Stefan Schulz - CFO Andres Reiner - President and CEO.

Bhavan Suri - William Blair Chad Bennett - Craig-Hallum.

Good day and welcome to the PROS Holdings, Inc. First Quarter 2015 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Stefan Schulz, CFO. Please go ahead sir..

Thank you, operator and good afternoon, everyone. Also thank you for joining us today for the PROS Holdings' financial results conference call for the first quarter of 2015. I am Stefan Schulz, 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 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, our strategy, 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 based on present information and are subject to numerous and important factors, risks and uncertainties, which could cause actual results to differ materially from the results implied by these or other forward-looking statements.

PROS does not assume any obligation to update the forward-looking statements provided to reflect events that occur or circumstances that exist after the date on which they are made. Additional information concerning risks and other factors that may cause the actual results to differ can be found in the company's filings with the SEC.

Also, please note that a replay of today's webcast will be available in the Investor Relations section of our website at pros.com. We encourage everyone to review this additional information.

Finally, I would like to point out that in addition to reporting financial results in accordance with Generally Accepted Accounting Principles or GAAP, PROS reports certain financial results as well as forward-looking guidance on a non-GAAP basis.

A reconciliation of each non-GAAP measure to the most directly comparable measure to the extent available without unreasonable effort is available in the tables accompanying the press release distributed earlier today which is available in the Investor Relations section of our website. With that, I'd like to turn the call over to Andres..

Thank you Stefan and thanks to all who are joining us on today’s call. First, I would like to welcome Stefan to PROS, our new CFO. We’re excited to have him on our team and I look forward to working with him as we continue to execute on our long-term growth strategy. I will now address our first quarter results.

Non-GAAP revenue came in at 44.8 million up 5% over the same period last year. Our non-GAAP operating loss was 3.1 million, a non-GAAP loss per share was $0.09.

Our short-time revenue was primarily driven by higher mix of subscription bookings and expected which had an impact on our recognize revenue in the quarter in which we anticipate will be recognized in future periods. Our momentum for 2014 continued into the first quarter with 24% year-over-year bookings growth.

In growth a new customer wins outpaced overall bookings growth. We believe we’re in a stronger leadership position in the market coming out of the first quarter. Over the past several years demand for our cloud solutions has steadily increase as we have been investing in our cloud strategy through innovation and acquisitions.

Historically, we’ve led with an on premise solutions and we’ve offered cloud solutions as an option. As we’ve added new cloud solutions and combined them with our other products to provide end-to-end solutions customers are now expressing more preference for unified cloud deployment.

We reached an inflection point for cloud demand in the first quarter. We believe this is another signal that market sentiment has changed based on what we are seeing in the market we’re now accelerating our cloud strategy. Shifting from an on premise first approach to a cloud first approach.

We’re excited about this shift because this is great for our customers and for investors. Being a cloud first company brings us closer to customers while enabling us to deliver new innovative capabilities to help them outperform. We believe this strategy will drive even greater customer value.

We also believe this will help accelerate adoption, expand our addressable market and provide more predictable revenue. While revenue and profitability will be impacted initially, we believe recurring revenue in total lifetime customer value will expand long-term value for PROS and our shareholders.

This is an exciting time for PROS as we’ve laid the foundation of our cloud strategy over several years. We have successfully sold, implemented and supported cloud solutions for more than 70 B2B and B2C customers. The shift we’re making in our strategy is not new or rather an acceleration that aligns with the trends we’re seeing in our market.

I am confident this shift enhances our ability to grow our business over the long-term. As we accelerate our cloud strategy, we will continue to provide more transparency and clarity with additional metrics that make it easier for people outside the business to appreciate our momentum.

Stefan will provide more details in his remarks and we will provide an update on our cloud strategy for analysts and investors towards the end of this quarter. We’re pleased with overall progress we’re making in our long-term growth strategy and we’re on track to achieve our bookings objectives of better than 18% growth for the year.

I will now share a few highlights from the first quarter that reflect our underlying momentum as we continue to execute on our long-term strategy of accelerating awareness and adoption, extending our product leadership position and increasing all global retail scale.

We are pleased with our initiatives to accelerate awareness in adoption continued to payoff. In the first quarter we added record number of new customers across multiple industries including Capstone Paper and Packaging, L-com Global Connectivity, St1 Nordic, and WABCO among others.

