Andres Reiner - President and Chief Executive Officer Stefan Schulz - Chief Financial Officer.

Ben McFadden - Pacific Crest Securities Bhavan Suri - William Blair Scott Berg - Needham & Company Matt VanVliet - Stifel Tim Klasell - Northland Securities Darren Jue - JPMorgan Joe Fadgen - Craig-Hallum.

Please stand by. Good day, and welcome to the PROS Holdings, Inc. Fourth Quarter 2015 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Stefan Schulz, Chief Financial Officer. Please go ahead, Sir..

Thank you, operator. Good afternoon, everyone. And thank you for joining us for today's call. 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 fourth quarter, and full year of 2015, and then I will review the financial results and our outlook before we open 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, bookings, 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 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 GAAP measure, to the extent available without unreasonable efforts is available in the press release distributed earlier today, and in the Investor Relations section of our website. So with that, I'd like to turn the call over to Andres..

Thank you Stefan and thanks to all who're joining us on today’s call. First, I would like to briefly update you on our results. We came in at the high end or beat the preliminary results for the fourth quarter and full year of 2015 that we announced on January 14. Stefan will provide more details. PROS enters 2016 a much stronger company.

Our market opportunity continues to crystallize and I could not be more excited about where we are headed. 2015 was a pivotal year for PROS as we embarked on our cloud-first strategy to align with the market in deliveries and more value to customers.

I would like to acknowledge the incredible PROS team worldwide for their passion and commitment to making this transition possible. I’m proud to be part of a team so fully committed to helping customers outperform. I would also like to express my appreciation for shareholders.

We are deeply commitment to creating shareholder value and we are not satisfied with the pressure seen lately. Our bookings performance in the past two quarters was disappointing as we did not deliver on our guidance. We underestimated being [Indiscernible] our cloud-first changes would have on deal execution.

We believe the external market forces were not a factor as demand remains strong and we saw no changes in competitive dynamics. This was about the pace of change in our business and it was within our control. In fact, we performed well in areas where we introduced fewer changes like CPQ and travel which were both up more than 50% for the full year.

As sales kick off last month, I spent a lot of time with our sales team. I heard how excited they are about 2016. They see the opportunities and they are eager to deliver. We provided them with additional training and tools and we simplified our processes to get deals done more easily.

We also strengthen our sales leadership team with a seasoned PROS sales leader in Americas. I am proud that we have incredible people across the business who are passionate about helping us realize our potential. Last year was a transformational year for PROS and we had success in many ways.

We committed completely to our cloud-first strategy and made great progress in laying a foundation for growth. We organize and train our teams on the cloud model.

We align our products around cloud additions, and we drove focus and differentiation on industries and we helped our customers understand the value or long term cloud innovation strategy has.

Customers such as such as Austrian Airlines, AXA Assistance, Avis Budget, Fonterra, and Qantas Airways Limited, among others all expanded their footprint with us in 2015. We are excited to see how our cloud-first strategy is creating momentum in the business. Let me share some examples.

First, the mix of SaaS in our pipeline grew from less than 20% at the end of 2014 to approximately 80% now, faster than we expected. Second, we posted record number of deals in 2015 up more than 20% year-over-year. As expected, ASPs came down as we made solutions more consumable.

Third, we are starting to see some examples where smaller starts have led to more land and expand opportunities. Let me share an example. Large global company headquartered in Europe, purchased one of our cloud solutions in the first quarter of 2015. They initially targeted their sales served channel in the German market.

After going live, they started seeing faster response times and more wins. Then in the fourth quarter they came back and added more subscriptions as they expanded their use of our solution across two more European countries. We are now putting plans in place to apply our solutions to more products in their portfolio and to expand into Asia.

Our cloud model aligns with, and enables their growth strategy. This was just one of many new customers we added in 2015, which will open even more land and expand opportunities.

Other new customers for the year included AeroMexico, CITGO, Harmonie Mutuelle, McCain Foods, WABCO and the commercial truck tire division of Michelin North America among others. Overall we are pleased with the progress we made in 2015.

