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PROS Holdings, Inc. (NYSE:PRO)

Q1 2013 Earnings Call

May 2, 2013 4:30 PM ET

Executives

Charlie Murphy - EVP & CFO

Andres Reiner - President & CEO

Analysts

Scott Berg - Northland Capital Markets

Chris Koh - Stifel

Greg McDowell - JMP Securities

John DiFucci - JP Morgan

Operator

Good day, ladies and gentlemen, and welcome to the Q1 2013 PROS Holdings, Inc. Earnings Conference Call. My name is Karen and I’ll be your operator for today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions). As a reminder, this call is being recorded for replay purposes.

I would like to turn the call over to Charlie Murphy, Executive Vice President and Chief Financial Officer.

Charlie Murphy

Thank you, operator. Good afternoon everyone, and thank you for joining us today for the PROS Holdings financial results conference call for the first quarter of 2013. This is Charlie Murphy, Executive Vice President and Chief Financial Officer of PROS. Joining me on today’s call is Andres Reiner, President and Chief Executive Officer.

In today’s conference call, Andres will provide a commentary on the first quarter of 2013, and then I will provide a review of 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 results implied by these or other forward-looking statements.

Also, these statements are based solely on the present information and are subject to risks and uncertainties that can cause actual results to differ materially from those projected in the forward-looking statements. Additional information concerning risks and other factors that may cause actual results to differ can be found on the company’s filings with the SEC. Also, please note that a replay of today’s webcast will be available in the Investor Relations section at our website at pros.com.

Finally, PROS has provided in its earnings release and we’ll provide in this conference call forward-looking guidance. 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 dates 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.

Andres Reiner

Thank you, Charlie, and thanks to all who are joining us on today’s call. I’m pleased to report another strong performance by PROS in the first quarter of 2013. Our momentum from 2012 continues even against the backdrop of an uncertain global economy. PROS' value proposition resonates now more than ever when companies are looking for solutions that deliver growth and profitability improvements across their business.

Confidence in PROS is reflected in our first quarter financial result with revenue exceeding the high end of guidance at $33.6 million, a 24% year–over-year increase. Non-GAAP operating income also exceeded the high end of guidance at $4.1 million and non-GAAP EPS was $0.15 per share.

I’m proud of our team for delivering this great result and grateful to our many customers across more than 30 sub industries who partner with PROS to turn their big data into selling advantage.

As the pace of business accelerates and the volume of data grows exponentially, the need for prescriptive, real-time and innovative solutions like PROS only grows stronger. Experts estimate that market for big data applications will increase from $1.8 billion in 2013 to more than $5 billion in 2015. We believe we are in a strong and differentiated position to capitalize on this rapidly growing market due to our advanced data science expertise, our market leading solutions and our excellent customer referenceability.

More companies are recognizing that PROS delivers on the promise of big data. In the first quarter, Alliance Laundry Systems, Gates Corporation, Great Lakes Cheese, LATAM Airlines, and Sterling Infosystems among others all selected PROS as their big data solution of choice for driving growth and profitability.

The addition of new customers and our ongoing strength in B2B is driven by investments in our three main growth strategies, accelerating awareness and adoption of our solutions, extending our product leadership position and increasing our global reach and scale. I’ll share a few highlights of the progress, we made in each of these areas, during the first quarter.

Our investments in accelerating awareness and adoption are working as demonstrated in the first quarter by new customer signings and increased demand. Recently, we enjoyed record attendance at our PROS Outperform Big Data Event in New York. Guests heard presentations from PROS customers such as American Standard, Arrow Electronics, Ecolab, Johnson & Johnson Depuy, and Panduit.

One customer shared how they benefited from PROS fast time to value by integrating their enterprise data into PROS Analytics Solution just nine days after starting their project allowing them to immediately identify opportunities for improvement. Another customer shared how they leverage PROS data science and analytics to improve average deal size 6% in one year in a market with substantial downward pressure on prices. Yet another customer turned their declining profitability around in just nine months doubling margins by using PROS data science to guide sales reps on which offers and prices were most likely to win.

These are just a few examples of how we help customers outperform in their market. We view the increasing willingness of our customers to share their success and the record level of attendance as signs that the market is maturing. Demand is increasing and that our investments to promote and lead the market are working.

