PROS Holdings (PRO) Q1 2019 Earnings Call Transcript

PROS Holdings (PRO -1.73%)
Q1 2019 Earnings Call
April 25, 2019 4:45 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings. Welcome to PROS Holdings first-quarter 2019 earnings conference call. [Operator instructions]. As a reminder, this conference is being recorded.

I will now turn the conference over to your host, Shannon Tatz, vice president of investor relations. Thank you, you may begin.

Shannon Tatz -- Vice President of Investor Relations

Thank you, operator. Good afternoon, everyone, and thank you for joining us. Our earnings press release, SEC filings and a replay of today's call can be found on the Investor Relations section of our website at PROS.com. With me on today's call is Andres Reiner, president and chief executive officer; and Stefan Schulz, chief financial officer.

Please note that some of the commentary today will include forward-looking statements including, without limitation, our guidance, our strategy, future business prospects, revenue, margin and market opportunities. Actual results could differ materially from our current forecast. For more information, please refer to the risk factors described in our SEC filings, PROS assumes no obligation to update and forward-looking statements to reflect future events or circumstances. As a reminder, during the call we will discuss non-GAAP metrics.

Reconciliations between our non-GAAP measures and the most directly comparable GAAP measures, to the extent available without unreasonable effort, are available in our earnings press release. With that, I'll turn the call over to you, Andres.

Andres Reiner -- President and Chief Executive Officer

Thank you, Shannon, and thank you, everyone, for joining us on today's call. I'm pleased to announce that we had an incredible start to 2019. We grew subscription revenue by 45% and we increased deal volume by over 40% year over year in the first quarter. We're seeing the market and our solutions come together at just the right time, which is fueling our growth and giving us confidence to improve our revenue outlook for the year.

I'd like to share a little about what we're seeing in our market and how we're positioning ourselves to capitalize on the attractive market opportunity in front of us. As AI matures and more companies have strategic mandates around digital transformation, we're benefiting from a tailwind in our market. Our vision is to be the AI platform powering commerce in the digital economy, and companies are coming to us with greater sense of urgency to transform how they sell. The top of our sales funnel is growing as we're engaging companies earlier in their buying journey.

Just last quarter, our social media engagements grew 300% over the same period last year. Another factor helping us sell more is better competitive positioning. We're differentiating based on the value we deliver with our AI. So I'd like to share what makes our AI unique.

When you hear the term AI in the market, people and companies are often referring to cognitive AI. This AI mimics human behavior to help people interact with computers through technologies like chat bots or digital assistants. Companies apply cognitive AI to their core technologies to improve the user experience like how Siri helps you interact with your iPhone or how we use Monet to help our customers to interact with our solutions. While cognitive AI is useful, our AI goes way beyond this.

The core of our platform is business AI. Business AI applies machine learning algorithms to massive amounts of data, prescribes business actions and continuously learns so that it can improve business outcomes. Our business AI has deep domain expertise in sales and pricing to identify buying patterns and prescribe personalized sales experiences for each customer. Companies use our AI to power their digital selling so they can run their sales autonomously and react to the market in real time with our AI self-learning capabilities.

We differentiate based on the proven ROI that our AI drives for our customers. A great example of a customer who selected our AI platform to power sales and help drive revenue is Staples. Staples partnered with us last quarter to help transform their pricing team into a revenue-generation center. Staples will leverage both our guidance and Smart CPQ solutions to manage quotes, model complex deals and deliver market-driven prices to its customers.

Staples is just one example of the many customers who are using our AI to win in the market. We're also seeing more companies select PROS because of the unique value we drive by combining AI and CPQ. For example, last quarter a leading high-tech manufacturer selected our full-solution suite to help them reimagine how they sell. This company will leverage our platform to power their omni-channel go-to-market strategy so they can serve customers with more speed and precision wherever they want to buy.

Finally, our latest cloud innovations are inspiring longtime customers to move to the cloud. For example, ANA, Japan's largest airline and a PROS customer for more than 15 years, chose to move to the cloud in Q1 to adopt our RM Essentials solution and leverage our next-generation forecasting and optimization science. Core to our ability to build strategic customer partnerships that span decades is our incredible team and their commitment to our mission of helping people and companies outperform. We've created this strong culture that's obsessed with making customers successful.