And now we turn to 2016 with great momentum and confidence that we will drive greater share of our large underpenetrated market. We started strong with a record level of attendance up more than 40% over last year at our Outperform America’s conference a few weeks ago.

We will continue to focus on driving consistent execution, continuing our transition to the cloud and driving market leading innovation. In 2016, our innovation strategy will focus on smart applications to help companies improve their customer experience across the direct partner in e-commerce channels.

More companies are competing on the basis of their customer experience than ever before and we can help. For example, we are helping a glass manufacturer reduce friction in their customer buying process. They are leveraging our smart CPQ solution to power a self-serve e-commerce app.

Building contractors looking for a bid can now configure in process and order in real time from their mobile devices while on job sites. Our customer expects to drive more preference for their products with this differentiated buying experience.

I am proud of our team for delivering such powerful innovations that deliver real, intangible ROI for our customers. 2016 is going to be an incredible year for PROS. We are confident about our outlook because the fundamentals of our cloud strategy are replaced.

Our innovations are now aligned with how customers compete, or cloud strategy aligns with how companies want to consume technology, and our team is adapting on how we operate as a cloud company.

The momentum and energy we are seeing in the market and the value our customers are getting for our cloud solution emphasizes the importance of the transition we are making.

The future has never been brighter and we are grateful for your support.\ I will now turn the call over to Stephan so he can provide you with a review of our financial results and our outlook for the first quarter and full year 2016..

Thank you, Andres. Before I get to my comments, I want to remind everyone that I will be discussing non-GAAP results unless otherwise noted. 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.

Additionally, we have provided a table of key metrics for this quarter and past quarters that can be found on our website in the Investor Relations section also.

As Andres mentioned, we came in at or above the numbers we provided for ARR, ACV, TCV, total non-GAAP revenue and subscription revenue that we announced in our preliminary results on January 14.

And while we are disappointed in the short fall in our bookings in the last two quarters of 2015 we have made solid progress towards our cloud-first transition. Our year end ARR of $98.2 million was up 16% from the prior year and better than we initially expected.

Throughout the year we communicated that we expected to start seeing better year-over-year and sequential growth and subscription revenue in the fourth quarter and that’s what happened with 14% year-over-year growth in the fourth quarter and 16% sequentially.

Maintenance revenue was in line with our expectations, up 16% for the fourth quarter year-over-year and up 15% for the full year in 2015. Combined, subscription and maintenance revenue make up our recurring revenue.

In the fourth quarter, our recurring revenue was $25.1 million which represents 59% of total revenue compared with 39% of total revenue in the fourth quarter of last year. For the full year, recurring revenue was $93 million, up 14% versus the prior year and representing 54% of total revenue compared to 42% for the full year of 2014.

As expected, license and service revenue was down year-over-year for the quarter and down for the year as we transition our business to cloud. Our non-GAAP EPS in the fourth quarter was a loss of $0.09 which was $0.10 better than the high end of our guidance. For the year, our non-GAAP EPS was a loss of $0.45.

As we committed to you when we announced our cloud-first strategy, our focus has enabled us to be much more efficient in our spend reducing our cost. We also had some variable expenses such as incentive compensation and commissions that were down due to lower bookings and revenues.

I also would like to make a comment regarding an impairment charge in the fourth quarter that affects our GAAP earnings per share. As a result of executing our cloud-first strategy and narrowing our focus, we wrote off $2.9 million of internal used software related to one particular product.

Now turning to cash, our cash and investments totaled $164.3 million at the end of the year which is an all time high for PROS. Our free cash flow in the fourth quarter was $6.8 million and $8.5 million for the full year in 2015 which is better than our previous expectations.

This result in the fourth quarter was largely driven by improvements made by our team and the timing of our collections as well as lower operating expenses.

We are pleased that we drove positive free cash flow in the first fiscal year of our cloud transition and we are on track with our initial expectations of free cash flow burn during the first two years of our transition. Now turning the guidance for the first quarter and the full year of 2016, and I’ll start with our guidance for ARR.

