PROS Holdings' CEO Presents at Outperform 2013 North America Analyst Session Conference (Transcript)

Apr. 3.13 | About: PROS Holdings, (PRO)

PROS Holdings, Inc. (NYSE:PRO)

Outperform 2013 North America Analyst Session Conference Call

April 3, 2013 12:45 pm ET

Executives

Tim Girgenti – Chief Marketing Officer

Craig Zawada – Chief Visionary Officer

Chris Jones – Chief Sales Officer

Analysts

Nandan Amladi – Deutsche Bank

Andres D. Reiner

Thank you for joining us in this great Outperform event for PROS. We thought this is very special for you in a way to interact with our prospects and our customers, and to give you the opportunity to hear from the market about PROS. we feel our stories best said through others then just purely from us. As you can understand, we’re in a quite period. We’re not going to be discussing anything about the financials. I want you to have the opportunity to meet some of our leadership team, which I’m very proud of what we’ve accomplished over the last two years and how we set ourselves for the future.

and I couldn’t have done it without the great team that I have. and I wanted to get them the opportunity for you to see how they’ve driven the strategy, and get you to be able to ask them questions and get to meet them. but again thank you very much for coming. We wanted hopefully for you to get a favor of our customers and how they get value from our solutions and our prospects what are they seeing about PROS. we wanted to make this be a 30 minutes presentation and then give time for Q&A, and also give you time to interact more with our customers, our partners and our prospects.

Okay, with that I want to kick it off to Tim Girgenti, our Chief Marketing Officer.

Tim Girgenti

Thank you, Andres. And again just thank you all for being here. I couldn’t said it better than Andres, we really are glad you’re here to listen to what our customers have to say. I know you all tired to herein for me, so I’m glad you get to hear from them. Today, real quick from a Safe Harbor’s message included in today’s material. Our forward-looking statements including but not limited to those related to earnings and other financial projections. All statements included in these materials are based upon information known at the time and PROS Holdings assumes no obligation to update any such statements. Today, Craig Zawada and I will cover the market opportunities and how we’re positioned to win. And then Chris Jones, our Chief Sales Officer, will follow with our go-to market strategy.

So a little bit about the market opportunity, I’ll take the front-end of this. it is a big data world, I don’t think anybody doubts that anymore. And one of the things that we get asked all the time, I get our thoughts on this as what’s the size of this market, what is the opportunity for PROS? And we have sliced it in a couple of different ways to look at the size of the market. we’ve talked about this is being about a $25 billion total addressable market in terms of, when you look at the number of companies that we pursue and you multiply times are ASP, you come up with $25 billion of total addressable market.

We also thought it would be nice to show you another perspective and this is the big data market. And you could have seen hear one of the challenges is what is the big data market? What is the size of the big data market and where do we fit? The ranges from IVC is saying that there will be $17 billion spent on big data by 2015. Gartner saying that in 2016 the companies will spend $6.5 billion on enterprise software to drive big data. and then [Victorbon] says that beyond 2013 or by 2017, it will be a $50 billion market for companies spending on big data technology. So it’s quite a range. And what we try to do is figure out where do we fit in that, those big data means, a lot of different things to a lot of people. And this is where we fit.

There is a segment of the big data market called Big Data Applications. We believe that this is the future of big data that this is where money is made, this is where the highest ROI comes from, when it comes to big data, and you heard some of our customers talking about that today. This quote I think says at all. Basically that big data, the noise is cloud, the noise around big data is clouded the real opportunity that software applications actually that the market needs software applications that exploit big data. And the market needs companies to provide big data applications that embed the insights for a particular market of business process delivered at the right time.

You all know PROS, you know that that is who we are. That is our story. We think this represents exactly what our point of view is on the big data market. So it’s about big data applications, not infrastructure, not tools, and then we looked at it from this perspective. If we’re in the big data application market, how big is just the big data application space. And Victorbon conducted a very thorough study, they broke it down into all of the sub categories and sub segments of big data.