Our investments in extending our product leadership position in the market are also paying off. In the first quarter, we filed four new data science patents centered on turning big data into actionable insights that improve sales and pricing performance. For example, one patent enables better predictive capabilities for cross sell and up sell opportunities and B2B selling environment. Another patent focuses on the significance of attributes in predicting pricing outcomes. We turn these data science innovations into tangible value for customers by embedding them into our real-time big data applications for sales.

The patents and insights identified by data science result in guidance from PROS on key business actions such as predicting customer attrition, guiding sales teams on which account to call on and prescribing which products to sell. Innovations like this help give customers better confidence in the decisions and actions as well as the performance advantage in their markets.

A report from Gartner stated that companies that investment more fully in big data technologies than their competitors had the potential to outperform their competition by 20% in every available financial metric. We will continue to invest in big data science and technology innovations that help companies outperform and further differentiate PROS in the market.

The third pillar of our growth strategy is to expand our global reach and scale through direct sales coverage and our partner ecosystem. We ended the first quarter with 39 quota carrying personnel. We expect to achieve our goal of approximately 30% increase in quota carrying personnel in 2013 to meet the growing demand for solutions.

Our strategic partnership with Microsoft continues to play an important role in driving awareness and differentiation for PROS in the market. We collaborate with Microsoft on product innovation and go-to market activity such as joint event sponsorships, content creation and thought leadership in key B2B industries.

In the first quarter, Microsoft spotlighted PROS at their Global Account Summit and Microsoft is the premier sponsor of PROS Outperform Event in New York and Brussels. We collaborate with Microsoft in their Chemical and Discrete Manufacturing Industry Reference Architecture Initiatives providing technology leadership and best practices to companies in these markets.

On the product side, we continue to co-innovate with Microsoft on SQL Server, Dynamic CRM and other Microsoft technologies that further differentiate PROS. We value our strategic partnership with Microsoft as it strengthens our position in the market and enhances our value proposition to customers. We’re also excited about our new OEM agreement with SAP announced last week. As an OEM partner PROS can offer customers the choice to run PROS solution on SAP HANA for Real Time analytics.

The planned integration of PROS and HANA will provide customers with additional flexibility, speed and data science capabilities for optimizing pricing and sales. This OEM relationship is a natural extension of our long term partnership with SAP. We share a common vision of empowering customers to take faster, more informed actions that will drive their growth and overall business performance.

With more than half of our B2B customers running SAP our innovation on HANA reflects our long standing commitment to provide SAP customers with the most complete and seamless integration experience. We believe our OEM partnership further distinguishes PROS as an innovator and a leader in a real time big data applications for sales and pricing effectiveness in the SAP community.

We will have a strong presence at the upcoming SAP SAPPHIRE NOW conference where we will showcase our partnership with SAP and our industry leading big data solutions.

Overall, Q1 was an excellent quarter for PROS. We delivered strong financial results and made great process executing on our stated growth strategies enabling us to slightly raise our full year revenue guidance. Looking ahead, we remain confident in our business for the remainder of the year and beyond because demand for solutions continues to grow, our partner ecosystem is strengthening and we continue to set the pace of innovation in the market.

Our real-time big data applications are more relevant than ever before as companies across diverse industries look to outperform in their markets using big data science and solutions as a competitive advantage. We believe PROS is at stronger position than ever before and we will continue to invest in our growth strategy to capitalize on this sizable market opportunity.

Now, let me turn the call over to Charlie, so he can provide you with a review of our financial results in our outlook for the second quarter and full year of 2013.

Charlie Murphy

Thanks, Andres. I will be discussing our financial results on a non-GAAP basis. 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.

We are pleased with our performance in the first quarter with total revenue of $33.6 million exceeding the high end of guidance and up 24% from a year ago. License and implementation revenue was $22.6 million, up 27% from a year ago. Maintenance and support revenue of $11 million was up 20% from a year ago and represents the largest component of revenue from recurring sources.

Total recurring revenue which includes maintenance and support revenue and a number of term license contracts was 39% of total revenue in the first quarter. Non-GAAP gross margins in the first quarter were approximately 70% as compared to 72% for the first quarter of 2012. Margins can vary from period-to-period primarily due to the level of implementation services required relative to the total contract value. In addition, margins have been impacted by investments in personnel particularly across our professional services teams in anticipation of future growth.

Total non-GAAP operating expenses for the quarter were $19.4 million compared with $15.3 million a year ago, an increase of 27%. Non-GAAP operating income in the first quarter was $4.1 million essentially inline with the year ago. Non-GAAP operating margins for the quarter were 12.2% reflecting investments across our business in support of our growth.