And we believe the key to sustaining this culture is helping our people realize their full potential. This year, we're putting a larger emphasis on leadership development. We've created a program with Rice University to help us continue to grow our strong leaders as we scale. We believe our culture and innovation thrive on the contributions of people from a variety of backgrounds and we have initiatives at all levels of the company to promote diversity and inclusion globally.

At the beginning of 2018, we closed our gender pay gap, and I'm proud to share that we've made further strides in diversity and inclusion since then. At the end of Q1, women represented 35% of our global employees. And 26% of our U.S. employees were under-represented minorities, which is best in class in the tech industry.

These advancements are supported by our thriving network of employee resource groups, which provide incredible mentorship, development, volunteer opportunities and outreach programs to support our employees and the community. Thank you to our global team for making PROS an incredible company and for your commitment to our mission of helping people and companies outperform. With that, I'll turn the call over to Stefan to cover our financial performance and outlook.

Stefan Schulz -- Chief Financial Officer

Thank you, Andres.We had a very strong start to the year and there are several factors in our business that helped us outperform. Here are a few examples. First, our B2B business is continuing to grow at an accelerated rate. We're seeing strong contributions across our target industries and more customers are adopting our combined Smart CPQ and guidance solutions.

Second, our existing customers are expanding faster. For example, we have one customer who purchased from us 9 out of the last 10 quarters. Strong expansion activity is helping us continue to drive a roughly 50-50 split in new versus existing customer bookings, which we think is the right balance to fuel our long-term revenue growth. And finally, our next-generation solutions continue to be well-received by our customers.

Over the last few quarters, we have released new revenue management solutions for our travel customers and new guidance solutions for our B2B customers. These next-generation solutions are getting our customers to value faster than ever before and inspiring several of our customers to move to the cloud. This is a key component to our migration strategy and is helping us remain on pace with our migration targets for 2019. The combination of our solid execution and market momentum gives us the confidence to improve our growth outlook, which I'll cover in more detail later.

Now turning to our first-quarter results. In the first quarter, subscription revenue increased 45% year over year and represented two-thirds of our recurring revenue for the first time in our company history. This subscription revenue growth was the main driver to our total revenue growth of 17% year over year. The recurring portion of our deferred revenue was $109 million, up 25% year over year, and our trailing 12 month calculated billings were up 21% year over year providing us with added confidence in our future revenue growth potential.

Now moving on to the profitability metrics. Our non-GAAP subscription gross margins were 71% in the quarter, up more than 750 basis points over last year, as we continue to grow our cloud customer base and scale our cloud infrastructure. Our operating expenses increased 15% year over year primarily driven by increases in sales expenses related to hiring and variable comp. We also incurred some one-time professional fees in G&A expenses in the first quarter, but expect that number to grow in the low-single digits for the rest of the year.

Our adjusted EBITDA loss was $4.6 million for the quarter, which improved approximately $1.8 million year over year and is in line with our guidance as we accelerate our sales and marketing investment to capitalize on our momentum. We reported a free cash flow burn of $9.6 million in the first quarter, which was in line with our expectations and was a $2.8 million higher burn year over year, primarily driven by higher incentive payouts resulting from our 2018 outperformance. At the beginning of 2019, we adopted ASC 842, the new lease accounting standard, which adds a right-of-use asset and a lease liability of approximately $25 million to our balance sheet. The adoption of this new standard had no impact on our operating results, adjusted EBITDA or cash flows.

Based on our strong bookings start to the year, as well as strong execution by our professional services team, we're improving our outlook for the full year. I'll start with the second-quarter guidance, as we expect to see a significant portion of the revenue improvement for the full year occur in the second quarter. We anticipate total revenue in the second quarter to be in the range of $61 million to $62 million, up 30% at the midpoint over the same quarter last year and a 10% sequential improvement. The growth will primarily be driven by a combination of strong subscription and services revenue.

We expect subscription revenue to be in the range of $32.5 million to $33 million, up 49% at the midpoint over the same quarter last year. We also expect a similar growth rate from services revenue in the second quarter. This is a much higher growth rate from what we typically experience in a quarter so I'll provide some additional color. The strength in services revenue in the second quarter will primarily come from two sources.