So $50 billion includes storage, networking, compute power, no SQL database, SQL database revenue, and they did carve out one section called and this is what their terms Big Data application analytic and transactional software, that is where we fit, that is how we are different, this is where we are unique in the big data spaces in that piece. And they project that that sub segment of the market will be about a $5 billion market in 2015. That’s the number that we think about actual spend, not total addressable market, but spend on Big Data Applications. This is the market that this is how we’re thinking about it as we go-to market. We want to just to give you a different perspective other than the total addressable market and then give you some insight on how when we think about the world, what does it look like to us.

And now, I’ll turn it over to Craig to talk about how we’re positioned to win in the Big Data Application market.

Craig Zawada

Thanks Tim. One interesting thing about this slide is if you think about it all of the other components, a big data or enablers to big data, the storage and networking and so forth, so if you think about where you get the value from big data, it’s by taking action based on that and that’s the software component. So we think we’re a part of the big market, but also we’re part of the market that drives just tremendous amount of value for our customers.

You’re going to hear the next two days about PROS and helping around margin and sales growth. And from this part you could see that CEOs are very worried about growth. If you look at the confidence around the company’s prospects for growth, it has gone down, over the last couple of years. And CEOs want to change their approach, this is PWC Research Study that looked into CEO’s concerns and their top priorities going forward. You could see customer growth in retention and loyalty strategies is the number one thing that they want to fundamentally change going forward. So over 25% want a major change and almost 80% want some change in your approach to driving customer revenue growth. So how do we help companies to drive sales growth. We think about it, we can help companies to get more revenue from existing customers by selling more products, increasing prices, and reducing attrition. By winning new customers, we can identify high value prospects, develop offers that win and close deals faster.

We believe the value proposition around driving sales growth is quite straight forward. There is frankly very few levers that you can pull. If we look at this from a pricing standing point of where we’ve operated in the pricing space, there are 80 different things. We’ve mapped it out 80 different things that you can do in pricing to drive price improvement. And so we think the sales growth message and target is very straight forward, very top of mind for companies. And how do we do this? If you think about how to do all these of things, you want to be able to do two things, first of all predict outcomes. So if I take this action, what’s the likelihood of having the improvement.

And secondly, you want to deliver guidance. So once you know what the opportunity is, you want the ability to give a sales person, for example, guidance on where they should prioritize. Just take an example of selling more products, we have a medical products distributor that has tens of thousands of products. And they use our technology, use our compliments and substitutes to identify priorities of where an individual sales person should go and up-sell additional offers. And what’s unique about this is we use our scientific segmentation to deliver that guidance in a very prescriptive way.

So it isn’t just what the largest selling products that they’re not buying is very targeted, if they’re selling into an oncology type practice versus a general hospital that guidance is based upon the segmentation and science that we delve within it. This company identify over $20 million and immediate opportunity and have already captured about $6 million of that. So that’s an example in doing these things, the ability to predict outcomes and deliver the guidance to the sales organization is a key part of making it happen and as a core part of what we do. How do we extract value from big data to drive sales growth?

We take transaction, market, cost, product and customer information, apply our science and analytics and to deliver this guidance to out sell, out market and outperform and its not just the transaction data, I’m sure as you know PROS is very experienced and has a unique capability of getting large amounts of transaction data in applying science, but we have many customers but that we’re using external information. One equipment rental company, for example, is incorporating whether data to predict the likelihood of renting particular pieces of equipment and that’s driving the pricing going forward for that company. So we have the ability to use all these pieces of information to predict outcomes and deliver prescriptive guidance.

If we think about it from a sales person, a sales person has a very daunting job, and use an analogy of golfer, a golfer that wants to improve their game, there is all kinds of advise that they need to given by a coach, balance, focus, breeze, slower, trust the swing et cetera, there is all kinds of advise. But they have 1.5 seconds of thought, when they’re at the tee in making the decision. And it’s kind of how a sales person today in this environment, doing an incredible amount of pressure to drive sales growth, but there are all kinds of things that they could do. There is different programs, sell this product, up-sell, some more private label, each one of those programs has a different metric, target, compensation implication. And what we hear from a lot of our customers and prospects is that the sales organization is overwhelmed by this and they really desire very specific guidance.

