PROS Holdings, Inc. (PRO) Earnings Call Transcript

Welcome, everybody. This is our investor Q&A session at Outperform 2025. My name is Belinda Overdeput. I'm the Head of Investor Relations for PROS. Thank you for everyone who made the trip out. Really appreciate you guys taking time to spend time with us and our customers and partners. Before I kick us off, I'm going to introduce our guests. I'm going to read our quick little forward-looking disclaimer. If you listen to our earnings calls, this might sound familiar. Please note some of the commentary today will include forward-looking statements including, without limitation, those about our strategy, future business prospects and market opportunities and our financial projections and guidance. Actual results can differ materially from such statements in our forecast. For more information, please refer to the risk factors described in our SEC filings. PROS assumes no obligation to update any forward-looking statements to reflect future events or circumstances. And as a reminder, during the session, we will discuss non-GAAP metrics, reconciliations between each non-GAAP measure and the most directly comparable GAAP measure to the extent available without unreasonable effort are available in our earnings press releases. All right. So I will get started. I do that pretty fast too. So with me, I have the pleasure of having 4 of our executive management teams. I have Andres Reiner, our President and CEO; Jeff Cotten, our incoming CEO; Stefan Schulz, our Chief Financial Officer; and Craig Zawada, our Chief Visionary Officer. So I'm going to kick us off with a couple questions for each of these guys, and then I'll open it up to the room and to the audience. If you are online, we do have Q&A available for online attendees, and we will check the queue every so often to ask the questions. So I'll actually start with Jeff. So I think many investors I've talked to many of you over the last week or so have asked why Jeff, but I would like to ask Jeff why PROS?

Oh, great question, and it's an easy one. And for those of you that are here this week attending this event, you can probably see it as well. Look, the first thing for me was the product, the platform. This is a true AI native platform, and I was very attracted to an opportunity where not only were they talking about AI, but it literally was embedded in the product, and had been for many, many years. And I had seen that in spades and with all the new agents that we're launching this week, for those of you once again who have seen those announcements, I mean, this is going to be truly game changing technology. The second big reason for me truly was the culture of this organization. I'm a culture first leader that's very customer driven. And one of the things that has really also blown me away about this week, this organization truly lives and breeds culture -- sorry, customer. As I've sat in many, many customer meetings throughout the day, yesterday it was so impressive to hear a customer say, "Hey, we are co-developing this with you. This is the value that the product is now adding to our business." Or, "Hey, here's a new idea of something we want to go and codevelop." And we've got literally product management in the room that's responding to that real time. So the combination of those 2 things were really special to me and really set the company apart as I was considering various different opportunities and this really became the one.

Well, we're very happy to have you, so that's great to hear. Andres, I'll kick you a question now. So Jeff talked about our agentic AI innovations. There's been a lot of talk about agents at Outperform. Can you give our guests who maybe didn't see some of the sessions yesterday, an overview of what we've unveiled?

Yes, so we're unveiling this year 50 new AI agents. And to me, AI agents are really transformational. We're trying to get our customers to think about the evolution of AI is how we're combining large language models with math models underneath to help the organization grow productivity and drive better business outcomes. And to me, what's exciting is this notion that in the future, every person in the company will be a manager. We're not thinking anymore that you have an individual contributor, because an individual contributor will have agents that work for that individual contributor, helping them accomplish tasks. And it's this notion of how do we get a person to go from 1x themselves to 10x to 100x and in these agents, they're not just driving automation, they can actually run autonomously. So they can be always on when the person is not there. So think, for example, we launch your sales agent. Think of the sales agent always listening to the deals that a particular account rep owns, and being able to know when to create a renewal and what renewal terms it should be; volume, price on a particular customer, and now nudge the rep to begin the renewal process. Very different than having the rep to figure out when they begin the journey and now create the new flow and begin the process. These are just examples of how you're embedding productivity improvement, better execution. The other part that's very key to our framework of agents is this goal setting model, so then we can start to embed goals around this, like for turnaround time, win rate, all these other metrics that agent can start to track so that we can measure how that's driving better business outcomes. So we're really excited about this future of agentic AI on top of our platform and how it can help an end customer. We're also powering those same agents to help the customer experience, so those agents can actually support an end customer experience in a quoting process. So think about the future, not just every employee will have agents that help support them, every customer will have an agent or a fare finder genie is a perfect example of that for inspirational travel. So think about you having your own agent that helps you with either your business or your leisure travel experiences right there for you. So to me, this is very transformative. The other important part, and Jeff talked about it, all of our innovation always comes by working with our customers, and I think the excitement that they see in this new technology, how they scale their organizations, is something that I'm very excited about.