First, implementation projects associated with our strong subscriptions bookings in the first quarter of this year are driving significant increases in implementation revenue. Second, we have several longer-term implementations that have recently been completed or will be completed in the upcoming weeks. These completions will drive additional services and subscription revenue. Because of this anticipated strength, we expect recurring revenue as a percent of total revenue to be in the upper 70s% in the second quarter.

Our guidance for second quarter adjusted EBITDA loss is a range of $3 million to $4 million. With an estimated non-GAAP tax rate of 22% in the second quarter, we anticipate a non-GAAP loss per share between $0.09 and $0.11 per share based on an estimated 38 million basic shares outstanding. Now moving to the full year, we're increasing our full-year guidance for total revenue by $9.5 million to a range of $241 million to $242 million, which would be a 23% growth rate year over year at the midpoint. More than half of this improvement comes from raising our subscription revenue to a range of $135 million to $136 million, which is an increase of $5 million over our previous guidance at the midpoint.

This range would represent a 42% growth rate year over year at the midpoint. We continue to expect services revenue to grow in the mid-30s% for the full year. We also expect our percentage of recurring revenue to total revenue to be 80% or better for the full year. As a result of the improved revenue outlook, we anticipate a moderate improvement in adjusted EBITDA because we also anticipate making additional investments in sales and marketing, as well as research and development.

Accordingly, we are improving our adjusted EBITDA loss outlook by $3 million to a range of $8.5 million to $9.5 million, which would be a $10 million improvement year over year at the midpoint. We are reiterating our ARR and free cash flow guidance for 2019. Overall, we are very pleased with our first-quarter financial performance and our outlook for growth in 2019. As a reminder, we will be hosting our annual user conference, Outperform, in Las Vegas from May 21 to May 23, and we invite you to visit us to learn more about our business and the opportunities that lie ahead.

We thank you for your support of PROS and we look forward to speaking with you at Outperform and our upcoming events. So with that, let me turn the call back over to the operator for questions. Operator? 

Questions and Answers:

Operator

[Operator instructions]. Our first question is from Scott Berg with Needham and Company.

Scott Berg -- Needham and Company -- Analyst

Congratulations on a good quarter. I have, yes, and just a couple here. First of all, Andres, can you help us unpack the deal volume that was up 40% year over year a little bit? I know those trends are -- or I guess that metric is continuing a trend that you saw from last year. But if we were to look at that deal flow, how should we think about the travel side of the business versus B2B, trying trying to understand where that strength may be coming from?

Andres Reiner -- President and Chief Executive Officer

Yes. I would tell you the strength that we're seeing is coming, I would say for the most part, from the B2B side of the business. And I would tell you that the good things, we're seeing good strength across all of our target industries on the B2B side. So for example, high tech, food, B2B services, oil and gas and cargo and logistics; these type of industries.

So overall, I would say travel had a good quarter as well, but I would say that the real growth is coming from the B2B side.

Scott Berg -- Needham and Company -- Analyst

Got it. That's very helpful. Then in line with the deal flow that's up, the deal volume that's up year over year, how would you characterize ASP trends? Have they been pretty flat year over year? Or I didn't know if you're maybe seeing any changes with regards to the deals that are coming in.

Andres Reiner -- President and Chief Executive Officer

Yes. I would say it's remained pretty constant. I would tell you we're continuing to see a lot of variability. So we'll see smaller deals in the $50k-$100k ACV range and larger deals in the $1-million-plus ACV range.

But from an average, they're remaining fairly constant.

Scott Berg -- Needham and Company -- Analyst

Got it. And then last question for me, for Stefan. The professional services spike in the second quarter; given your guidance for the full year was little changed, are those revenues, is that just a timing deal? It sounds like those revenues may be pulled forward from expectations in the second half of the year. I didn't know if there's any kind of anomalies around what your expectations were for those revenues.

Stefan Schulz -- Chief Financial Officer

Yes, Scott. There's a couple things happening there from services in the second quarter. First of all, we had a very successful first quarter, as Andres just alluded to. And along with that came a large number of services that we signed as well.

And so a lot of those implementations are going to take place and the revenue is going to get recognized in the second quarter, which is beyond what we were initially thinking. And then the second thing that's happening, and this is something we were very much aware of when we went into the year, and that is we had some longer-term services projects that are actually going to be completing. Either they have just recently completed or they will be completing here in the next few weeks. And those are obviously more related to our travel business and that revenue is going to give Q2 a nice little pop as well.