So if we take this golf analogy, what is the golf analogy in the PROS edition? So if you are sitting at the golf tee instead of thinking about all of these different things that one might do to improve the chance of success. If they had, this is a picture of our own doctor Neil Biehn, our Chief Scientist, they would take, our chief scientist would take all this information and deliver very specific guidance. So what’s happening with the wind, what’s the mindset, how is that golfer played so far and so forth, and deliver very specific guidance, for example move your left foot forward two inches and great things would happen, okay. So that’s really the value proposition that we provide is taking all of this information, boiling it down, predicting the likelihood of a positive outcome and delivering specific guidance to the frontline to capture that opportunity.

When we think about PROS, I’d like to share a minute for to describe what PROS means to us and why we are personally very excited about the value that we provide to customers, the value that we provide to shareholders and really the opportunity that’s out there for growth. And a minute for I’d like to use as that of a banyan tree. What is the banyan tree? A banyan tree starts as any other three, it has the single root, but that similarity to other trees stops there.

Now when other trees grow, they drop seedlings and they form individual separate trees that grow as independent entities, if you will. But a banyan tree is very different. When it grows, it develops these things called aerial roots, so they form off of one of the branches of the tree, grow down to the ground, form its own roots. And when they do this, it grows quite substantially, these many different roots grow out. And what’s unique is about these new roots feed the original tree and the original tree feeds all of these roots around it. And it’s incredibly resilient because of this, you can even cut the original root of the tree and it will not kill the tree and these are quite large, they can grow to over five acres. And in some cultures because of this they serve as the centre of community and are sacred in some cultures because they represent longevity and strength. So how is PROS like a banyan tree?

At first blush people think that PROS started as an airline revenue management company. But that’s really a myopic view in our opinion. PROS started by using big data to help companies meaningfully drive sales and margin growth for the company. And since that time, since PROS started as an airline revenue management, it really wasn’t airline revenue management, the core is using big data. And since that time other roots have developed, industry root, so we’ve gone into B2B, we’ve gone into oil and gas, hotels, rental cars and so forth and there have been functional based roots, we’ve added forecasting, elements, price optimization, rebates and so forth.

But like a banyan tree, these are not independent trees. We have not planted these to be independent entities. They all share the same DNA. The reason PROS was successful in going from airlines to B2B is because it shared this core value about using big data to drive improvements in companies. Now the reason we win is because like a banyan tree the value that we provide is greater than the some of the individual parts. So for example the capabilities that we developed in airlines to deal with huge amounts of data to deal with sub second response time absolutely helps us when we’re dealing with the large distributor with 100,000 transactions per week and 100,000 products.

Now, when customers understand this value proposition, we win every time and most of the time, we compete its with companies competitors that have only single tree out there. And so when customers understand this value proposition of PROs, we win every time. Unlike a banyan tree, we believe we can become the center that companies go to for a source of guidance with respect to the most pressing issues. And it continue to be an incredibly strong and resilient company. And so that’s why we’re very excited about the opportunity that this provides both to our customers, and to our shareholders.

I’ll hand it over to Chris to talk about our go-to market strategy.

Chris Jones

Craig’s a lot is good. I will tell you what, he’s one of the many secrete weapons we have. So it’s my pleasure to chat with you about our go-to market strategy. I’ve had the privilege to lead the sales organization for the last 14 quarters. As a sales guy, I always think in terms of quarters, I can’t think beyond that, (inaudible). So let’s talk about it. I actually have responsibility for the direct sales force and our partners and alliances, so I want to talk about both of those sides.

On the left here is what we’ve done from a quota carrying sales rep growth standpoint. I’m very, very proud of how the team has, what they’ve accomplished the growth in win rates, the growth in bookings, the growth in revenue, the growth in productivity, very proud how the team is executing right now. Always room for improvement as we would all agree, but I think the results that you’ve seen from revenue growth certainly bear that out.

Well people always asked me, hey, what’s the correlation between adding reps and growth, so I thought it would be best to illustrate it here. So if you look at the growth that happened here, in that time period and let’s say most of those were back end loaded for a purpose of discussion. And if you say, it takes an average rep anywhere from 9 to 12 months to get ramped up. You would expect to see, in this year you would expect to see the productivity bump in the revenue numbers, right. So all you have to do is look at our revenue growth that we reported in the last earnings report of 40% in the B2B market, and I might add, almost all of these adds are on the B2B side of the business, we’re not adding on the travel, we have a very strong team in place there, its a right sized team to address that market opportunity, most of this done always on the B2B side.