We also deepen and broaden our partnerships with existing customers such as Brussels Airlines, Emirates, and Qantas Airways among others. We are pleased to partner with so many great companies to help them out perform.

We believe the increasing customer adoption reflects going by condition that smart applications are in much half to compete in the modern marketplace. This was a comment either recent outperform conferences in the US and Europe where attendance for the combining events what’s up more than 40% year-over-year.

Representations from customer such as Adecco, Bausch and Lomb, Brasil Foods, Cardinal Health., Clariant, HP and others. One customer describe how they identified $80 million margin leak with better precision from PROS data science and analytics. Enabling them to prioritize their pricing and selling strategies on a strategic API.

Another customer accelerated deals and time to revenue by reducing turnaround time from days to less than 24 hours with the streamline core to contract process from PROS. These are just two examples that underscore mission of helping customer outperform with smart applications that combine analytics, automation and data science.

We continue to innovate with our solutions to further extend our product leadership precision in the market. In the first quarter, we announced availability of our CPQ solution from Microsoft Dynamics CRM. We now offer a native integration with Salesforce.com, and Microsoft Dynamics CRM the two leading CRM platforms in the market.

The integrated solution provides an end-to-end opportunity to revenue platform that increases floating speed and accuracy drives incremental profitability and enable sales teams to win more business. We believe we are setting the standard for what customer should expect from a coding solution.

And that the market is beginning to recognize that automation alone is not good enough. Smart applications are all about helping the user to be more successful which drives greater impact in our ROI for customer.

For example, a B2B customer recently noted that there are new pricing strategy powered by PROS smart applications contributed to a margin improvement of more than 400 basis points in their last quarter. Results like these are consistent with the type of real tangible value PROS provide and why we continue to invest in our market leading innovation.

Another key part of our long-term growth strategy is increasing our global reach and scale through our partner ecosystem. In the first quarter, we closed deal sourced by partners for the fifth quarter in a row while also receiving a record number of new opportunities into our pipeline from partners.

At our outperform event partners such as Accenture, Salesforce.com, Simon-Kutcher, SpringCM and Microsoft play prominent roles by sharing their own PROS success stories. Helping us drive greater awareness in the market and further validating our partnered strategy. Our technology partners continue to help differentiate PROS in the market.

In March, we announced the partnership with SpringCM to provide integrated contract management with CPQ solution. The combination provides an end-to-end opportunity-to-revenue platform including CPQ, price optimization, and contract management for Salesforce.com, and Microsoft Dynamics CRM.

We are pleased to partner with SpringCM to help customers drive better business performance. We will continue to invest in our partner ecosystem to further differentiate PROS in the market and to increase our global region scale. Overall, we are pleased with our underlying business performance in the first quarter.

Looking ahead we are reconfirming our guidance at better than 18% booking growth for the year on strength of our pipeline or continue product leadership and in incredible people. Our value proposition continues to resonate in the market and we are confident or cloud first strategy will drive deeper customer partnership and greater customer value.

We believe we are in a strong position to capitalize some of the large under penetrated market opportunity as we execute on our long-term growth strategy. I will now turn the call over Stefan so, he can provide you with a review of our financial results and our outlook for the second quarter and full year of 2015..

Thanks, Andres. I am thrilled to be a part of the PROS team and I look forward to expanding upon a great foundation laid by Charlie, our CFO. Also before I get into the financials I want remind that I will be mostly discussing non-GAAP results.

A full GAAP to non-GAAP reconciliation is included in our earnings release which can be found on our website in the Investor Relations section. As Andres, mentioned in his prepared remarks we were pleased to see the total bookings momentum from 2014 extend into the first quarter of 2015.

However, the higher mix of subscription bookings was different from what we originally anticipated. As a result on April the 16th we lowered our initial Q1 revenue guidance range to $44.3 million to $44.8 million our first quarter revenue was $44.8 million which was a 5% increase over the prior year.

Our total revenue growth was negatively impacted by approximately 3% or $600,000 due to foreign currency changes from the same quarter last year. Looking into the components of total revenue, license revenue decreased by $700,000 to $11.2 million a decline of 6% from the same period a year ago.

This decline was primarily driven by the decline in upfront license revenue from contract signed in the quarter. Our license revenue recognized upon contract execution was 6% of total revenue for the quarter compared to 9% in the same period last year. Services revenue decreased to $10.7 million which represents a decrease of 19% from a year ago.