As we previously commented, the research and experimental tax credit was renewed for both 2012 and 2013 in January of 2013 and we recorded the entire 2012 tax credit in the first quarter as required by GAAP. Therefore, the entire 2012 R&E credit is reflected in our first quarter and full year 2013 tax rates. The non-GAAP effective tax rate which includes the entire 2012 credit was a benefit of approximately 8% resulting a non-GAAP net income of $4.3 million for the quarter, an increase of 59% over the prior year.

Non-GAAP earnings per share were $0.15 compared to $0.10 per share a year ago. GAAP earnings per share for the quarter was $0.06 compared to $0.04 per share a year ago. The 2012 R&E tax credit contributed $0.05 to both non-GAAP and GAAP earnings per share in the quarter.

Now, moving to the balance sheet, we ended the first quarter with cash and cash equivalents of $82.5 million, a decrease of $1.1 million from the end of the fourth quarter. Capital spending for the first quarter was $2 million. We expect capital spending for infrastructure and facility improvements for the year to be approximately $8 million.

Gross accounts receivable at the end of the quarter were $42.7 million. Day sales outstanding were approximately 110 days, a nine day improvement from the fourth quarter. We generated operating cash flow of $1.3 million in the quarter yielding a cash flow margin of 3.8%. Cash flow was impacted by the payment of variable compensation related to 2012 performance. For the year, we expect our annual operating cash flow to approximate our annual non-GAAP operating income of approximately 13% top 13.5%.

Finally, headcount including outsourcing at the end of the quarter was 739 up from 580 on March 31st 2012, an increase of 159 or approximately 27%. We continue to increase our sales, marketing, engineering, professional services and administrative resources, which reflects continued confidence in our long term opportunity.

Before I turn into our guidance for the second quarter and the year, let me provide you with some additional information related to our business. As we have been discussing with you we continue to invest in our quota carrying sales people primarily in the United States and an awareness initiatives to drive our B2B business which is the key growth driver for our company.

As a result of our investments, we continue to see strong growth from our B2B business and this was reflected in our United States revenue which increased 48% and contributed 47% of total revenue for the quarter compared to 40% of total revenue in the first quarter of 2012. Our legacy travel B2C business which is predominantly outside of the United States continues to perform well and is up compared to last year driven by rest of the world which made up 30% of total revenue and increased by 32% over the prior year.

Revenue from Europe was 23% of total revenue in the first quarter as compared to 32% of total revenue in the first quarter of 2012. As you know, our revenue by geography can vary quarter-to-quarter based on the timing of implementations. Overall, we are pleased with how our European business is performing given the difficult macroeconomic environment and we expect this business to grow in 2013.

Our business continues to have positive tailwinds driven by large growing and significantly under penetrated B2B markets we serve. Interest levels in our big data solutions remain very high and we continue to benefit from our diversification across many industries and geographies. As we discussed with you last quarter, we will continue making strategic investments to drive our future growth particularly in sales and marketing, product development, professional series and to a lesser extent administration in 2013. We believe these investments will further increase our leadership position enable us to capture 20% plus top line revenue growth over the next few years.

Now, turning to our outlook, we continue to be optimistic while mindful of the global economic environment. In the second quarter, we anticipate revenue in the range of $34.8 million to $35.4 million, approximately 25% growth at the mid point from the second quarter of 2012. We expect total expenses to be approximately $30.9 million, up from $23.7 million in the second quarter of 2012 as we continue to make strategic investments in our business. We expect non-GAAP operating income margins of approximately 12% at the mid point of revenue guidance. With a tax rate of approximately 27% in the second quarter, we anticipate non-GAAP earnings per share of $0.9 to a $0.11 based on an estimated 29.8 million shares outstanding.

On a GAAP basis we expect operating income margins of approximately 1% in GAAP earnings per share at break-even. With the research and experimentation tax credit for 2012 and 2013 both recorded in 2013, we expect a 2013 full year non-GAAP tax rate to be approximately 19% and for the second to fourth quarters we are modeling non-GAAP tax rates of 27%. For GAAP we are modeling the full year tax benefit of approximately 5% and we are modeling tax rate for the second through fourth quarters of 48%. Our GAAP tax rate is higher than the federal tax rate due to a non-deductible portion of non-cash compensation expense.

