PROS Holdings, Inc. (PRO) Earnings Call Transcript & Summary

Yes. I would say the large majority of our travel is airlines, but we're also in the rental car space and in the hotel space -- sorry, 2 areas that we're in. But I would say the vast majority is still in the airline side.

Okay. All right. No, that certainly makes sense. So maybe just sticking with travel, right? I think an interesting thing when we look at the competitive landscape and when we track the competitive landscape through 2020 with all those dislocations that were happening was, even though you guys saw some challenges, your competition in the travel side was tremendously more dislocated than the challenge that you guys saw, right? And what it sounds like from the work that we've been doing is that you will actually come out better coming out of COVID than some of your competitors because through COVID, you've been able to really maintain the core of your company. You haven't had to fire people. You've been able to actually maintain your employee base and continue to innovate going through the year, right? So coming out of it, from a product perspective, you could actually be much better than your competition, widening the competitive gap. Is that how you're thinking about it?

Yes. Look, we look at it. In any situation, I think when there are market challenges, we believe in investing. And we've always been very close to our customers. Innovation comes when you're working together with them. And I think through COVID, we got even closer to our customers, right? We weren't -- it's impacted anywhere close to our customers because of the value that we drive and how critical we are to help our customers drive performance. But more importantly, I think we're innovating where the world is moving. And I think that a lot of this innovation and where we've been going is a line where airlines need to go. And I think that as airlines get through COVID, they're going to want to be leaner. They're going to want to and be able to maintain this on their product offerings, their customer experience areas that we've been innovating on digital retailing are only going to accelerate. And I think that's the opportunity for us. We always have to be centered on the customer and aligned with them. But I do believe that one advantage we have is we have been continuing to innovate. We have an amazing team approach, which I'm extremely proud of with an average retention of 5.6 years from an employee perspective and leveraging that expertise and continuing to innovate on where the world is moving, I think, will position us in a good place when airlines are able to invest back.

Yes. And that's certainly really exciting. At least we're hearing that excitement when we talk to PROS investors. Maybe switching gears to the B2B side of the business, right? That area is really changing rapidly, right? As you mentioned, with all the digital transformation, and the innovation and the -- frankly, disruption that's happening in the way B2B selling has happened -- is done, you're putting a lot of R&D focus on that part of your business. How are you thinking about the product direction on the B2B side? And what role does M&A play in terms of really pushing forward your overall portfolio on B2B?

Yes, that's a great question. So B2B, I think, has an amazing opportunity. Likewise, to really focus on this omnichannel commerce motion. I think companies, what we're seeing now, what's changed is, I would tell you, pre-COVID, a lot of B2B companies were really focused on how do they bring tools to help the sales rep create quotes. How do they bring tools to drive pricing strategy and pricing optimization. I think what we're seeing now more and more in companies like Wesco, it's a perfect example, leaning into digital and there are companies that are seeing digital as the future in bringing the tools to connect direct sales with their digital channels. And their digital channels not being just their e-commerce strategy, but their marketplace strategy of knowing what products will they have in which marketplaces, and how did they power them all in real time, and how do they learn from all of those shopping signals. And if you think about it, that's kind of where we came from. If you think about the airline industry, 10 years ago, we built the real-time pricing capabilities so that whether you're shopping from an Orbitz, an Expedia, any place, that we're learning from all of those shopping requests and embedding that into our AI. The beauty of digital is the collection of data that you get, the learnings that you get. And as the world moves more into digital and B2B, I think a lot of our innovation around our real-time offers, real-time pricing are going to be critical for companies, not just to feed those markets, but actually to win in those markets because what we do know from data though is if you don't have the right price, you're not going to convert, right? You could be in every digital market, in having the platform that allows you to power orchestrate any of those in real time is critical. So in terms of -- in M&A, the areas that we're focused are adjacencies that help us deliver to this vision of optimizing every shopping and selling motion. Think about the technology and tools that organizations need to drive a digital commerce strategy, everything from how they're marketing to how they're selling and converting. So those are kind of more around adjacencies where we'll either innovate and continue to innovate because we have an amazing R&D team or will extend where we see technology that helps us accelerate our vision.

That makes sense. And just sticking with B2B, right, on the competitive side of the industry, obviously, B2B is a much more crowded competitive landscape. There are more participants than you have on the travel side. Have you seen any changes in the competitive landscape through 2020 and with all the disruptions that have been happening?