A couple of factors impacted our services revenue when comparing the results year-over-year. We closed out some large implementations during 2014 that contributed to services revenue in the first quarter last year which were not in the first quarter results this year.

Also our more recent services engagements are either part of subscription agreements which can delay the start of revenue recognition or a part of our pre-packaged offerings that are smaller in size and rates which led to lower services revenue amounts in the first quarter.

Shifting to our recurring revenue which is comprised of two components subscription and maintenance revenue. Our subscription revenue increased from $4.9 million to $7.4 million an increase of approximately 50% over the same period a year ago.

There are two primary drivers to this increase, first we had several cloud deployments that commits during the second half of 2014. Second many of our earlier subscription bookings were initially deferred until the implementation was completed and therefore recognized over a shorter period of time.

This had the effect of accelerating subscription growth in Q1 as we build a larger base of subscription revenue prior year comparable will become more consistent. In the meantime we expect variability in subscription revenue growth rates for the next couple of quarters.

Maintenance revenue increased $2.7 million to $15.6 million for the quarter a 21% increase over the same period a year ago and represented the largest component of revenue from recurring sources. All together our first quarter recurring revenue increased by $5.1 million or 29% over the prior year and represents 51% of our total revenue.

Our non-GAAP operating loss in the first quarter was $3.1 million which was impacted by higher subscription bookings and lower than expected revenue recognized. Finally at the end of the quarter headcount including outsourcing was approximately 1,030 people which increased approximately 5% from last year.

Now before I discuss guidance for Q2 and the full year I wanted to define a new metric that we will be providing each quarter during the early shift to a cloud first model, this metric is total bookings, which is a metric we have given color to in past earnings announcements and is a measure that company has been utilizing internally for a number of years.

The total bookings metrics we are providing today includes the value within contracts executed in the period where we believe firm commitments to provide our software and solutions and related services exist.

These contractual amounts maybe related to perpetual license and the related first year of maintenance, term licenses, SaaS, cloud services or implementation services. Contracted maintenance beyond the first year in annual maintenance renewals are not included in our total bookings metric.

Subscription booking term typically range from one to five years, keep in mind that the NPV from a lifetime of subscription bookings will exceed that of the NPV of perpetual bookings inclusive of our maintenance.

Certain components of total bookings may also be included in our revenues or in our deferred revenue, other components of bookings may not be included within our financial statements as an accounting driver may not exist to record such components.

We provide a written definition of total bookings metric in our press release and in our filings with the SEC. For Q1 our total bookings were $26.5 million which was a 24% increase over total bookings in the first quarter last year, which is on track with our better than 18% bookings growth guidance for the year.

Within our earnings release we have provided a schedule of new metrics which includes current and historical quarterly bookings amounts. Finally one last point on total bookings. Historically, our bookings have been lumpy quarter-to-quarter and that is primarily due to a deal execution timing.

In most quarters we book a relatively low volume of deals but with relatively high ASPs. With ASPs of approximately $2 million, the closing of one deal in one quarter versus another could have as much as an 800 basis point impact on our growth rates and either one or two quarters impacted.

Because of this our bookings guidance ranges in the short-term will be fairly wide and we recommend you look at our bookings over several quarters.

Over the course of this year we are confident that the market opportunities and our pipeline should support annual bookings growth that is better than 18% which is consistent with the guidance we provided last quarter.

Once we have successfully navigated the early part of the transition to a recurring business model, we will introduce business metrics that are more in line with a subscription company and we will stop reporting total bookings. With that introduction, I will get into the guidance for the second quarter and full year.

For the second quarter, we expect total bookings to be flat to up 15% over last year's bookings of $33.1 million. We anticipate non-GAAP revenue in the second quarter to be in the range of $40 million to $42 million which at the midpoint will be down 12% from the second quarter of 2014.

In the second quarter last year, license at contract represented 12% of total revenue and we expect only 6% to 7% in the second quarter this year.

As Andres mentioned in his remarks, we expect our cloud first sales model to negatively impact the in-period revenue recognized from our total booking in Q2 and as I mentioned earlier growth rates in our subscription revenues will be variable and we do not expect this shift in bookings to reflect significantly higher subscription revenues in the second quarter.

This is mostly due to the deferral and related timing of recognition from our subscription bookings beginning one quarter to one year after the subscription contract disclosed. We expect to see subscription revenue growth in Q2 at about 5% to 10%.