As I’ve mentioned in the past, we view growth in ARR as a good leading indicator of our cloud-first progress and the best leading indicator of our growth in future recurring revenue, and ultimately total revenue.

We expect year-end 2016 ARR to be in the range of $117 million to $119 million representing approximately 20% growth over 2015 at the midpoint. We expect the relatively consistent level of quarterly year-over-year growth throughout the year. Turning to ACV bookings, we expect Q1, 2016 ACV to be in the range of $4.5 million to $6.5 million.

At the midpoint, this would be a 34% growth over the same period last year. For the full year in 2016 we expect ACV to be in the range of $25 million to $27 million reflecting growth of 21% at the midpoint over last year. Internally we have made the full switch to measuring our growth on ARR and ACV.

Our TCV metric is no longer a meaningful reflection of growth thus far into our cloud transition. So as I have mentioned previously we will not report TCV bookings going forward.

Now turning to revenue, we expect subscription revenue in the first quarter to be between $8 million and $8.2 million representing a 10% year-over-year increase at the midpoint of guidance. For the full year, we expect subscription revenue to be between $34 million and $36 million representing a 20% year-over-year increase at the midpoint.

We expect first quarter total revenue to be between $36 million and $37 million, a 19% decline year-over-year at the midpoint of guidance. For the full year, we expect total revenue in the range of $150 million to $153 million, a 12% decline over 2015 also at the midpoint.

This total revenue range is lower than the color I provided on last quarter’s call. The primary differences from a lower professional services revenue estimate and to a lesser extent a smaller subscription revenue estimate. We anticipate that both revenue lines will be impacted in 2016 by the lower bookings in the fourth quarter of 2015.

In addition, and as we’ve mentioned in the past, we have seen a larger mix of travel customers adopt our cloud offering and the period of time between the initial booking and the period in which revenue recognition begins is longer for travel deals.

Therefore, our services revenue estimate is expected to be down year-over-year in 2016 by a similar amount of the decline experienced in 2015 even though we are anticipating more ACV bookings. Our current estimate for license and maintenance revenue has not changed from the color we provided last quarter.

Now moving to our profitability and cash flow metrics, we expect EBITDA in the first quarter to be a loss between $13 million and $14 million and a loss between $45 million and $47 million for the full year. Our earnings per share loss is expected to be in the range of $0.34 to $0.36 in the first quarter.

We expect free cash flow burn to be between $37 million and $39 million for the full year of 2016. As we transition to a cloud business, we anticipated negative free cash flow during the early period as we traded short term license revenue and near term cash flow or recurring subscription revenue and long term cash flow.

We communicated last year that 2016 would be the most significant period of cash flow burn. As we started layering the effect of revenue and cash flow from selling subscriptions.

With positive free cash flow of $8.5 million in 2015 and anticipated free cash flow burn of between $37 million and $39 million in 2016, we still expect to burn approximately $30 million during our cloud transition between the two years, 2015 and 2016.

Before I turn the call over to the operator, I too would like to express my appreciation for our shareholders. We know we are undertaking a complex business model transition and while not everything has unfolded exactly as we expected, we are learning and adapting as quickly as possible to make us stronger in 2016.

We are holding ourselves to a higher standard of transparency through this transition including reporting our bookings, which are lumpy from quarter-to-quarter as we discussed in the past. Well, what has changed this past year is our complete conviction that we are making the right move for our business over the long run.

In fact, I’m even more certain now that this is the right business model for us. We are almost eight months into our cloud transition and seen some of the early advantages. Customers and prospects are responding even better than we expected to our cloud-first strategy, which has created more land and expand business and higher lifetime values.

And our people are excited to make our solutions more consumable and our company more efficient with this model. With such strong support from our customers and employees, I’m confident that over time we will deliver the long-term recurring revenue growth, cash flow generation and subsequent value creation expected from a SaaS business.

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

Operator?.

Thank you. [Operator Instructions] And we will take our first question from Ben McFadden with Pacific Crest Securities..