I'm super excited as well. It's been great to see -- there's customers literally building their own agents in our innovation center right now, which has been a really cool part of Outperform as well. So I'll go next to Craig. Craig, we've had a lot of conversations with investors over the last couple of weeks, and we talked about it on our earnings call, about how market volatility and kind of the experiences that businesses are having today are really driving demand for PROS. We've actually seen it in the top of the funnel, and it's been part of a lot of conversations even happening here at Outperform. So I would love you as our resident expert to give your perspective on why is market volatility something that causes businesses to look at a solution like PROS?

Yes, thanks, Belinda. I think if you look at situations where PROS really shines, it's volatility and complexity. So if those -- any one of those exists, PROS' technology is incredibly valuable. And it's not just about tariffs. It could be inflation, downturn, any kind of events, pandemics. So in those situations, our software, what it allows companies to do is to understand what to do, and to do that to execute the strategy very quickly. So think of outthink and outpace. To give you an example -- I'll give you 2 examples on outpace. We have one ingredients company and in one of their business units, they have PROS CPQ. And so when the tariffs were coming through, they figured out what prices they wanted to do, and within an hour they had them in CPQ, sales people were able to quote. They had another business unit. There was a company that they recently acquired. They were using spreadsheets and it took them 2 weeks to get those prices into their system. So you can imagine, when you have cost fluctuations, the value of being able to execute that very quickly. An outthink example is we have a high-tech distributor that when they had a number of cost changes, tariff impact on their prices, and they use that -- they use the optimization to figure out, okay, where do we adjust prices? So if it's 10%, maybe some customers, some segments, they're underperforming relative to their peers. We're going to raise those a little more. Some actually, we need to -- we're not going to increase the price as much. And so they use the optimization in order to outthink their competitors in terms of how they pass it along. The PROS technology is really unique. So we optimize the future, not the past. Some technologies out there, they'll look at, they'll do a segmentation approach, and they're looking at the past behavior. And that's not very -- it doesn't adapt to the market. So we have a forecasting element into our AI that looks forward, and so we're looking at trends and adjusting our optimization to those trends. So whenever you have that volatility and complexity, it's incredibly valuable because it's optimizing the future.

Thanks, Craig. Okay, Stefan, I can't go without asking you a question. We just had our earnings call about a week ago. Can you give investors just a little summary of Q1, how it went and how you're kind of thinking about, how we are thinking about 2025?

Yes, certainly. We were very happy with our first quarter performance, a beat on all of metrics that we put out there. Also, for the first time in a very long time had positive free cash flow in the first quarter, which I know, if a lot of you follow PROS, you know Q1 is always a seasonally high cash spin for us. So it's really encouraging to see the progress come all the way through and flip that from a burn to a cash flow generation quarter. As it sets out for the year, we're very happy with how guidance sets us up for the year. So we've talked about an accelerating second half. We're positioned to do that through our guidance and with the visibility we've seen with the bookings we've had, both on subscription and services, and we really feel good about how the first quarter landed, and then how that's setting us up for the second half of the year.

Awesome. All right. Well, I will open it up to the room and also online. We do have somebody running mics just to see if there are any questions. And if people are being shy, I definitely have more questions that I can ask, but…

Always lots of questions, I'm sure. We're supposed to be professionals at this, I guess.

Yes.

I guess, couple questions, Jeff. Want to start with you, shining in the room, you've been here about a month and are quite kind of at least evaluating and checking out the business.