For the full year, we are slightly raising our revenue growth targets and now expect revenue growth of approximately 23%. Our non-GAAP operating margin guidance continues to call for approximately 13% to 13.5% as we invest on the significant opportunity we see ahead of us. We continue to believe that long-term we will see increase in operating margin leverage as our business scales and we realized the benefits of our investments.

In summary, we are pleased with our performance in the first quarter and we believe we are very well positioned for a strong performance through 2013. We are confident that our gross strategies are working and that we can capture the growing opportunity for real-time big data solutions.

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

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). First question comes from the line of Scott Berg of Northland Capital Markets.

Scott Berg - Northland Capital Markets

Andres and Charlie, congratulations on what appears to be a very strong quarter for you guys.

Andres Reiner

Thank you.

Charlie Murphy

Thank you.

Scott Berg - Northland Capital Markets

Couple of quick questions. First of all, Charlie, on the EPS outperformance in the quarter, was the impact of the tax credits in line with your expectations or was there any variance in the quarter?

Charlie Murphy

I would say it’s pretty much in line and it was as I mentioned $0.05 both on the non-GAAP and the GAAP EPS. Now that’s behind us, of course I'm sure lot of companies will have a similar situation for the first quarter because of the 2012 R&E credit and then going forward I think we try to get very explicit tax provision guidance so everyone can get their models aligned with our expectations.

Scott Berg - Northland Capital Markets

Great, just trying to reconcile if the strong earnings performances was more tax related or other operations and clearly looks like it’s operations. Andres, could you talk a little bit maybe about pipelines or demand in the space US say versus Europe in particular and what you’re seeing on an incremental change basis from the fourth quarter?

Andres Reiner

Yeah, so we continue to monitor all areas of our pipeline the top end of the funnel as well as the late stage opportunities and we’re seeing a positive progression in growth in all those areas both in North America and in Europe. I would say North America has been a very strong part of our growth and continues to be a strong part of our growth and our growth strategies from both the sales and marketing. So, we feel very good about the pipeline improvements quarter-over-quarter and year-over-year.

Scott Berg - Northland Capital Markets

Great, and the last question I have for you is on sales cycles and/or any deal slippage, did you see any material change to either of those in the quarter, obviously you announced a number of large customer signings which is a positive for the business but your company seem to buck the trend of other large ASP call it on premise license software companies out there that seem to have struggled in Q1?

Andres Reiner

No meaningful change in the overall sales time and no change in the deal slippage that we saw in the quarter. So, we continue to see that companies are really focused on making strategic investments. So, I would say we’ve seen a trend over the last year as the focus in investing in technologies that are going to drive meaningful and measurable ROI and I think that’s what’s really helping us in the market it’s aligning to a very clear measurable ROI and being able to show that we can drive a fast time to value that we can drive meaningful results to the business within the first year and typically pay back within the first year I think that gives us a big competitive advantage. Also seeing that customer sharing their success like in our outperform event in New York helps a lot because prospects are able to see and hear directly from them meaningful results and validating the ROI story. So it’s not just the success of the technology but being able to speak confidently about that captured ROI.

Scott Berg - Northland Capital Markets

Great, thanks I’ll jump back in the queue.

Andres Reiner

Thank you.

Operator

Thanks for your question. The next question comes from the line of Joe Fadgen of Craig-Hallum. Please go ahead.

Unidentified Analyst

Yeah, hey guys, [Hans] here for Chad today. Couple of quick questions one, I guess around the competitive environment it seems like you guys are seeing a lot of opportunity, awareness for your solutions seems to be growing and everything like that I'm just wondering, are you seeing like more aggressive competition out there, are you running into your competitors more often, are they more aggressive when you do compete, any color around that?

Andres Reiner

No, we haven’t seen any real change on the competitive landscape; I am very proud of our sales team and our execution when we’re in competitive situations, we have a very strong win rate so I think really there hasn’t been a very meaningful change in that. And really our focus continues to be on that 95% of the market that hasn’t adopted the technology and going and capturing that large market opportunity. And we feel we’re in a pretty strong differentiated position.

Unidentified Analyst

Yeah, okay, again I guess then just to follow-up on that a little bit given it seems like you’ve got and talked about what are high value-add offering this is and customers really see the benefit of it lot of Greenfield space room to run I guess have you seen, have you either I guess raised your ASP or do you think there is a possibility to like raise basically what you charge given the value of your offering; obviously you’d want to be thoughtful about it but I'm just wondering how you kind of think about that, how you approach that?