Hey guys. Thanks for taking my questions. I want to start with Andre’s. I think a quite a few of us were down at your Outperform Conference a couple weeks ago. And I definitely walked away with thinking that a fair amount of your existing customers and prospective customers are positive on your solutions as far as your revenue optimization products.

Maybe you could help us understand the disconnect between what factors you think are creating the disconnect between what you are seeing out there as far as positive feedback from customers and potential customers versus the results that you are actually achieving? Is this a market awareness issue in that revenue optimization space? Is it just a too complex sales process because you need too many people to sign off? How are you thinking about those factors that is kind of causing that particular segment to disappoint?.

Yes. So a couple points. Let me start with -- the one thing I’ve always been most proud of is our people and our team. And our team didn’t forget how to sell our products. We introduced a lot of changes last year and I would say three key changes. Our sales team had to learn how to sell SaaS.

Our sales team had to learn how to sell more packages, new packages that we introduced. And they had to focus on converting many of their deals that were initially structured as perpetual deals into cloud midway through the deal.

And that although these changes in combination and really they added, starting in Q3 and Q4 was where we introduced the most changes that’s what bought friction to our selling process and slows deals down.

What we’ve done so far to solve these issues is that at sales kickoff, we introduced even more training, lot more video based training and peer based training on how to sell our cloud offerings in our packages.

We also simplified more packages which we initially launched and predominantly, we converted all of our deals now with SaaS, as we commented at the end of '14, we had about 20% of the deals that were SaaS. Today, we are approximately 80%. So, we’ve already aligned everyone back into our SaaS packages.

So overall, the input from customers as you notice in Outperform has been very positive, even more positive than we expected and the values that they are achieving are more significant through our offerings..

Great. And then Stefan, as we look at your guidance for ARR, you guided to 20% at the midpoint which is solid base going into the year but then you guided to a similar 20% on subscription and I just would have thought subscription would grow little bit faster than ARR, given the maintenance component of ARR.

Is this is a function of kind of the signal demand issues that you had in 2015? Is this the fact that you are forecasting for the year to be sort of backend weighted as far as when this subscription bookings are coming in? How are you thinking about kind of that disconnect there?.

Yes. So Ben, it has nothing to do with the signal demand effect that we had talked about last year. We feel like that is behind us. What’s really driving the slower growth of subscription relative to what you would think to ARR has to do with the timing of when the recognition actually starts subsequent to the booking.

And as I mentioned in a couple of my comments earlier, we saw towards the end of 2015 a larger portion of our travel business adopt the cloud and subscription offerings.

And that has an impact on our model because as we previously mentioned, our travel, the length of time between a booking and when the revenue period begins on travel deals is typically a little longer and that actually pushes some of that subscription revenue into later periods in 2016.

That combined with the lower bookings number in the Q4 of 2015, those two things really are the drivers to what our subscription revenue looks like in 2016. Having said all that, it doesn’t go away. It’s just been shifted out a few periods and then we will start to see that a little later on in the cycle..

Okay. Great. And then in fact I would just ask one more quick question. It’s been probably 9 or 10 months since you announced this cloud-first strategy.

As you were putting together this guidance going into 2016, how comfortable were you with your ability to predict which deals would be coming in as subscription versus license?.

Well, that’s a good question. We were off on that as an initial assumption obviously and the good news is that we were off assuming that fewer customers would adopt a cloud versus license.

And in fact more customers have adopted subscription over license and that’s been the good news and that’s what gives us confidence in this model going forward is that as we work through the issues that Andre just covered off on the first question you ask, as we start getting our rhythm to it, the payback associated with this with greater lifetime value is really going to start showing itself in the financials here in the not so distant future..

Great. Thank you very much..

Yes..

Next, we will hear from Bhavan Suri with William Blair..

Hey guys. Thanks for taking my questions.

Can you hear me, okay?.

Yes. Hi, Bhavan..

Great. Hey Andre. So just to start off first on macro, obviously a lot of concerns in the markets about whether U.S. economies had at Europe etcetera, we know what’s happening in Asia Pac and Latin America.