And we don't expect to see that same level of improvement occur in the remaining quarters because of the concentration of some of those longer-term projects that are coming to conclusion here at this point in time.

Operator

Our next question is from Chris Eberle with Nomura Securities.

Chris Eberle -- Nomura Securities -- Analyst

I just wanted to touch on the opportunity within the airline business. Obviously, revenue management is pretty well-penetrated with your solution. But just curious as to how many of your airline customers are now using multiple solutions or what percentage are using multiple solutions. And what does the runway look like to upsell to the airlines? It seems like a pretty substantial opportunity.

I'm just trying to gauge the trajectory. You just said, I think, 9 of the last 10 quarters, if that was an airline customer or just kind of what we should look -- what that expansion rate might look like.

Andres Reiner -- President and Chief Executive Officer

Yes. That particular customer that's 9 out of the last 10 was a B2B customer. But I would tell you that our airline customers typically have bought more of our product solution, but I would say there's a pretty large opportunity to expand to our next-generation cloud offerings. And I did talk about ANA as an example in my prepared remarks of moving to the new RM Essentials.

And that's all new next-generation technology. We also have our shopping and merchandising in a lot of our new capabilities to help power digital selling. That's also a lot -- resonating really well in the market. So I would tell you we have a lot of confidence that airline will continue to grow in, say, the low teens and that there is quite a bit of opportunity both to acquire new customers within the airline industry as well as to expand customers to our next-generation cloud solutions.

Chris Eberle -- Nomura Securities -- Analyst

Great. Got it. And then one other quick one on the B2B side. What percentage of businesses today do you guys think are still interacting B2B without an e-commerce platform?

Andres Reiner -- President and Chief Executive Officer

I would say a large percentage. I would say e-commerce -- I would say there's a lot of momentum in e-commerce right now and I think a lot of B2B companies are waking up to the reality that they have to power digital selling. I think that's what's fueling, really, our growth, is that they're realizing that they're not adequately prepared. They don't have the systems and technology to really be able to power e-commerce and companies are quickly moving to adopt this.

But I would say it's still less than 10% penetrated where they're truly powering digital selling and e-commerce. I would say that there are more companies that have adopted e-commerce, but more as a catalog to browse where the prices aren't transactional-oriented prices and customers can actually look at the catalog of products, but still have to work with a sales rep to complete an order and to negotiate an order. And I think a lot of B2B companies are really moving toward orchestrating a real digital experience. And I would tell you one other area that I think is important is as B2B companies move to e-commerce, they have to have technology to power the full omni-channel experience; so making sure that you're driving rationality in your algorithms between your direct sales, your partner as well as your e-commerce.

And I think that's another area where why many of our customers are starting to adopt our technologies is to power that omni-channel experience.

Operator

Our next question is from Ross MacMillan with RBC Capital.

Ross MacMillan -- RBC Capital Markets -- Analyst

Andres, one for you. On the 50-50 mix in terms of bookings existing versus new, can you just remind me of how that's been tracking? And I guess I'm curious as to whether you're seeing any better success in base customer conversions to new cloud products.

Andres Reiner -- President and Chief Executive Officer

Yes. So we've been always tracking to this 50-50 mix. That's all something that we want to maintain this 50% of the growth coming from net new customer acquisition, as well as 50% from existing. And it's been pretty constant.

What I would tell you is that on the migration side we're seeing good uptick. And I would say we're a little bit probably ahead of what we expected, but we definitely feel very comfortable with what we set as a goal for the year in terms of migration. And I would tell you that on two fronts, on the airline, the new RM based solutions are greatly resonating in the market, like we talked about at ANA. And then on the B2B side, it's been a lot to power kind of e-commerce and bringing our next generation of guidance and real-time pricing capabilities.

Ross MacMillan -- RBC Capital Markets -- Analyst

That's great. And then just one for Stefan. You raised subscription revenue by about $5 million for the year and you took EBITDA up, but you left your cash flow guidance the same. Maybe you could just help us bridge between the revenue and EBITDA raise and then your cash flow is unchanged.

Stefan Schulz -- Chief Financial Officer

Yes. So Ross, a couple things there. One, we also will be making some incremental investments with the incremental revenue that we talked about. We're also going to continue to keep the fire burning by investing in more resources from a sales and marketing and from an R&D perspective.