Yes.

What do you think you do differently when you come forward, if anything, or is this managing your business that's already operating well?

First of all, it's absolutely already managing a business already operating well. The way I think about this is amplify. This is the word you'll probably hear me talk a lot about and I'd love for that to get into your heads. This is one of the things that, once again, attracted me here. It's a very financially strong business. It's a business that's doing well. It is starting to accelerate. As you all know, the bookings are continuing to accelerate. And so this is about amplifying a lot of things that already exist. I love to tell a story, which is that in the last 2 companies I've been at, we've replaced the CPQ product in those organizations, and PROS was not even in the consideration set. And so one of the things I'm really excited about here is what I think is a huge market opportunity, and really starting to raise -- further raise our awareness and branding in the market, so that we're getting more at bats. This company wins a lot whenever it gets an at bat. And so obviously one of the things we want to do is continue to increase the demand generation efforts. And one of the ways I think we can do that is through further amplifying the work that Andres and the whole team have been doing around channel and partner ecosystem. I very much believe in the partner ecosystem. And I think if you just look at the CRM vendors alone, we're not really in what I think of as their jet stream of deals, and that's not easy necessarily to do, but I think there are deals that they can't necessarily respond to very well, and we're better positioned. Craig just gave a really good example of where PROS wins more often than not. Frankly, a really good example of that is a deal that I know very closely before I joined the organization that ServiceNow was bidding after and lost to PROS. And I think that's a really good example of where if we had been in maybe more closely with ServiceNow selling that deal together, and there's examples like that all across the CRM landscape. So that's just an example of where I think we're going to continue to focus, where we have already been focused but apply more effort, do more, probably more strategically as well, with some of these partners. But I think the partner ecosystem has got a really big opportunity.

I'll take one follow-up and pass it on. Andres, you and I chatted last night. I spent my entire day yesterday on the travel side of the business. I hadn't done that in a long time, but mainly because one of the questions I get most frequently is, what's the growth like in travel? It's been a tough couple years for the business, obviously. But what does that outlook look like in the next couple of years, next decade, hopefully, as those customers continue to heal off of a obviously a difficult macro environment. And the feedback I got was, there was a real energy around interest in some of the technologies out there. I think for the first time in several years, like, whether it's they have budgets, they have processes, they're in market, there's just something different about it, which is good. But how do you think about your penetration rates across the industries today in kind of 2 buckets, the core revenue management bucket, which I think a lot of your investors understand, but then all the other ancillary items that you're doing today, which is actually probably fueling more of the growth in the RM side of house. Help us understand what that penetration looks like, and maybe some additional opportunities.

Yes, that's a great question. I'm seeing right now a lot of airlines are really focused on the future of offer optimization, and that you probably see is a lot around experience. Premium products are doing very, very well, and you're probably seeing that all of them are working very much on how they're improving their experience, pre-flight, in-flight, post-flight, and what that future is. So what I would tell you is we're seeing quite a bit of demand, not just in the RM, which we're winning new RM deals, but everything from the offer marketing to the shopping, to the merchandising, the full stack that provides offer optimization to dynamic pricing of ancillaries. They're leaning into there, because that's how they get revenue growth and opportunities. I will say the big shift for airlines is they went through pretty massive impact in COVID and they lost a lot of people and a lot of talent and they first focus on the front office to get everyone needed out in the field and in front of customers to scale the airlines back up. And the teams in the IT, in the RMs, they were still building. What I would tell you now is they have the teams, and they're starting a lot of initiatives, and we've seen it in Q3 improve, Q4 and improve Q1. I can tell you here at Outperform, day 1, invest in the areas that we're innovating. I would say the agent technology is resonating really well because it's giving them ways to bring agents in to drive more scale with less people, and those are areas that are very strategic for airlines as well as improve the customer experience. So these new areas that we've been innovating on across the board from corporate sales to dynamic pricing of ancillary to all of our real time pricing capabilities are areas they're investing in. And I see very good demand right now.