But your exposure to manufacturing to the airlines and other folks with CapEx, what are you seeing out there from customers and are you seeing any pressure on CapEx spend or tax spending when it comes to sort of your solutions more analytics?.

Yes. So, we haven’t and we’ve spend a lot of time, obviously with the field and also looking at our analytics. And when we look at the top end of the funnel or within overall pipeline, we haven’t seen any impact.

We continue to see pipeline growth much more significant than or bookings growth and we continue to see a lot of momentum in activity in the field. So, we haven’t seen any macroeconomic effects in our business at all..

Okay. Okay. And then obviously, the new Head of Sales of North America, Chris Jones, it’s good to bring him back. But maybe you’ve had a couple quarters now where sales execution was an issue and now you went back a little bit.

Any sense as to sort of what are the changes you are making in order to realign with the team or is it all sort of run out of products are bundled?.

Yes. I would say the great thing is Chris being part of the team for a long time and he used to lead sales. He’d focus on the partner ecosystem. As we looked at strategically being a cloud company, we wanted to align our partner in sales team under one and he took over that Americas as well.

He will continue to own the alliances plus Americas sales and he has been working hand in hand with the team.

The changes that we’ve done are behind us at kickoff, we had an amazing kickoff and I think the team is pretty upbeat about the opportunity ahead and that we’ve gone through the hard part of converting the pipeline, learning how to sell our new packages and training on that.

So, we believe that with the strength of the team that we have in place, we have a great opportunity to execute successfully this year..

Great. That’s helpful. And then one of the pieces of integrating the core data science piece with CPQ obviously is the value in the data science piece.

Are you seeing any of the competitors that play in CPQ, whether it’s SteelBrick or is any of the guys starting to add data science or look at the data science component to play that sort of complex revenue optimization space or pricing optimization or sales enhancement and other space?.

Yeah. So, we haven’t seen anybody really add data science. We’ve seen some of our competitors add to their line items a floor, target and expert similar to what we do but there is really obviously no data science underneath.

So, we think that our message is are resonating the company’s want to get guidance and I think -- one thing we are hearing in the market a lot is that lot of customers are concerned about ensuring that the sales team is armed with tools that give them price is that they now they can win at.

I think one thing that’s pretty common when we talk where there is manufacturing, any of the industries we are going in is there is a lot of pricing pressure.

And they are looking for technology that gives them with higher precision a price point where they believe they can win the deal and I think our data science continues to be a huge differentiation for us..

Okay. And one last one quick one for me for Stefan.

Deferred was down and is that because of the low delivery of billings in the fourth quarter or is there something anomalous that happened there?.

No, nothing anomalous. It just happens to be with the timing of when we have a billing that occurs relative to our deferred, our recurring revenue stream..

So can you go into maybe little bit of what the puts and takes were there?.

So basically what we have is our deferred revenue is variable based on the timing of when an invoice goes out for a particular customer, right. So depending on when that occurs with such a large maintenance stream that can have an impact on what your deferred looks like.

So what you have to do is look at it over a period of time and look at it more year-over-year because of the anniversary of when those things occur..

Okay..

And so, I wouldn’t read anything into the fact that our deferred happen to be down because you still have a relatively big tail from the maintenance timing that is impacting that.

But I would tell you that still -- as we are still going through this transition, the better way to look at what’s happening from a recurring revenue perspective is to look at our ARR.

And as subscription becomes a bigger and bigger component, I think deferred revenue will start to be a metric that you can look at with a little more -- with a little bit more analytical purpose..

Sure. Sure. That’s fair. All right, guys. Thank you for taking my questions. Appreciate it..

Yes. Anytime..

Thank you..

We will now hear from Scott Berg with Needham & Company..

Hey, Andre, Stefan. Thanks for taking my questions here. Couple of quick ones.

First of all, Andre, you talked about the changes in the sales team are behind you, how would you view the initial success in the field first quarter or I guess first month of the March quarter here? Are you seeing any incremental change four, five weeks into the quarter versus what you saw in Q4, or is this still something to be realized throughout the quarter?.