We expect total second quarter non-GAAP expenses in the range of $46 million to $47 million an increase of approximately 8% from the second quarter of 2014 as the strategic investments made in 2014 will remain in place in order to capture the growth opportunities within our business.

With an estimated tax rate of approximately 36% in the second quarter we anticipate a non-GAAP loss per share of $0.13 to $0.15 per share based on an estimated 29.5 million basic shares outstanding. For the full year we continue to expect total bookings to exceed 18% but with a higher mix of subscription bookings.

We anticipate the amount of license that contract to come down by 50% compared to last year. Our non-GAAP revenue is now anticipated to be within the range of $178 million to $183 million which would be a decline of 7% year-over-year at the midpoint.

This range includes a negative impact of approximately $3.3 million from the strengthening of the US dollar based on today's exchange rates. We also anticipate subscription revenue growth to be between 10% to 20% for the full year.

Although we will continue to invest to grow our business with lower revenue expected in 2015 we intend to decrease certain variable costs and adjust spending levels in non-strategic areas. In total we expect to lower our expenses by $10 million to $12 million from our initial guidance.

Our non-GAAP operating margins for the full year are now expected to be a negative 6% at the midpoint of guidance. On a non-GAAP basis we expect the tax rate to be approximately 36% and the non-GAAP loss per share between $0.30 and $0.37 per share.

We're excited about the opportunities this model can unlock for our business and we would like to spend more time sharing these benefits with you. Towards the end of this quarter we will host, we're calling a cloud first update for our analyst and investors.

The purpose of this session will be to provide you with a better understanding of why we believe this is the time for us to make the shift and while this will benefit our customers PROS and our shareholders over the longer term. We will also provide additional metrics that will help you track our progress.

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

Operator?.

Thank you. [Operator Instructions] And our first question comes from Bhavan Suri from William Blair..

Hey, guys thanks for taking my question..

Hi..

Hey, Andres. First start off with the pivot here. The core business was very heavy license integration all the rest of it and that business looks like it’s sort of somewhat stagnant.

Help me understand A, how that transition and subscription given the product itself and everything else then B, sort of is there some slowness there because sort of consumer adoption is slower sort of let me walk through some of that first before we get into the CPQ side and then the part that was naturally cloud?.

Yeah. So to give you a little bit more of a view. We commented on my script that we had over 70 cloud customers sold in B2B and B2C. Approximately 70% about 50% are our core customers so not just they acquire company Cameleon and SignalDemand.

So we’ve made big progress in having existing customers, a new customers adopt our core technology in the cloud and that’s something that we’ve seen. More importantly as we look at Q1 one of the things that we saw is a mix shift that we talked about.

Subscription bookings in Q1 were three times higher than last year and about 60% more than what we expected when we gave guidance.

But more importantly as we look, it's not really about Q1 is what we’re looking ahead and when we look at Q2 and beyond we’re still seeing more demand from customers wanted a full solution in the cloud and that’s what became clear to us that this was a tipping point in demand.

But the core is definitely growing well and we actually see the fundamentals across very strong in fact I commented that the number of new customers actually exceeded the booking growth of 24% ..

Andres so what would be helpful as if you look at the subscription revenue 7 million odd if you can breakout how much they came from the core business versus the CPQ B2B, B2C may not make as much sense giving your sense to B2B stuff too enterprises but sort of some sense of what was from the core data science products versus the CPQ business?.

So, I would say the core is growing as well and, I would say it’s probably going to approximate similar to display where we said the core approximates about 50% of the customers probably in total we’re seeing the core growth, well..

Okay. And then when you look at the cloud offering you’ve built just help me understand the gross margins in our business and sort of the offering in terms of the multi-tenancy versus isolated tenancy model again for the core optimization offerings..

This is Stefan in the line, I'll answer that but I also want to address the question you asked earlier as well, As you think about the subscription bookings that were in the quarter and your question was how much of that CPQ versus how much of it was part of our core.

All we can say is that well over 80% of the subscription bookings were related to our core business. So we can give you that color..

Okay. That's helpful. Thanks..

Yeah. All right. Then getting to your question around gross margins..

Yeah..

So, obviously with the model shift our profile is changing as well as so while we’ve been as a looking at margins of where around in the low 70s in terms of gross profit.

I would say in the near-term as we look at 2015 that will probably fall to roughly the mid-60s and how that plays out over time obviously we do expect those to improve as the benefit of the subscription model takes place within our financial model and when we get together here in the next couple of months or next few weeks will provide more insights into how that plays out as you model this in the ‘16, ‘17 and 18..