So that's why you didn't see all of that revenue flow through to the EBITDA line. And then on, specifically on the cash flow, there is also some, along with some of those investments we'll be making, some small capex increases as well for things like hardware, PCs, monitors, things of that nature where we'll be making some additional investments there. So not necessarily in the operations, if you will. We'll see the operational cash flow benefit from this improved revenue source.

But you'll see free cash flow not be improved by as much because we're going to be doing some capex spending primarily on personnel equipment.

Ross MacMillan -- RBC Capital Markets -- Analyst

Yes. But your point is that the cash flow from ops will see a commensurate improvement.

Stefan Schulz -- Chief Financial Officer

Yes. So very similar to what EBITDA is doing. So we talked about of the improvement in revenue, we said that was $9.5 million -- we said about $3 million of that will flow through to EBITDA. I would say a very similar amount would be benefiting the operational cash flow, but not free cash flow because of the investments in the capex.

Operator

Our next question is from Tom Roderick with Stifel.

Tom Roderick -- Stifel Financial Corp. -- Analyst

[Inaudible] business that you've obviously seen some very strong growth there and a lot of strong demand. Do you feel like that demand is coming from really modernizing existing solutions and processes within the enterprise? Or is there a fair amount of sort of net new spending that's coming into the sales and purchasing arena and really giving you guys a larger addressable market to go after?

Stefan Schulz -- Chief Financial Officer

Hey, Mike, we didn't hear the very first part of your question. Sorry.

Tom Roderick -- Stifel Financial Corp. -- Analyst

Sorry. Yes, so on the B2B strength, do you feel like it's a growing larger addressable market? Or is it just time for some of these older legacy systems and processes to be upgraded? Is it a replacement cycle? Or is the overall pie growing in terms of what your solutions are addressing within the enterprise?

Andres Reiner -- President and Chief Executive Officer

I think we're seeing a little bit of both. I think we're seeing some companies really waking up and realizing they don't have the tools to compete in the marketplace. And I think the Amazon threat is really driving this big awakening because a lot of them are starting to compete with Amazon and had not thought of how they were going to be able to compete in this digital economy. And I think it's driving an acceleration where they need to move now and they need not just process automation, but algorithms to power.

And I think also a lot of B2B companies, I think, are moving to thinking about not just B2B, but we're seeing them think about B2B2C and using digital as a way to power a B2C experience. And I think that can be an area where we see a little bit of TAM expansion from companies that traditionally were pure B2B that now are seeing the opportunities of supporting a B2B2C model. So I think digital is really going to open up a lot of opportunities. To me, between digital and a lot of the logistic capabilities that exist today is opening up a lot of opportunities for B2B companies to really transform their business.

And I think in all of the areas that we've been innovating for the past decades, I think they're realizing this is what they need to be able to compete.

Tom Roderick -- Stifel Financial Corp. -- Analyst

Great. And then very helpful, your explanation about the business AI versus some of the cognitive AI that's maybe grabbing more of the headlines. But are you starting to see any sort of threat or encroachment on some of your services with the more freely available and fairly inexpensive AI that's being offered from the likes of Amazon and Google and Microsoft as part of their broader public cloud infrastructure? Are you seeing apps come up in Salesforce that have a little bit more AI that is causing at least that broader discussion as you're into sales? Or are they strictly on that cognitive element of it?

Andres Reiner -- President and Chief Executive Officer

Yes. No, we haven't seen it. And I think part of it is I think there's noise on AI. And I think everyone claims to have AI.

And some companies are running pure machine learning, some are using cognitive. But really when you boil down to it, you have to purposely build your AI. And a lot of the knowledge that we built around pricing and all of the innovation that we've done over the years to be able to perfect it in a way that you can run algorithms, pure machine-based; that there is no human interaction. In a digital world a user is not going to view the result of the AI and it has to be self-learning.

We think we have a huge competitive advantage. And we don't think anybody has really, I think, our heritage from a B2C perspective where it's purely machine-run, that a human can't intervene to look at the results. And those results better be right because if you have the wrong price, I mean, it can create bad sentiment within your customer base. It can cost you a pretty significant revenue loss.

So having AI that's trustworthy, that you know it's going to perform scale and speed and perform with the right pricing is really critical. And I think we've perfected that over decades. So I don't see anybody that's close to what we do in the marketplace.