So you can kind of see direct correlation between when you add folks, some period or time later they become productive and there is company growth there. So I just want to illustrate that. We are again expecting to add 30% plus outside sales reps to the organization this year. And I don’t want you to think for a second that its there is just magic formula, you add a sales rep and all of a sudden there is growth. There is a lot of other investments we’re making in the top of the funnel and Tim’s organization things around all the demand generation, lead generation, lead development, reps, all the marketing programs that go into that creating demand and then on the pre-sale strategic consulting side, certainly investments in there to support the reps.

So as far as how we go-to market, I want to break that down a little bit. From a segment side, I think about it quite simply as enterprise and mid market. And when we think about geography, most of the reps are in EMEA, and in North America. And the sales reps are geographically based, so we’ve got people who live in the different territories in those geographies that I’ve mentioned. And typically in those geographies, there is concentration of industries. So, they become more expert in the certain industries.

One of the things that we did on the industry side, when I joined the company is we adjusted the profile a little bit of what we were looking for in a pre-sales strategic consulting, so think it out as a typical pre-sales engineer, and the profile of someone who has a lot of industry experience in one of our target industries, and a lot of pricing experience typically. So they don’t have to be great sales people, but they can come in, they can tell the story just like the people out here, a lot of those people are speaking are a good profile of that kind of people we actually have in those roles.

So what we’ve done here is we’ve identified just like Jeffery Moore would suggest, we said okay. There is certain industries that we see are the big ones that we really want to get the tornado going in those industries, who want to get mass adoption of those industries price like after market parts as an example. So a few years back, we made an investment in someone who had deep expertise in that industry. So think of it as we have the pre-sales consultants who are industry focused, most of them had industry expertise, and then the sales reps are more geographic focused, so we kind of have the best of both worlds, intersecting that a point of an opportunity.

Sometimes like just a couple of weeks ago, I had a customer in Europe say to me, you don’t have anyone who is just like me, you don’t have anyone in my little niche of an industry where there is three or four competitors. I said, you know you’re exactly right, but here’s what we do in that. We have customers in over 30 industries and we have something that we call the tax of pricing, which really talks about these different, there is a set number of business model that company’s go-to market with. And here is three or four companies that have your exact business model that we saw the exact model that you have. So we go-to market from an industry standpoint because it shorten sales cycle and it demonstrates more expertise, but a lot of this is horizontal. We view our play is completely horizontal, you just have to accommodate, if you have a little extra industry knowledge that customers view that as a big point of differentiation in the sales campaign, okay.

Okay, so let’s talk about partners. I break this down in to these three bucket system integrators, technology partners and resellers. On the system integrators, you see one of them is here today, [Lloyd] is here today. They quite frankly help us with awareness and with scale. So some examples of how we work together or some industries were going to market around some of those industry solutions together. They’re typically big influences. So they’re in on the front end. There is a lot of customers who say, let me figure out my strategy and my process and my organization stuff, let me get that straight and then I will bring an application like PROS and on top of that. So working with them closely and having them support in a number of our implementations certainly drive a lot of goodwill. So they’re out there recommending us, and they know us well, and they know the stories of what we’ve done.

And let’s face it, from an SI standpoint, your reputation is one of the most the things that you hold dearest to your heart. So the fact that we have incredible referenceability is something that they view is we are by far the lowest risk company to work with, because they know their reputation is on the line anytime they make an recommendation to another company to one of their clients.

On the technology partners, I’ve kind of look at, there is that three big ones: Microsoft, SAP and Salesforce.com. Microsoft, again, it’s another sponsor here. We work with them in a number of ways, one of which is around innovation. Most of our customers actually implement on the Microsoft Stack, so we do a lot of innovation work to work with like, we’re a SQL 2012 launch partner. When they launch that we are right there with them, side by side, we either already tested and certified our application on it. So, our customers could be some of the first to go to market with that.