Okay. And then one last one from me for turn it over is billing obviously were down pretty dramatically and year-on-year.

I did not saw a sea collection in AR potentially to help offset but you have solid bookings so help me with the average duration of the contract you said sort of one to five years but sort of on average what look like and how much of that cash has been collected sort of vis-à-vis the subscription link?.

Yeah, so good question most of our subscription bookings are going to be annual in advance type billings so they're not going to be we typically don’t get a significant amount of payment upfront in those which is very customary in looking at these types of transaction but in terms of our AR collections we actually had a good collection quarter because if you go back and look at AR at the end of Q4 given the strong bookings we saw in Q4 we actually collected the large majority of that in the quarter..

Okay, okay. Right, I'll jump back in queue. Thanks guys..

Thank you..

Thank you..

Our next question comes from Tom Roderick with Stifel..

Yes, hi, Matt in lead on for Tom. I guess first question starting to see good momentum from the partners helping out bringing some deals in how does the shift impact that and how much was maybe pushed by one of the other and you have kind of met and announce the new partners on conjunction here..

I think they're all positively contributing as we've seen in our selling or cloud offerings we have partners implementing those cloud offering I would say our partners are trained to implement both on premise and on cloud but we really at the end the shift is more centered on customer preference and what customers want in our alignment.

So it is not the partners pulling us one direction or another but naturally if you see in the Salesforce.com, CRM space partners are very used to deploying solutions in the cloud and our solutions integrate natively with CRM we've seen many customers have invested in CRM that are now going and getting value out of their CRM investment with our CPQ and price optimization technology it's integrated and it's more about them wanting to have that full solution all in the cloud rather than components on premise and components in the cloud..

Okay.

And then it seems like it was about a year ago maybe a little more that you talked about you are moving more towards the term in subscription and that there is a lot of customer preference there and then we got to the end of the year and we kind of got it flipped around those huge increase in license deals how we supposed to think about the shift again as you guys push for cloud first and then sort of a traditional enterprise buying cycle it might happen again where at the end of the year you hit with a big license quarter again what is really going to change in the sales process this time?.

Yeah, let’s go back about Q3, Q4 of ‘13 with the time when we were able to actually separate the license from implementation because we've had partners implement successful therefore the lever of our solution was an integral to the license and that's when we went to more of an upfront license model we were always traditionally a license first in a on premise first model where we had committed while back that we were trying to drive more recurring business but our business model was always to go in within on premise model.

We had seen more demand from cloud and little by little over the years but we also during that time we acquired two cloud companies which also as we integrated those solutions natively between our products and we are selling that combine offering I think that's also pushing the need where customers are wanting to use our technology more.

I will also share other example where we have long-term customer over a decade with PROS always been a traditional on premise model and in Q3 of last year wanted to touch our cloud offerings, core cloud offerings within a small subsidiary that was a huge success and now they are planning on moving their whole global implementation to our cloud solutions and I think we're seeing across the globe in a multiple parts of our business where there is more of an interest towards the cloud and that's what gave us the strength in the years that we've been developing our cloud capabilities that over 70 customers that we have and approximately 50% in the core plus the others in the new acquisitions gave us confidence that this is the right time and especially looking at Q2 and beyond and trying to see from our outperform event, talking to customers and what they're looking for we feel that this is the right time for PROS, so it's not we don't feel that this is a shift for the short-term but this is the right model long term for our customers, our employees and our shareholders..

Okay. And then just one quick question you mentioned $3.3 million FX headwind in the 2015 guidance now is that incremental to what you were before or is that the total number and I guess an answer, could you just remind us what you had expected in the guidance before..

Yeah, good question. So it is not incremental, it's basically a revision to the number we gave last quarter and it's about $300,000 increase. So last quarter we talked about a $3 million impact. Now we're seeing it's about $3.3 million based on what's happened in the currencies between 90 days ago and now..

Alright, great. Thank you guys..

Thank you..

Our next question comes from Greg McDowell with JMP Securities..

Hi, this is Rishi dialing in for Greg McDowell. Thank you for taking my questions. First, I wanted to start off with in terms of your 2015 revenue guidance significantly lower than we provided on the last earnings call.

Now with a lower guidance entirely FX headwinds and the lower amount of license revenue that you can recognize on contract or other factors built into that lower guidance as well..