Operator

Our next question is from Jason Celino with KeyBanc.

Jason Celino -- KeyBanc Capital Markets -- Analyst

I kind of want to ask about the maintenance migration specifically with some of the incentives that you introduced with your sales force at the beginning of the year. Just a little curious how that's resonating with your teams.

Andres Reiner -- President and Chief Executive Officer

Yes. I would say, as I commented, I think the migration is trending well, maybe a little bit ahead of what we expected quarter to date, but it's still early in the year so I expect it to continue to progress well. But I think beyond the comp model, I think the most important that it's our solutions are really resonating with our customers. And I think the advancements that we've made in our cloud products, it's a pretty big leap on the next generation and it's aligned with areas that our customers that are moving to like powering e-commerce.

So I think overall we're seeing very positive feedback from our customer base on the next-generation products and things are trending quite well there.

Jason Celino -- KeyBanc Capital Markets -- Analyst

OK. And then related to your comments around the Staples deal, you said that they're using your solutions to kind of price complex deals and make quotes. I'm a little curious, is this for kind of the Staples.com? Or is this more for their traditional like B2B sales?

Andres Reiner -- President and Chief Executive Officer

Yes. So we can't discuss specifics on the deal, but it will provide omni-channel support. So it's a broad platform, but we can't disclose specifics of where it's being used. But it is supporting an omni-channel sales experience that's beyond sales.

Jason Celino -- KeyBanc Capital Markets -- Analyst

OK. So you wouldn't be able to like differentiate whether it's kind of consumer-focusing business or the business-related part?

Andres Reiner -- President and Chief Executive Officer

Yes. We can't particularly disclose based on our NDA of where they're using it. But what we have permission is it is an omni-channel support for Staples is what we have permission to discuss publicly.

Operator

Our next question is from Rishi Jaluria with D.A. Davidson.

Unknown speaker

This is Hannah on for Rishi today. First one, I just wanted to drill down on sales productivity. I was wondering if there were any metrics you could share around sales productivity and how the new reps are ramping and maybe the time until full productivity for them.

Andres Reiner -- President and Chief Executive Officer

Yes. That's a great question. I would tell you that sales productivity is improving. Our CAC ratios continue to improve so I'm pretty pleased with the progress we're seeing there.

I would also tell you that sales cycle times, which we talked last year that they improved by 30%, have improved further, a slight improvement over what we saw last year. We are continuing to see -- we had, like we did last Q4 we had a couple of deals that closed, started and closed within the quarter. We saw the same in Q1. So overall, I'm really pleased with the sales execution and how we're continuing to improve sales productivity.

Unknown speaker

Great. That's super helpful. And then second, were there any verticals specifically that you saw moving to cloud at an accelerated rate? And have you put in any further incentives to move customers to the cloud?

Andres Reiner -- President and Chief Executive Officer

Yes. So on the first question, on the B2B industries, I would tell you high tech, food, B2B services, oil and gas; these industries we're seeing a broad adoption. On the migration side, we had put together a program that is doing a 1.5 times, which is think of it as an accelerator on quota retirement for net add ACV. And that started this year.

And as I commented, I think that's resonating well with the sales force. And so far in Q1, it's working well. We're a little bit ahead of where we expected so pretty pleased with the results.

Operator

Our next question is from Tim Klasell with Northland Securities.

Tyler Wood -- Northland Securities -- Analyst

This is Tyler Wood on for Tim. The first one, going back to the migrations to the cloud version, are you experiencing that in maintenance revenue converting into subscription revenue at the multiple you expected?

Stefan Schulz -- Chief Financial Officer

Yes. This is Stefan. We are, actually.

Tyler Wood -- Northland Securities -- Analyst

And then you guys put out a 2022 model a little while back. So in light of guidance that's guiding up revenue and the FCF guide maintained, how are you feeling about hitting those goals?

Stefan Schulz -- Chief Financial Officer

Yes. I mean, we have not strayed away from that. I mean we feel like there's a lot of strength in this business. And as Andres talked about, the market seems very receptive to the things we're providing and especially as they are pushing to be more into the digital economy.

We feel like that stretch goal that Andres laid out there several years ago is still an obtainable goal.

Andres Reiner -- President and Chief Executive Officer

Yes.