Andres Reiner

I’d say we’re really not - I wouldn’t say we’re focused on raising our prices; we believe we have a solution that drives very strong ROI and we believe it’s really about growing that the market share and growing our market penetration. We believe the life-time value because we’re successful with customers because we’re not licensing global enterprise licenses we want to build an incredible customer experience and continue to expand within our customers to drive more value.

Unidentified Analyst

Okay.

Andres Reiner

So, at this point, I don’t see a meaningful shift in our ASP.

Unidentified Analyst

Okay. Alright and then last one from me. Last year you guys were pretty aggressive on hiring on the sales for us I assume those guys are ramping and getting up to speed kind of as you would expect.

Andres Reiner

Yeah, I would sound very proud of the team that we built and I think we’re continuing from a process from a development and onboarding we’re continuing to make big improvements and I think definitely we have a stronger sales force today than we had a year ago and we’re continuing to invest in growing that organization but definitely very proud of the results that they’ve driven.

Unidentified Analyst

Okay, alright, that’s all from me. Thanks a lot guys.

Andres Reiner

Thank you.

Unidentified Company Speaker

Thank you.

Operator

Thanks for your question. The next question comes from the line of Tom Roderick from Stifel. Please go ahead.

Chris Koh - Stifel

Hey guys, this is Chris Koh for Tom. So just hey guys, good afternoon. So just a follow up on the previous question so I think you ended last quarter at 38 sales reps and I think you mentioned 39 this quarter so that seems to be a bit of a slow start in terms of the hiring, are you able to find all the people that you want or was that pretty much inline with what you expect it to come in the quarter?

Andres Reiner

Yeah, I would say we’re very selective in recruiting, we’re looking for sales people that that are experienced with the Challenger Sales Model and that I think we definitely feel we’re in a good position and we feel that with our pipeline of candidates that we have that we will ramp up to the 30%. So, definitely a lot of the sales reps that will add this year’s release to drive growth for next year and we feel we’re in a good position and we all definitely that we will recruit to the 30%.

Chris Koh - Stifel

Great, and then on this OEM relationship with SAP, what are the ramifications for that from a tangible standpoint I understand it's probably a little early to be talking about actual revenue but if you can may be better help us understand what you expect to get out of that, I would appreciate it, thanks?

Andres Reiner

Yeah, I would say three key areas it definitely strengthens our solution by bringing the real-time capabilities into our technology further real-time capabilities it also aligns with our big data strategy around SAP community. A lot of our customers are SAP customers and they’re interested in adopting newer technology that SAP is providing it also raises the awareness of PROS in the market and definitely it aligns us in SAP together from a go-to-market sales and marketing.

Chris Koh - Stifel

Great thanks guys.

Andres Reiner

Thank you.

Operator

Thank you for your question. The next question comes from Greg McDowell of JMP Securities.

Greg McDowell - JMP Securities

Hi, thank you so much thanks for taking my questions. I actually just have one question and I apologize if you addressed this already. Going back to the analyst luncheon last month you talked about the three types of partner systems integrators, technology partners and resellers. And I think on this call you’ve talked quite a bit about technology partners and the relationship with Microsoft and SAP. But I was just wondering if you could talk about SIs in the quarter and how they performed and maybe some of the resellers in the quarter and how they performed because I think at the Analyst Day you talked a little about how you’ve recently brought in resellers from China? So, that's my question thank you so much.

Andres Reiner

Yeah, yeah, so we continue to invest in our SI Partner community to achieve scale and awareness in the market within the first quarter approximately 35% of our projects we had and SI Partner involved and we continue to work diligently with our partner ecosystem around our growth. We also – we’re very pleased to have Deloitte not only sponsor or Outperform Event in New York but also be a speaker at the event so definitely our alignment with the SI Partner continues.

Within the resellers we continue to work with both the resellers (inaudible) and Integritas and we are focusing those markets in early stage opportunities helping to build the pipeline supporting them in engagement raising awareness these are areas where it's early stage market less mature but we’re investing for future growth in the three to five year term helping to drive our growth.

Greg McDowell - JMP Securities

That's helpful, thank you, and one quick follow-up I don’t remember if it was Craig or Chris who mentioned this at the analyst luncheon but you talked about some of the different sales levers to drive growth and those levers were both getting revenue from existing customers and winning new customers, new logos and I was wondering as you think about Q1 and those two levers maybe which lever you were more happy with new logo wins versus driving revenue from your existing customer base? Thanks.