They work with us on some initiatives like they have reference architectures, when they go to market from the industry standpoint, they could say here is three or four software companies that we have a pre-configured solution that Microsoft and PROS, and here is what it looks like, so that will be another example.

On SAP front, Andres and Charlie talked that 60% of our B2B customers actually have SAP as their ERP system. It’s one of the key core systems that we connect with, so having the latest and greatest certifications with them is something we always stay on top of and will continue to stay on top of. And then with Salesforce, you probably know we built a native application, a Quoting Application that we plug into sales Salesforce. So that’s one of the ways to work with them.

Last but not least is resellers. So, we’ve recently brought on a couple of resellers, one in the China region, and one in the Brazil region, those are less mature markets from how they think about pricing, some of the conversations that are going on in here, like light years ahead of, where some of those people are as far as how they think about their business. So, we see this as a great opportunity to increase awareness as those markets mature. We’re going to have a good foothold. We do have pipeline opportunities that we’re working on and continue to progress there. So, we’re excited about that.

So, Craig talked about the banyan tree and why we win, and one of the things that I would tell you is I have an extremely high degree of confidence in what we need to do to win at PROS. And that’s starts with, when I first joined the company, I did a lot of research from customers, and we’ve won business customers, we’ve lost business to understand what exactly were the reason; why did you select PROS or why did you not select PROS? And we continued that process. We continued that. When we win, we always want to know why, so we can keep doing it. And on the rare occasions where we don’t win, we want to understand that too, so we can fix with that whatever caused that.

So what I always say to my Chairman of the Board is when we lose, it’s because we’re outsold. If anyone tells you it’s price, they are full of crap, [definitely] price, so, it’s because you are outsold. But some of the key value props that I hear over and over again when I’m talking to those customers after they selected us fall into these categories. So, from the most advanced science standpoint, what we repeatedly hear is we believed we would make more money with PROS. We put in our business case, we would make more money with PROS, and the reason for that is because we have a lot of patented technology with 14 currently patterned patent pendings that we just have different stuffs than the competition is. We’ve got a different value prop than the competition does. And we’ve got a significant lead in those areas where we have those advanced algorithms and models that are built into the software, so then we’re going to have to hire statistician or scientist. We’d actually have it built into the software.

So this is repeatedly one of the key reasons that we hear. The next one is around most complete solution. So what most complete solution is, I’ve bought into the vision PROS, maybe I didn’t buy the whole [enchilada] upfront, but I started here, but because you have such a broad solution, and because you’re innovating so much, coming out of three new product releases a year, I believe that you’re the right long-term debt, because you have the most complete solution today. And when I want to be a customer two or three years down the road, or four or five years down the road, I believe that you’ll have a far better solution than that you needed today. And the fact that we’re a 100% configurable, no custom code, we’re the only company in our space that can say, no custom code. And all you need to do is go to our competitors websites under career, and look at the jobs that they have, and there is a lot of smart people in this room, you know what custom coding looks like on a job description, and you will see them there; I’ll let you be the judge and jury of that.

The last thing is around unmatched customer referenceability, this comes up repeatedly and someone, I think, it was [Noah], I was talking to earlier, he said these customers are, they seem like they are big fans of PROS. And we work really hard. On the last earnings call, the very last question always that Andres was asked, was what your number one goal for the year? Then we remember what’s the answer was. Number one goal for the year is customer success. We’re going to do everything we can to help our customers be wildly successful with our software. And that’s just something that from run on through the years. That’s been part of our DNA. We just put customers at the center of what we do, we bend over backwards to help them be successful with our software, and pull events like this together where they can hear share best practices.

So, what I repeatedly hear is, you know, the other guy, when we heard reference from the other guy, they said, yeah, you know, we’re doing okay with the software, you can make money with software, but your customers, this is really a quote from a customer, they said, it’s the best thing since the SceneEngine was invented. That was a quote from one of our customers in a reference call for a deal we won last year.