Operator

Our next question is from Chad Bennett with Craig-Hallum.

Chad Bennett -- Craig-Hallum Capital -- Analyst

Nice job on the quarter, guys. It seems like you guys are seeing a pretty big step-function acceleration in deal flow and in conversions. And I just looked at your geographic breakdown and I think for a first time at least I've seen in a while, all three regions showed really good growth. So I guess first question, and I think a lot of guys are trying to touch on this.

Has something changed especially in the B2B side of the business whether it's real traction with Smart CPQ, having your CPQ product out there and combining that with pricing optimization and AI, is that really resonating and really changing your competitive win rate against the traditional CPQ guys? Is the whole modern commerce stuff really gaining traction? Is there any way, Andres, I don't want to make one quarter into a revolutionary thing. But is there something changing in the market that we're not seeing?

Andres Reiner -- President and Chief Executive Officer

Yes. No, I think it's absolutely that. I would tell you that, look, we've been innovating on CPQ for quite a while, three-plus years. And I would say when we initially made our investment into CPQ as to say, "Hey, we are coming from behind.

We're having to innovate to get up." And I would say now we're ahead of the market. And I think the market realizes the differentiation that we have because our CPQ wasn't just designed to support sales. It was really designed around digital selling and how do you support an omni-channel capability, e-commerce, partners and direct sales embedded with the AI. And I think as the world is moving and realizing we're in this digital era, they're realizing that their old tools that are pricing formula based and process orchestration aren't going to get them to where they need to go.

So we've seen a meaningful step function in terms of volume. I would tell you Q1, which traditionally for us tends to be our weakest quarter of the year, looked more like a fourth quarter than a first quarter. And I would tell you that B2B is driving a lot of that growth. I would also tell you, like you commented, we're seeing good strength across geographies; in the Asia region, EMEA and in the Americas.

So we're seeing very good strength across and adoption across all of the regions around how they power this digital selling. So, so far, we feel we have a pretty competitive differentiation against the CPQ players, as well as strong competitive differentiation in the traditional pricing players. So overall, I would tell you our win rates are improving. They were really strong and are continuing to improve.

So we're very pleased with how we're performing. But we're seeing the companies don't want to have separate products for CPQ and pricing; they want to have a holistic solution to power selling. And I think that's definitely helping with the results.

Chad Bennett -- Craig-Hallum Capital -- Analyst

Well, you guys were way ahead of the market from that standpoint a few years back and now it looks like the market is catching up from an end-user standpoint. Maybe a couple quick ones for Stefan. Stefan, the deferred revs looked phenomenal sequentially and really good year over year. But I do recall, and I don't remember the number, did you guys have some billings that you thought you'd kind of capture last quarter flow into this quarter? And if so, can you quantify that?

Stefan Schulz -- Chief Financial Officer

We did, Chad. We talked about the fact that some of the bookings that occurred in Q4 weren't billed until Q1. And to be honest with you, we had the exact same phenomenon happen in Q1 where we had contracts that were signed that won't be billed until Q2 or later. And to be honest with you, they're almost an exact wash.

So I think that's probably something that we can expect to occur on a pretty regular basis just because of when timing of bookings occur and when the invoicing happens and when it shows up in calculated billings. But it was almost an exact wash from Q4 to Q1.

Chad Bennett -- Craig-Hallum Capital -- Analyst

OK. So there was nothing really abnormal in Q4 from a slip. I mean that's just kind of the nature of doing business, right? Is that how you would characterize --

Stefan Schulz -- Chief Financial Officer

That is correct.

Chad Bennett -- Craig-Hallum Capital -- Analyst

OK, perfect.

Stefan Schulz -- Chief Financial Officer

Just to be clear, it's a little higher than what we were experiencing a year ago, for example. But I think that's also because we're actually booking more business. So I think the two go hand in hand.

Chad Bennett -- Craig-Hallum Capital -- Analyst

So one quick one or follow-up for you, Stefan. So the service growth for this year, it's certainly a lot higher than I thought or maybe anybody thought on the call here. Not to get ahead of ourselves or yourself, I guess should we expect service growth, revenue growth expectations looking forward a year to be more kind of elevated than maybe we were thinking a quarter ago?