So, we feel good about our start for the quarter and we feel like we started. We commented in the preannouncement that we had at that point 2.6 in ACV and we’ve continued to see momentum through the quarter and feel good about the quarter end the year..

Okay. Great. And then from a deal size opportunity, you discussed how the subscription deals are a little bit smaller on a year-over-year basis.

How do you view the overall sales opportunity in that land and expand model? I think the metric historically that you guys have given before is you saw the dollar license today over five years you are selling three additional dollars.

Just trying to understand that even if the deals are smaller, does that come total sale opportunity change much?.

Yeah. So, we feel, I would say still early but what we are seeing is very positive where we are seeing companies that have bought in the last year are already expanding and expanding in multiple areas. So, we are seeing, one, they are getting value faster because they are not trying to boil the ocean.

They are starting in a division in a location and we are seeing them start with our Smart CPQ, powered by our price guidance technology.

So more complete end-to-end solution for a small area and as they are seeing value, they are able to very quickly without friction from their IT organization adapt our technologies in other regions in other divisions. So, I would say still early but we see a lot of promise of customers continue to expand.

I think one of the things and you attended Outperform event couple of weeks ago but one thing that’s clear is that every customer that present at shows tangible value that they generated from our solution and I think that speaks volume, as they are driving value it gives them a way that they can continue to expand globally.

So, we feel that it’s probably exceeding what we expected this early on..

Great. And the last question for me. This is for Stefan. If you look at the framework you rolled out at your Investor Day in June of 2015 here and you talk about cash flows and growth assumptions.

As you look to '17, given what you know today and I know you are not guiding for '17, but are there significant differences or changes to how we should view maybe the cash flow mechanics will be in the '17?.

Yes.

So, Scott, I would still say that as we look out into 2017, remember when we did the cloud-first a back in June, we referenced to chart and we call it the smiley face chart and we talked about 2017 being the inflection year where you started to see the benefits of the model starting to come into play and we felt that way from cash flow, revenues, margins and we still feel that way.

Now the extent of which that inflection point occurs, we know has been impacted slightly as a result of where we are from the bookings and where we are in the progression of our cloud-first transition. But what we would like to do is we would like to give an update on that, not only on just '17 but also a longer term model.

We will probably look to do that. In the third quarter timeframe, we are actually thinking about hosting another Analyst Day where we can provide that kind of update. But to answer your question, we still see 2017 as that inflection year..

Great. That’s all I have at the moment. I will jump back in the queue. Thank you..

Thank you..

We will now hear from Tom Roderick with Stifel..

Yes. It’s Matt VanVliet on for Tom. Thanks for taking my questions.

Wanted to first address the partner network, specifically with the large SIs and just sort of what the outlook you’ve heard from them regarding large projects in 2016 and beyond and sort of what their outlook is and maybe what you have in the pipeline now in terms of mix that’s sort of been generated by them versus your deals that you’ve kind of worked out and started to bring some of them into..

Yeah. So overall, our partner ecosystem is continuing to strengthen and we saw it outperform in significant increase in participation from the partner ecosystem, the large SIs like the Accentures and the Lloyds of the world and other SIs like Accumen and many others that are working closely with us.

I think that the world is trying to get large transformational deals. I think that’s changed dramatically and I don’t think from an SI perspective or approach, we are trying to go in and do a transformational deal and I think that’s what a cloud strategy is allowing us to do.

It starts smaller, drive value and continue to align and expand and I think we are both very align with our partner programs in having our partners believe in that same way that they can start driving value and continue to help through that journey without always thinking that you are going to do a global CPQ and price optimization deal all at once.

So, I think we have pretty good strategies between our partners and us and having present Americas now who is leading sales and partner receive and bringing that ecosystem closer to ensure we are both being successful in the market..

And then digging specifically into the CPQ market, obviously lot of news out there. One of your sort of leading technology partners and Salesforce just made a large acquisition.

How do you view the potential sort of conflict of interest out there, as you try to push into more deals with CPQ and that seems to be, maybe a more highly contested market at the moment?.

