fourth quarter with respect to all business than particular the US business.

So we are looking for an update in the revenue in the United States in the fourth quarter. It should be good strong quarter for us. So on that part a good strong quarter. Andres did comment in the--.

Yes. And right now we really are not seeing any weakness on any industry. We see strength both in the B2B and B2C .And across to B2B, it's continues to be the core industries that we have been strong in so really not any area that we see weakness at this point. .

I think Andres has mentioned earlier that from a sales perspective the US has been strong this year. So really isn't about sales particularly in the third quarter, actually in the third quarter, specific [result] mix of those sales driven more to percentage completion. .

(Operator Instructions) And we will go next to Greg McDowell, JMP Securities..

Great. Thank you so much. It's great to see the acceleration in organic revenue growth. Two quick questions. First on the last earnings call, Andres, you had talked about some implementations pushing to 2015.

And I wanted to ask, has anything changed with those particular customers who had pushed their implementations out to next year or perhaps have those been able to -- have you been able to pull those into Q4 perhaps?.

Yes, this is Charlie. No pull into Q4 so no change from the Q2 status. We've said that and we thought it was a bit anomalous and really we didn't experience at the end of Q3. So there is really no change in the status there..

Yes. We expect those to commence next year. .

Great. Thank you. And then, Charlie maybe this is one for you and maybe this is more of a reminder for me too. But you had mentioned 3% of license being recognized on contract execution.

Could you remind us what that's been the last couple of quarters and what you expect that to be moving forward this idea of recognizing revenue on contract execution? Thanks..

Yes, sure. Yes, actually the first quarter was actually about $4 million to second quarter little over $5 million. The third quarter was little over $1 million. And the reason for the decrease from Q2 to Q3 as I mentioned was really the mix of the bookings. It really was the booking for sales is the mix of the booking.

And we had a higher proportion of booking on a percentage completion basis in Q3 than we have in the prior two quarters. Q4 will be our highest and the reasonably highest as when we are looking at the price but also seasonally the fourth quarter is always the strongest quarter for us.

So we expect to see a nice uptick and license and contract is going to be-- as we going to -- as we got to complete the fourth quarter, as I mentioned before off to a good start. We are pleased with where we are through October with respect to that.

And I did mention that if you want to talk about this little bit, at the end of the year the backlog will not be as relevant as it was say two years ago and three years ago. And backlog revenue would not be as relevant because of all these license and contract deals do not-- are not reflect in year end backlog.

So it is going to be different composition. I know we talked about this last year. The composition of the model change to recurring versus perpetual, that's not the issue this year. We are tracking very nicely with respect to our recurring revenue business. That has been relatively consistent quarter-to-quarter. That's not going to be a factor.

But the factor will be that the license and contract is recognized that contract, it will not be there in backlog. .

And we will go next to Ken Cowan at JPMorgan. .

Hi, this is Ken Cowan in for Sterling. Just a question actually in your cash flow. Looking at the contributions to cash flow from operations, it looks like accounts receivable was fairly significant in the quarter.

Just wondering if there is --we should expect any changes to your DSOs as you make this change over subscription?.

I think at this stage the subscription is still small enough. It's not going to have a significant impact on our DSOs. The DSOs came down a bit in Q3 and Q2. They may come down a bit again in the fourth quarter. But I wouldn't think significantly.

The benefits to cash flow in Q3, we really led that out when we have the Q2 call is that one we've made some significant improvements to our overall collection processes. So we were down in Q2 relative to cash flow from operations, they had nice recovery in Q3. And we also have a very good mix of contracts that contributed evidence of that.

So Q3 was very strong for us. If you were thinking about how is Q4, we think Q4 will be okay. It is not going to be repeated at Q3 for the reasons I mentioned. The question passes changes size and two and really had a big impact on three.

And the cash balance for the year, would likely is going to be down and the reason is because we have got two events that outside of cash flow from operations. One is more CapEx spending, but we're also spending $5 million for the final consolidation of the Cameleon shareholders. We now own 100% of Cameleon.

So if you are thinking about cash at the end of year, it will be down, thinking about cash flow from operation for the year, we expected to be positive, but the big improvement in cash flow took place in Q3 and we should see some good cash flow in Q4 but at this -- it is not going to be Q3.

So is that helpful?.

That is.

And from CapEx perspective, should we think about the additions in 4Q as one time or is that a new run rate?.

I think as we scale, as we get into next year, we are looking $8 million this year. We haven't finalized our plan for next but its likely going into that range. So it is a bit up over last year. And I think that's to be expected. We'll have some more facility improvements.

We continue investment in our SaaS infrastructure as well as our overall IT infrastructures. So I don't want to be specific about next year. Bu I think that certainly that range is going to be in the high single digit or maybe even low double digits. .

It appears there are no further questions at this time. I'd like to turn the conference back over to Mr. Andres Reiner for any additional or closing remarks..

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