So, if you wrap all these things together and then you’ll say, well, we’ve got better people. I’m a big believer that we do have better people. So you wrap that better product, better people, better science, better references, it’s pretty strong value prop, we’re very excited. What I don’t, there’s things that keep me up at night, competing against anyone else is not one of those things that keeps me up at night. It’s our execution is what keeps me up at night, and how we make sure we have a crisp execution day in and day out in every single opportunity, because we do that, we win always every time.

All right, in conclusion. Okay.

Tim Girgenti

All right, so we wanted to open up for questions that you have on any of the areas that we’ve just discussed and get your questions answered.

Question-and-Answer Session

Unidentified Analyst

So the notion of systems integrators being important partners for you has been something that’s been on the table for many, many years. And now, it seems like you’re at sort of inflection point, particularly in the U.S. on the B2B side. Are you starting to see the integrators building large enough practices, such that they’ll actually push you deals and that’s the source of region, or is it still you need to bring in the deals and they are still building their practices. May be just give us a sense on that…

Tim Girgenti

Yeah

Unidentified Analyst

…process at landscape. Thanks

Tim Girgenti

Yeah. So, we’ve talked about in the last earnings call that about 40% of our implementations a little bit over that, we have a partner involved in and we’re seen that metric continue to progress in a positive direction. We see opportunities where our partners are bringing us opportunities, but it’s a sell with model. Its not a model where the partner will take the opportunity and run with it, but they have active accounts, they have a need where PROS can solve, and then we’re working with them on those opportunities, and we see them continue to invest in building out their practices and getting more people certified on the technology and working with us, and we’re pleased with how it’s progressing.

Chris Jones

From a strategy standpoint Tom one of the things that has and SI told you the other day, there are SI, their practice around the SAP implementation is shrinking a little bit because that was just not as many people doing huge SAP implementation. That’s kind of the maturing market. So they are looking internally for what’s the next big thing. What’s the next big opportunity we can bring to a client? It’s going to embed then and there for a long time with a huge consulting dollars. So when you think about an opportunity like a transformation that we can talk about, we’re talking about here today and you think about all the consulting work that were potentially exist for an SI partner around it, and all the management, process redesign on and on and on, they view this internally as key strategy area for that region.

Unidentified Analyst

I had two-part sales question for Chris.

Chris Jones

Yes

Unidentified Analyst

First of all your expansion plans, on the sales team, just to recall 49 according to the slide, 49 total reps hopefully by the end of the year. Can you talk about what percentage of the market do you have covered in North America and then Europe with those sales heads and where may be at some point on a fully distributed model that could go to within two from the reseller perspective, what do future expansion plans look like outside of may be just Brazil and China with those two partners?

Chris Jones

Sure. Good question, and this is the question the Chairman of the Board asked me, the first question he asked at the meeting. Very interesting. What I would tell you is, for the pipeline we have right now, we have very good coverage. And that’s one of the things we looked at as the correlation between pipeline expansion and sales force expansion. So I feel good about the coverage model that we have today. As far as geographic expansion of different countries, we actually are looking at that right now or looking at some alternatives, but there is no active plans online right now as far as saying either in the next five countries that we’re going to light up.

Nandan Amladi – Deutsche Bank

Hi, Nandan Amladi, Deutsche Bank. Question on verticals, lot of healthcare presence here today which we haven’t seen before, is this an area that you’re investing a lot in terms of sales resources, just a focus area for you.

Chris Jones

So I can, go head.

Tim Girgenti

Yeah, that’s been a space that we’ve been investing for a long time both in manufacturing and in distribution and we’ve seen a lot of interest in that space. And that’s an area that we are continuing to impact and see a big opportunity.

Chris Jones

With a number of medical device, excuse me medical device manufacturers and distributors for a number of years now.

Tim Girgenti

That’s a great example, Chris talked about having our strategic consultants that go in as advisors clearly in the sale cycle. We have several that have healthcare backgrounds and can talk about GPOs and medical products, in particular. So a distribution model with medical products is not very different from a go-to-market perspective, but having that expertise has been very successful in getting deals to move across the goal line.