Yeah so not much in terms of FX, in terms of the shift. I was just commenting previously the only shift that occurred in FX was about $300,000, so your second point is the primary driver. So with the shift to the cloud first model we're expecting about $34 million, $35 million less in license upfront recognition during 2015.

That clearly represents the largest majority of the shift in the revenue guidance.

But there is a second component, it's a smaller component but it makes up the, pretty much the rest of the delta and that has to do again with the subscription bookings because even if we were not going to book it upfront we would more likely have booked it on a percentage of completion basis and we would have recognized a good portion of that in 2015.

Now with the deployment of a subscription model and when that revenue comes on line it comes on line a little later than what percentage of completion contract would have and we end up getting less of that in 2015.

So as a result even though we're talking about the same amount of bookings, we're talking about a far less amount of revenue to be recognized in period..

Okay. That's very helpful. And kind of just to go on top of that, so you had mentioned that you intent not providing new metrics for analysts and investors their cloud for strategy, I mean not asking for..

Yeah..

Either name the numbers of the actual metrics but I guess especially for any of us that follow other SaaS companies, can you give us some sort of a hint of what sort of metrics we should start thinking about and how it should shape our understanding of the model going forward?.

Absolutely. We do - really one thing we wanted to do is first of all we wanted to make sure we bridged the transition. So for example we had given color to bookings, so we decided to expose bookings to a greater extent so you didn't feel like we were shifting things around and trying to hide any underpinnings going with the business.

We didn't want that to happen at all. We wanted to make sure that you saw that nothing has changed with the momentum of the business that's the first state of point and that's why we selected total bookings here in the interim.

But secondly, we will be looking at some of the more traditional metrics to your point such as annual recurring revenue metrics that will be something that we'll be looking to put in there.

We'll also be putting out key renewal metrics in terms of our ability to renew the subscription contracts and quite honestly we're open to feedback that you might have as to your point you have looked at other SaaS companies we'd be interested in your feedback and incorporate that as we go and plan out our cloud first update that we'll do here in probably six to seven weeks..

Okay, great. Thank you so much. And then one more question, so you've talked a little bit about your model. High ASP, low volume.

What sort of differences are you seeing in ASP between your core business and this kind of CPQ side of the business?.

So it depends on the solutions that we're selling. I would say that depending on the scope when you're starting out in a CPQ solution you may start with a lower number of users upfront and expand further we've talked about in the past ASP for CPQ is lower than our average ASP and it remained consistent, it hasn't changed.

What we are seeing more is customers buying our CPQ and our price optimization integrated as a full offering and those will drive more similar ASPs and PROS traditional ASPs. But I did comment that we did have more that the customer growth was higher than the booking growth.

So clearly we're seeing more new customers as we're growing 24% on the bookings..

Okay, great. Thank you. I'll jump back into queue..

Okay, great. Thanks..

[Operator Instructions] And our next question comes from Chad Bennett with Craig-Hallum..

Great, thanks for taking my questions. So the total bookings growth in number that you gave, I'm just making sure I understand it right that's just from a subscription standpoint, just annual subscriptions, right.

It's not a three year deal that's included in the bookings number, right?.

So Chad this is Stefan. No, it is pretty much the contractual commitment that where we believe a commitment is made on our behalf to a customer and it could be one year, two years or three years or not often but it could be go up to five years and....

So they are multi-year deal?.

They are multi-year deals, yes. That is as I said earlier Chad that is - we realized that is not the perfect metric to be providing as we go into a cloud first type of a model and do more of a recurring model. We will be shifting metrics been in this transition.

We wanted to stick with the metric you would actually heard us used before and you heard us get color too before. That's the only reason we're using it in the interim..

Okay.

And then and so I'm trying to reconcile and maybe this is kind of another way asking a previous question, how literally I think you reported that fourth quarter in mid-February let's say and we were talking about upfront license revenue this year going up significantly from a percentage standpoint and now we're talking about it been cut in half year-over-year.

I guess how in a - let's just take until the end of March, how in a month and a half does that change so much?.

Yeah I commented, great question Chad. I commented that subscription bookings in the quarter were three times higher than last year and 60% greater than what we expected when we gave guidance.

Obviously we wouldn't need to cut as much as we cut, it's us looking proactively as we look at Q2 and beyond what do we see because we take this change very seriously and we look at customer preference and as we looked at Q2 we saw a similar expect to Q1 and we could obviously have kept guidance higher, much higher and still assume we're going to book a lot more upfront but based on the data we have on our pipeline looking out the remaining of the year it gives us strong indication that there is a change in customer wanting the combine offerings.