Charlie Murphy

That's a great question. I think consistent with last year we were very pleased with the new customer acquisition obviously at big part of our business is sell back in particularly on the travel side which is our B2B business our legacy it's pretty mature but on the B2B side and on the travel we had new customer acquisitions in Q1 and certainly last year, so we’re pleased with the focus and our ability to attract new customers each quarter not then just leverages the opportunity to sell back in and we’re pleased with our historical sell back in experience so net-net we’re very pleased with the new but the selling continues as well so.

Greg McDowell - JMP Securities

Great thanks and I’ll get back in the queue.

Charlie Murphy

Great.

Operator

Thank you for your question. (Operator Instructions) Last question we have comes from the line of John DiFucci of JP Morgan.

John DiFucci - JP Morgan

Hi this is John DiFucci thanks for taking my question.

Andres Reiner

Hi, John.

John DiFucci - JP Morgan

Hey, Andres. Charlie two quick questions in cash flow, cash flow was a little bit it was lower than we were looking for a decline year-over-year I guess will we see improvement going forward over the investment this year sort of suppress cash flow that's the first question on cash flow. I did notice we did notice an increase an accounts receivables this quarter…

Charlie Murphy

Yeah.

John DiFucci - JP Morgan

Which will help cash flow next quarter, but that's not normally what we see seasonally. So if that's like the, that's going to really normalize cash flow, what happened in the quarter was it more backend loaded for some reason or something?

Charlie Murphy

No, no actually John both points I think are very well taken. For the cash flow for the year we reaffirmed I think on the script that we actually just discussed that we expect cash flow for the year to approximate non-GAAP operating income so we’re very comfortable with that. So if you look at Q1 you nailed it you talked about receivables and you nailed when you talked about last year. Last year receivables actually decreased a bit and we had - I think (inaudible) we had said that there were some deals that set in the first quarter of last year and deals obviously have an impact on our receivables.

So, our receivables came down in the first quarter of last year providing cash flow which some analyst I think assumed would happen again in the cash flow model this year. This year’s Q1 if you see it was actually an increase which we view as a positive, and that increase is as a result of course of new customer acquisitions new bookings as well as timely implementation milestones and such so.

Last year different start to the year this year a different start to the year receivables are up we view that as a real positive and you’re right if you look at the trends from last year to this year the change in receivables the change the cash flow for the quarter. So, for the year we feel very confident about achieving our overall objectives of approximately non-GAAP operating income. Does that make sense?

John DiFucci - JP Morgan

Yeah that does. I guess just the second part to my question, given that receivables went up this year and I think it was, it went down last – prior two years and for that it go up but I was just wondering if perhaps you design some deals more than more deals at the end of the quarter that's all, I think you would have billed people then not collect yet?

Charlie Murphy

Well that's – I would say yes. There is more deals in Q1 then they were in Q1 of last year that's actually the case, yes.

John DiFucci - JP Morgan

Okay, that's fair, thanks, Charlie. And I guess just a quick follow-up for Andres. It looks like your European business at least of revenue decline year-over-year which means you think that the bookings probably even declined more year-over-year give the way your revenues recognize. I guess what gives you the confidence I think Charlie said that your European business was going to increase this year. Is it because of deals that are already sort of in the works that just haven’t hit their milestones yet or you’re going to be recognizing revenue or is it really more your pipeline that you have confidence in?

Charlie Murphy

John, I am going to take part of it and then I am sure Andres is going to elaborate at that. The performance of our revenue in the first quarter is coming up the backlog we have at the end of the year. So, it's really not as much a function of which deals close in the quarter they’re not going to have that much of an impact on revenue by geography even revenue mix between B2B and B2C.

And the European revenues came down this quarter compared to last quarter as you mentioned but I will comment that the B2B revenue has increased and the revenues that came down were our legacy travel business which has even more variability on a quarter to quarter basis because they’re truly global in nature. The travel business is right across all geographies where as so you can have more variability in the travel side. So that's what gives us confidence we say but revenue in Europe is going to continue to grow because performance of our revenue in that little part of the world its more B2B today than it is travel.

Andres Reiner

Yeah the other part that I would comment is we continue to monitor the pipeline not just for the global but even B2B within Europe and when we look at B2B within Europe the top end of the funnel as well as the overall pipeline we've seen growth year-over-year and we feel very good about our projections for the year in achieving the growth. So, definitely there are areas that we’re continuing to invest from a B2B perspective.