Maybe just some thoughts on how the agent strategy or the agent product will be priced, how it changes the revenue or economic model, if at all?

Yes, great question. The agents, we're trying to use more of a product led growth strategy around the agents. So think about trials, POCs where they can activate them depending on the component they're activated in. If they're activating with a component that's, for example, with the sales rep, think of an additional per user, per month type model if they are in a component that's based on transaction or revenue, an additional amount of revenue with a governor limit of volume. The one thing on the agents is we want to have X amount of volume that's included. And then you have another component that you pay if you're doing way more volume because with these agents, now as you start to activate, let's say, self service capabilities within customers, the volume could increase, and we want to be able to as we're driving more value, be able to monetize that value. And because we've set a goal framework around this, being able to measure productivity improvement as well as revenue margin improvement that's being driven by the agents, we want to be able to quantify the value that we're generating. But to me, this is a unique capability that we can actually activate in a trial mode and use more of a product like growth strategy on.

Devin Au from KeyBanc. I want to follow up on, I guess, travel. I think in the past, we've talked about, I think some of your customers, they've had been very slow to rehire some of the back end operational people, and that might have kind of delayed some of the implementations timelines. Maybe just from your recent conversations with them at the conference, but also just recently, how are you thinking about these personal constraints? Is that fully back and they've kind of tied back to the second half acceleration expecting?

Yes, I would say it's fully back. What's resonating, it's been interesting, is I've also been on the road talking to a lot of the executives in our customer base. The agent technology is really resonating because they can see, for example, for the RM system, they have flight and demand endless. And as they're scaling and some of our customers are scaling their go-to-market, adding new routes, by having agents they don't have to necessarily hire larger teams. So I would say the areas that help them drive efficiency are areas they're leaning in. Two big areas that I see them investing more is areas that can either drive efficiency for the airline that they can see scaling their business without necessarily hiring a lot of additional head count, or areas that are going to improve their revenue mix. So think of all of the offer optimization capabilities or bring demand like our offer marketing. But in terms of teams, they have the teams now to begin initiatives. Like I'm not seeing right now where they say, "Hey, we really want to do this. We have the budgets, but we don't have the teams." That's not an issue. And in some of these, like our new agents, they really don't need teams, big teams to deploy. We can activate it in the cloud environment. So I think that some of these new solutions also make it easier for them to start trialing them to see the benefit and then be able to expand on them.

And then one quick follow-up. I know also in the past you talked about kind of unifying or trying to unify the sales team between B2B and travel. Maybe speak to like how is that going and if you've seen any sort of efficiency or productivity gains from that progress?

Yes. So I would tell you, we're largely a unified go-to-market team. So it's been several quarters where we focus on unified from a marketing to sales to a PS to customer success in a regional focus. And what that's brought us is much closer to our customers. We have, as you can tell from being in Outperform, very close relationships. But now in every region, we have a lot more touch points with the customers. And so far, that's working well. Clearly, it shows up in our results and how we're executing from a go-to-market. I would say our go-to-market execution all the way to our customer success continues to improve. In the metrics, when you look at sales cycle times improved by more than 10% this year. So think of the macro effect, companies are talking about deal delays, and we're executing well. Also, linearity on bookings, we talked about month 1, 2 and 3, that continues to improve. And to me, those are good data points that not just the new alignment, but the new alignment is actually driving positive outcomes.

We also see from a market standpoint. So I know when I first joined 14-plus years ago, if you talk to a B2B customer of ours, you say, well, we're not like airlines, airlines are totally different. And now they're saying, well, we kind of want to be like airlines with this volatility. And similarly, airlines, they're doing things with the corporate and hey, there's some B2B elements to it. So from a market standpoint as well, the solutions are really meant to be together because they learn from each other and the capabilities are quite universal.

Jeff, you talked about the partner ecosystem and building that up. Any thoughts or numbers you can give around currently, how many the percentage of bookings driven by partners and what you think that should be in an ideal environment and how you kind of build that up, what you need to do to get it to where you want it to be?

And sorry, you're asking about current numbers for PROS?