I'll jump in and take this one. So from a 2020 perspective, no real changes in the competitive environment. I mean, a lot of the same players, as you mentioned, the B2B space is much more fragmented than the travel space, a lot of smaller vendors that we compete with in that -- in different areas of our solutions. So I'd say from a B2B perspective, our competition is very focused on either sales personas or pricing personas. Where we're focused, as Andres has spoken about it on this call today, on a digitally connected omnichannel sales motion. So we like our competitive positioning. We're confident in our competitive positioning because of the depth, breadth and scale of our platform and its ability to solve pricing and sales challenges really across any channel and give you a fully connected experience that you're constantly able to drive higher conversion of your sales. And so really, from a price management, price optimization perspective, we've got a few smaller vendors. And then from a CPQ -- that we compete with, from a CPQ perspective, a couple of small vendors and then some of the larger ones like Salesforce, CPQ. But really, I mean, our strength is our -- the depth and breadth of our capabilities and the way that we're solving this kind of up and coming omnichannel challenge that a lot of businesses are facing.

Yes. That's -- as companies think it -- one key area, I think, that is critical to understand is that companies think of not just solving their direct sales quoting or not just solving their e-commerce, but think about when companies think these need to be 100% digitally connected. That means if I have product information and product configuration and pricing, I want it to be 100% like instantaneous across all channels. I can't have my configuration for CPQ be uploaded into CPQ solution, totally decoupled from my e-commerce. And now when a customer shops, the products they see aren't up-to-date or the prices they see are poorly different because you lose from a customer experience. This is a trust issue, right? So ensuring that you have a platform when you maintain this, whether it be to your product catalog, your configuration, your guided selling motions to your pricing and offers, they're instantaneous across all channels, at the speed of business. That, to me, is going to be more critical and then being able to handle the scale. So I think where the world is moving, there aren't many companies that I know of that actually been able to build platforms to drive that level of scalability and performance. And that have been designed, really, it's a headless API, they can power and orchestrate all of those motions.

So that, Andres said that concept of the speed of business, right? I think that's a really interesting one because as we're going through the first couple of days of the TMT Conference, what we're hearing routinely is every company is looking to accelerate the speed of their business into 2021, right? And when you think -- when you just -- I guess, a little bit more tactically, right, when you look at your pipeline that you have coming into 2021, are you seeing that kind of pent-up demand from 2020 translating into the pipeline of new business and anything -- just expansion within existing as you're heading into 2021?

Yes. So we're seeing the pipeline continue to grow. And I think we're seeing companies start with different types of use cases than we've seen in the past, where they're now really focused on the digital side. We're even seeing some companies thinking in B2B about direct-to-consumer, which frankly, they weren't thinking before. So not only are we seeing the pipeline drive up, but we're seeing the use cases of businesses thinking not just the old ways of how do we distribute CPQ for sales, but how do we actually build our digital strategy and how do we power -- we're seeing a customer, for example, looking at powering Amazon for the first time in B2B, that they're launching some products and testing some products on those channels, which is good to see that they're embracing this world of digital that they -- even if you're a B2B company, you need to think of B2B2C and direct-to-consumer as motions and really leverage the power that digital has. And I think that when we look 10 years from now, I think the companies that embrace this that look at digital as the biggest opportunity they have, I think those companies will capitalize and win large market share. I think the companies that stay in the old and thinking about purely direct and it's going to be friction full and every deal gets negotiated, and it takes us a week to respond, and it's purely on -- I think they're not going to be able to compete and win.

Got it. That definitely makes a lot of sense. And it's certainly exciting coming into the new year. So the interesting thing about pipelines is pipelines can remain just pipelines until unless -- unless the business starts to get closed, right? So obviously, I think you've seen your sales cycles get extended through 2020 but I know we're just a month or so -- 2 months or so, into 2021. But what are you seeing as far as like the length -- the length of sales cycles into the new year? Maybe even just the -- what did you see through Q4 that you're carrying into '21 -- 2021?

Yes. So we saw -- we commented in Q4 we saw an improvement in Q4 in -- especially in the Q4 and the second half of last year compared to the first half, we're continuing to see the same in the first quarter. And I think that naturally, look, I think last year, a lot of companies focused on digital transformation around their employees. Can they get connected to the conferences? Can they move software that they had on-prem to the cloud so they can access it? Can they track their employees? And a lot of those motions. I think companies now are focused on more of the business application. And what does it mean around digital transformation, around customer experience. And I think we're going to continue to see that through first half and second half of this year, that these are the initiatives that are going to start getting funded and are going to continue through the year. And I think that a lot of organizations are looking at these as strategic tips. Not something that they're doing just tactical, but thinking more broadly, like we're seeing some organizations think about direct-to-consumer and have hired very senior leaders in their organization, focusing these areas to drive long-term strategies. And I expect these are going to be the areas of investment, not just for this year, but beyond. I think this is an opportunity for us. We have to execute, but it's a great opportunity for us to capitalize.

Well, I mean, it certainly sounds like you have an exciting 2021 ahead of you, and we're all obviously hopeful that the world macro continues to stabilize and improve, and we can all start to see the benefits of all the digital transformation that's undertaking right now. So I think this is a good place for us to stop. Andres, Alex, Belinda, thank you so much for your time today. I hope you have a great rest of your day.

Thank you, Stan. Really appreciate it.

Thank you.

Thanks. Great rest of the day.

Thank you.