Yeah. No, so we think it’s a great thing. We think Steelbrick’s acquisition by Salesforce is a great thing for PROS.

I think it validates the importance of CPQ and how important it is for the rest, not just to use CRM as a pipeline management but to complete the transaction and although we respect Steelbrick’s technologies, predominantly a mid-market playing, we think the differentiation and our partnership with Salesforce continues to be strong.

The differentiation that we bring in is our enterprise experience around configuration, around where price optimization, cross-sell, up-sell, the other capabilities that really differentiates between winning and losing and how we are driving prescriptive guidance to the sales organization, all integrated not just with the CRM, but on the backend with the ERP system like SAP, or Oracle, or other major ERP vendors.

And I think completing then to end is where we have a lot of strength and differentiations in the enterprise and that’s why we are still working very closely with Salesforce to target the right industries and the right markets where they know that our solution has a much better fit..

Great. Thank you..

Thank you..

Tim Klasell with Northland Securities has our next question..

Hey guys. Most of my questions have been asked already but wanted to hit on a couple sort of detailed questions here.

If you take a look at your B2C travel business versus your B2B business, what’s going stronger, are you guys seeing any differentiation in there from the international versus the domestic type of business?.

Well, Tim, this is Stefan. I will take that.

Andres did comment in his prepared remarks that when you looked at our travel and our CPQ business, both saw better than 50% growth year-over-year and those would be two examples on two of the extremes that you were talking about, the CPQ being on the B2C side and obviously travel being -- I'm sorry I got it backwards, travel being on the B2C side and CPQ being on the B2B side.

I don’t know that you can draw the distinction just make it that simple. There are other components to it and what we have said is that areas of our business where we introduced more change that’s where we saw more of a challenge in terms of growth year-over-year and most of that would have been in the pricing B2B space.

But I would tell you that overall, we saw good healthy growth in those areas of B2C and B2B where we didn’t have that big of an impact from our cloud-first transition in the packaging and new solutions that we rolled out..

Tim, we see strengths across all of our markets and I think the key thing is I think the areas where we have the most changes around the B2B pricing that’s where we reintroduced new packages and that’s where we saw customers buying in smaller pieces even though the deal growth was very strong. That’s where we saw pressure on the bookings.

But overall, we are experiencing very strong demand across. We are actually surprised on the travel side where we saw very positive demand on this side and that probably exceeded -- significantly exceeded our expectations..

Okay. And then it leads well into my next question. On the travel side, people have been fairly concerned about the global macro and my experience has been travel retracts on capital ex really quickly in this type of environment.

Have you guys seen that so far and how can you just maybe and I know it’s not a question about you guys specifically but on the overall macro where have you seen the whole travel spend trend?.

Yeah. So travel, we see a very strong. We continue to see very strong and I think travel is very strong because there is a lot of disruptive innovation that we bring into the market.

So for example with our group sales optimizer where we are actually bringing an ecommerce passenger field to the group booking process, we are seeing that very positively accepted in the market, also having our real-time technology or dynamic pricing optimization technology.

So overall, we are seeing very strong demand and I think we continue to see a significant potential going forward in the travel. And I think a lot of it is leading that we are always innovating in that space.

We are always -- PROS has always been a very strong innovation company and we are continuing to drive new innovations that are driving significant value like we had one of our airline customers that adopted or DSO products, speaker outperform two weeks ago and talked about a 15% increase in group bookings in the first quarter of launching the technology.

And I think these tangible results make it very easy based on direct ROIs, who continue to invest in the technology and we’ve always been significant innovators..

Great. Thank you. Helpful. I appreciate it..

Thank you..

We will now hear from Sterling Auty with JPMorgan..

Thanks. It’s Darren Jue on for Sterling. Stefan, the question for you, wondering about the margin guide for 2016, it just seems like the level of expenses you are assuming for the year are going to come in around like $10 million higher than what we were modeling.

So, I’m just wondering if there are incremental expenses that you are now expecting relative to when you gave us margin guidance back in at the cloud-first today?.