Stefan Schulz -- Chief Financial Officer

Well, I think services will, starting from this year on, will grow more than it has, say, over the last two to three years. And a big part of that reason is we've spent the last two to three years really focusing on our delivery and getting customers to value quicker. Implementation times have come way down. And a lot of that work has been built into our delivery mechanisms today.

And so I think what you're going to see is you're going to see our services revenue continue to grow, but not at the same rate and pace that you'll see our subscription bookings grow because there's still some level of efficiency, and as we grow our business we do anticipate leveraging partners at the same time. So definitely expect services to grow, but at a little bit lower rate than what you would see on the subscription side.

Chad Bennett -- Craig-Hallum Capital -- Analyst

OK, great. I lied. One last one real quick for Stefan. Subscription gross margins continue to progress nicely.

In terms of how we should think about the progression throughout the year and maybe the best way to sum it up exiting the year, what are your thoughts there?

Stefan Schulz -- Chief Financial Officer

I mean, that's something that we have been focusing on, our engineering teams have been focusing on for the last several quarters. And it's good to see that progress being made. But it's a hats off to them, who've done a ton of work. So we do anticipate seeing that gradually improve throughout the course of the year.

And we might be able to get another 100 to 200 basis points to where we could see that in a given quarter as we exit 2019. So think of it that way.

Operator

And our next question is from Jackson Ader with JP Morgan.

Jackson Ader -- J.P. Morgan -- Analyst

So first question from my side. Andres, you mentioned that the first quarters have been strong and I think they've been strong the last couple of years, which is counter to what we see in other enterprise businesses. So is there anything maybe industry-specific that's been driving the budget spending here in the first quarters of late?

Andres Reiner -- President and Chief Executive Officer

Yes. So let me clarify. So traditionally for PROS, first quarters haven't been the strongest of all the quarters. Typically, we would say it's second and fourth quarter tend to be our strongest quarters of the year and first quarters are not.

I would say that was different this year. And I would tell you, look, I think it's more related not to budget. I think companies are really realizing that to compete in this era, they need technology to power digital selling and a lot of them are behind. And I would tell you in some of these cases customers want to move quickly because they want to have a solution live as quick as possible.

And I think the demand for solutions, and obviously I think we've had very good sales execution, has led to the good results in the first quarter.

Jackson Ader -- J.P. Morgan -- Analyst

OK. And then the longer-term implementations, right, the second part of the services revenue equation here that's going to jump up in the second quarter. Are these related to some travel customers that are migrating from on-premise to the cloud? Or are these net new implementations that are just larger in nature?

Stefan Schulz -- Chief Financial Officer

Yes. Jackson, this is Stefan. It's actually both. So there are some customers that are part of a migration plan and some are brand new customers or existing customers that bought additional product.

It's all of those combined that are actually occurring this quarter.

Operator

Ladies and gentlemen, we have reached the end of our question and answer session. I would like to turn the call back over to Shannon Tatz for closing remarks.

Shannon Tatz -- Vice President of Investor Relations

Thank you for your participation on today's call. We look forward to speaking with you at conferences and events this quarter. We will be attending the Jefferies conference in Los Angeles on May 9 and the J.P. Morgan conference in Boston on May 15, the Baird conference in New York City on June 5 and the Stifel conference in Boston on June 12.

We will also be hosting other events in New York City and Boston this quarter including a deep dive session on artificial intelligence in New York City on June 6. Finally, we welcome you to attend our Outperform conference in Las Vegas from May 21 to May 23. All event sessions are open to investors and we will host a dedicated investor session on May 22. If you have questions on today's call or upcoming events please contact us at [email protected].

Thank you, and goodbye.

Operator

[Operator signoff]

Duration: 51 minutes

Call Participants:

Shannon Tatz -- Vice President of Investor Relations

Andres Reiner -- President and Chief Executive Officer

Stefan Schulz -- Chief Financial Officer

Scott Berg -- Needham and Company -- Analyst

Chris Eberle -- Nomura Securities -- Analyst

Ross MacMillan -- RBC Capital Markets -- Analyst

Tom Roderick -- Stifel Financial Corp. -- Analyst

Jason Celino -- KeyBanc Capital Markets -- Analyst

Tyler Wood -- Northland Securities -- Analyst

Chad Bennett -- Craig-Hallum Capital -- Analyst

Jackson Ader -- J.P. Morgan -- Analyst

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