So I would say also the more recent is when we've been selling the combine offering CPQ and price optimization and when customers are receiving those two offerings we've seen a strong preference for them to have them all combine in the cloud and as commented in other example that we have seen even in our travel industry where historically was all on premise are predominant on premise we are seeing customers and CIOs come to us and this is within the last 60 days saying they would be interested in moving them to the cloud.

So it’s starts more aligning to where customers want and what they need we also believe that this is a strategic move for Pros we believe that if the market is more open and sees the success that we’ve had in the cloud we can actually drive more innovation to our business users and we will be able to drive innovations that will drive more shareholder value long-term..

So what percentage of the bookings this quarter were CPQ and pricing combined?.

I don’t have that specific metric pool together we did comment earlier that roughly 80% of our bookings were of the organic nature and 20% were of the more or less the CPQ side but I don’t have exactly how much that was when we sold them two together, we’ll have to get back to you on that -..

Fair to say it’s probably pretty small..

In the quarter probably it probably so but there were certainly some and I have to give you that number..

And so I guess my next question is I have been through kind of a number of these transition models and typically it’s a multi-year transition from a revenue stabilization standpoint and from achievement of profitability and cash flow breakeven is there any reason why you would be at a more accelerated pace than the normal license to SaaS transition that I have seen in the past?.

So I think we will be a little better than the average that you are talking about and the reason for that is we I think Andres mentioned we already have a significant number of customers on the cloud platform on a subscription basis and I commented in my prepared remarks we have over 50% of our revenue is of recurring nature.

So even though we have had in the past significant amount of upfront licenses what we are seeing this year and as we model this year out we are already 50% of the way there from a recurring basis. So I think it will be a little easier for us as we make that transition..

Okay, thanks for taking my questions..

We have a follow up question from Greg McDowell with JMP Securities..

Hi this is Rishi - again, just two more quick questions, so not to harp too much on the issue of license revenue recognized upon contract, but just in terms of had that number were to go up closer to where you thought it was last quarter and in terms of growing beyond 12% I guess what sort of - what needs to happen in order for that percentage to increase, is it based on the success in the partners ecosystem with implementation or other thing that would need to happen for that number to go up?.

Well our focus is not I guess what we are seeing our focus is not to have that number strategically we are deciding that based on customers will request for cloud they were going to lead with cloud first model and ultimately I think it’s really respective of the partner ecosystem, our partner ecosystem to a system integrator whether it’s Accenture whether it’s on premise or in the cloud it really doesn’t matter at the end of the day it’s really the customer preference is what is our customer want but the business and more importantly CIO and where in the past we saw more reservation we have not seen that happen more recently and as we look at the deals in Q2 and beyond we are seeing that I will give you another example in a more recent deal where we have been selected as vendor choice at the last moment the CIO in a meeting I had directly one on one requested that we converted to cloud and this is a common occurrence this is not just one time it’s just a common trend that they rather us provided in the cloud and we believe at the end this will drive more customer value and this is the right strategy for both and we’ve been preparing for this for a long time and that’s why we have been investing in our cloud capabilities for several years..

Okay.

And then just kind of a quick follow up and then I will be done, but you have kind of hinted that the openness or willingness to make future acquisitions specially with extending offering and then it would go beyond pricing in CPQ, I was just wondering if kind of given where things are and specially with the shift to a cloud first model is that similarly - or is it more focused on the organic growth and organic booking side?.

I would say obviously right now we are focused on our cloud first strategy and that’s our prevailing focus now.

For M&A it’s really about where we are taking our solution and tie our vision which we are also doing innovation internally we don’t expect anything in the near-term but we are always open to the right opportunity, but right now everyone at PROS is really focused on our cloud first strategy..

Okay, great thank you very helpful. Thank you so much..

Thank you..

And that does concludes our question-and-answer session and I would like to turn the call over to Andres Reiner for closing comments..

Thank you for your participation in today’s call and for your support at PROS. We are excited about our cloud first strategy to bring even more innovation and value to our customers faster and to create more long-term value for PROS shareholders.

I would like thank our PROS team worldwide for their continued passion and commitment to innovation and customer success. Thank you also to our customers, partners and shareholders we look forward to seeing you on our next call. Thank you and goodbye..

Once again that does conclude today’s call. We appreciate your participation..