John DiFucci - JP Morgan

Okay, great, thanks guys, it's nice to see a software company not do what also the other once have done so thank you.

Andres Reiner

Thank you.

Charlie Murphy

Thank you, thanks John.

Operator

Thank you for your question. The next question comes from the line of Aashiv Shah of Jefferies. Please go ahead.

Unidentified Analyst

Well, hi, it's actually (inaudible) on Aashiv’s line.

Charlie Murphy

Hi, [Russ].

Unidentified Analyst

Hey guys, how are you? I just had a quick question on the relative I know you don’t disclose this on a quarterly basis but I was curious to get a sense for the relative growth rate of the traditional travel business relative to the MDS or B2B business. You gave us an update at the end of last year, which help to frame it is that - is that differential broadly unchanged or maybe he question really for the year, do you think that B2B growth relative to the traditional airline business. Are we going to see further acceleration do you think in the B2B business or how do you think that plays out?

Charlie Murphy

John, this is Charlie. I think, the way we’re looking at 2013, we think its going to be fairly consistent with last year so we don’t see a big shift between the two and we think that’s a positive. We expect the travel business to continue to grow. We don’t expect it to be the big growth driver for the company but we expect it to grow. We continue to invest in travel. I think we made that hopefully we said that on a number of occasions. So, we expect our travel business to continue to grow but we continue to expect our B2B business is really where the growth is for the company. And so, we don’t expect much of a change between those.

Unidentified Analyst

So, that would mean that the mix between B2B and airlines I think it was 56, 44 last year it was going o get even more skewed obviously towards B2B this year i.e. the highest - higher growth category?

Charlie Murphy

Yes, and that’s what we expect.

Unidentified Analyst

Okay. And then I just had one other one just really following up to John’s question one cash flows and I heard you still saying that you are very confident around the – around the full year cash flow growth. What are the variability’s that we could see on cash flow because I remember last year, I think you made the comment about Q1 but in Q4 I think you’re that the calculated DSO spiked up. So, I just want to sort of revisit durability if you will quarter-over-quarter around milestone payments and recognition and so forth?

Charlie Murphy

Sue. I would say, the fourth quarter for us is definitely one of our stronger cash flow quarters and I think some of that may just be – it’s the seasonal factor there with large companies seem to like to get some cash off their balance sheet by the end of the year so we got a little bit of a benefit from that. So, the receivables of course went up last year but that was very positive because again (inaudible) I think another indication of a good bookings period for us. So, if anything the DSOs came down Q1 compared to Q4. So, we feel really good about the quality of our receivable and the relative direction of receivables are going in. But all it takes is a few, these are all big deals take the field collections here and there and it can have a fairly significant impact on quarter-over-quarter cash flow metric.

Unidentified Analyst

Okay. Last one, just on the platforming on HANA, is it too early to talk about sale cycles or engagements even early sale cycle engagement is it still too early to talk about that or have you already started to see any interest?

Andres Reiner

We have seen interest both prospects and end customers but I would say it’s still too early from a sales process standpoint but definitely that we’ve seen interest in the market and a positive interest from both our customers as well as prospects in the market.

Unidentified Analyst

And Andres, do you know (inaudible) has done something similar yet or are you unique as having platform on HANA?

Andres Reiner

I’m not aware. So, I’m not aware of them but we are definitely the first to speak publicly about it but.

Unidentified Analyst

Okay, great.

Andres Reiner

And there is, we’re one of the few OEM HANA Partners that we know for sure.

Unidentified Analyst

Great. Thanks, again and congratulations.

Andres Reiner

Thank you.

Charlie Murphy

Thank you.

Operator

Thanks for your question. I would now like to turn the call back over to Andres Reiner for closing remarks.

Andres Reiner

Thank you for your participation in today’s call. We are pleased with our performance in the first quarter and feel good about our outlook for the remainder of the year. We are confident because our growth strategies are working and demand for big data applications powdered by data science is growing with our legacy of innovation market-leading solutions and unmatched customer referenceability process in a strong position to capitalize on the growing market opportunity. I would like to thank our PROS team worldwide for their relentless fashion and commitment to customer success. Thank you also to our customers, partners and shareholders for your support on PROS. We look forward to speaking with you on our next call. Thank you and good bye.

Operator

Thank you ladies and gentlemen, this concludes the presentation. You may now disconnect. Have a good day.

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