Yeah. So the amount of expenses that we are projecting really are mostly changes that are occurring as a result of a full complement of variable costs. I commented earlier where some of our variable costs were reduced because of what we landed from a booking’s perspective, so you have that.

We also have the standard cost of living increases that we have in there. Beyond that, there is not much in the way of growth. Now that’s in total.

More specific to particular items, yes, we are continuing to invest in our cloud solutions and so we are continuing to divest in that team and so that was part of the plan all along and that is one of the areas that we are going to continue to invest in.

So what I would tell you, as you look at the model and as you lay it out and you look at the relative profitability and free cash flow, early in 2016 will be the low watermark. So that’s when you will see the impact of this model kind of hit its depth and we talked about ’17 being more of an inflection point.

You can actually say from a quarter-to-quarter perspective, we will start to see signs as we go through out this year where that trend is going in the right direction. But we are really not growing expenses in total, very much at all with the exception of things that are already in flight.

To kind of recap, the amount of investments we are adding on a gross basis are very small but we are adding more resources and more capabilities to our cloud solutions..

All right. Thank you..

We will now hear from Joe Fadgen with Craig-Hallum..

Hey guys. I’m here for Chad today. First question, I guess it’s been alluded to it little bit before but as you go back two or three years, it seems like all the talk was that all the pricing market is a 20% growth market, long runway and then you probably got into the CPQ market and now it’s a 25% growth market.

I mean do you still think that those are kind of the right numbers to think about in the market growth at 20% plus?.

Yes, we believe that market can grow higher. Frankly, we are very confident with 20% plus and we believe they can grow higher. We think that our solutions the way they resonate and how we are making it more consumable where they can start smaller than before. I think we’ve actually opened up the market opportunity..

Okay. And then I guess the second one around kind of around guidance. You know over the last few quarters, obviously you guys have been guiding quarter-to-quarter basis and it’s been -- some the bookings are doing better, the revenues not the margin kind of back and forth.

I guess is there anything that you’ve changed in terms of like your forecasting methodologies or I don’t know maybe you have a better scope of what data you should be looking at, but I mean has anything changed to help investors believe or that gives you more confidence that the numbers that you put out there today for fiscal '16 are the right numbers?.

Hi, I completely understand why -- you know where that question comes from because as you pointed out we have experienced some differences from what we had originally thought. And I’ll tell you we have learnt a lot as we’ve gone through the first nine or ten months of this model transition.

And I would say that you know we’re much modest there than we were before. You referenced where early on we are hitting our booking numbers and we were modifying our revenue guidance, and that was primarily because of the shift to cloud was much better than what we had anticipated.

Then in the latter quarters we added the opposite effect where we’ve been more in line with the revenue but our bookings have been off.

And you know the challenges there and the things that we talked about have been primarily around the things that we have done are not done to make that transition occur and we have now, we believe we have identified them and addressed them.

So what I would tell you is that as we’ve learned what the market respectability is to our solutions and we learn more about what our teams are capable of executing and consuming in terms of change, we feel more confident that we have a better handle on how the business is going to react and perform to our new model.

So you know having said all that, we put together a pretty rigorous process where we are going through numbers with the fields, we are looking at our models and you know we haven’t really changed much other than we actually have incorporated the learnings that we’ve had over the last several quarters and incorporated that in the process..

Okay. That’s all from me. Thanks guys..

Thank you..

Thanks..

That will conclude our question and answer session. I’ll turn the conference over to Mr. Reiner for any additional or closing comments..

Thank you for joining us on today’s call. This is an exciting time for PROS. The foundation we built in our cloud-first strategy puts us in a strong position to capitalize on our large market opportunity. We believe we have the people, the technology, the customers and their partners to realize our potential and to drive long term sustainable growth.

I would like to thank our PROS team worldwide for their continued passion and commitment through innovation and customer success. And thank you also to our customers, partners and shareholders. We look forward to speaking with you on our next call. Thank you and good bye..

That does conclude today's conference call. Thank you for your participation..