Nandan Amladi – Deutsche Bank

So, you broke down the big data markets and you talked about you participating in the applications piece of the market and how much that is growing? I mean your solution, data and a lot of data is at real time, a lot of processing capacity generation, you’re pulling from databases various stuffs like that. It seems like an ideal solution to run on top of some of these big data appliances that are already out there in the market. Not that you guys want to be in the appliance business, but does it make sense to partner with an Oracle or SAP, ANA and kind of have more, that tightly integrated solution in go-to-market like that at all.

Tim Girgenti

Yeah, I think that that definitely makes sense to look at and that’s one of the areas that we’ve been continually leading on the innovation front. And I would say looking at the best technology platforms from the database whether it would be SQL Servers 2012, or looking at ANA technology or looking at get ANA SQL databases as well as you think going down to the hardware sec, like with our latest technology, where you think technology like Violin, so moving away from disk to really a key that higher performance that we need in this data solutions with connected data and prescriptive guidance. Lot of the innovation goes on in our R&D around those areas. And I will tell you that our innovation sales teams are always looking at the latest generation technologies in running test. One of the greatest things of our technologies back is that we build our data access layer with connectors. So for us when we connect say with Oracle or with SQL Server or with any other database technology, we can actually build an adapter layer to allow us to run with multiple technologies.

And that makes it easier for us to consume a new technology and you think this side, if we want to use, let’s say certain technology like relational databases or content that’s best performing under a relational structure. And then use other parts of our technologies that need NOSQL or an MDX based querying language and supporting both. And those are areas where sometimes people don’t see as much of the innovation that we have done in that back to support the latest generation technologies. And I would say we continue to innovate in that front constantly.

Unidentified Analyst

Second question from me if I can, real quick. So the other thing I am hearing more of is the integration of pricing optimization (inaudible) CRM. I heard even a couple of customers today to talk about how they integrated new software into the sales force CRM system. Is that a trend and does that mean big picture long-term as that?

Chris Jones

It was a burden. We started the strategy around PROS every where in bringing the concept of integrating CRM with PROS. And we’ve done integration that’s one of the strategies around our approach to win products, that’s native on the Salesforce.com platform. We’ve created that in a way to go after the mid market but at the same time that same technology integrates with our enterprise technology as well. We also integrated with SAP CRM and with Microsoft Dynamics. Those are the three major CRM solutions that we are seeing in the market as a common sales oriented tool.

And we believe, our concepts around big data it seems pouring that, as you consume more data, you will become better in predicting outcomes and predicting where the market is growing and knowing what areas you have opportunities, but you want to provide it in a way that’s simple to consume for the sales force. Its’ not how you give on more analytical use, and how do you make nowadays, everyone is already overwhelmed with the volumes of data, it’s how you are connecting that data to helping you guide where the market is going.

So, for example, we’re seeing companies in the rental services base, look at construction data and being able to leverage that construction data to predict volume, because those are important trends of that you talked about weather with another indicators, how do I start mining other data set that will help predict outcome. And the key is to connecting that data. To me it’s important, I kind of view the automobile as an analogy. If you think about the automobile industry, they’ve been using the concept of connected data.

And if you look at from the traction control systems to the ABS systems, they depict real spin and they don’t give you an alert that says, hey, your wheels are locking up, start pumping the break, it automatically does it for you. If it just gave you an alert, you probably will not have a safer driving experience, and as you are looking at the sensors that in the past, the sensor speeds when you’re getting close to an object. The next generation of radar technology is actually using that with the brakes to if it detects you’re advancing at a too fast speed and you may hit the car in front. You can look in the front and back and automatically apply the brakes to make it safer driving experience and actually move from that to Google, building a self driven cars and that’s connecting the GPS with the sensors to help guide the car.

If you look at out technology and our vision, it’s been around that. It’s how do we keep connecting this data but the connecting can’t make it harder for them to use. I shouldn’t need more experience in the future to use that car because it’s more advanced. It should make my driving experience better, but connecting helps us better guide and have better predication of what outcomes may happen, and staying ahead of those outcomes is how we improve our business growth and how we drive the sales growth.

Unidentified Analyst`

Actually the question go back to my first principle a little bit and your own pricing model. So when you knock on the door of a customer and you’re engaging the sales cycle. My understanding was that you basically sold on the basis of revenue under management establishment you look and this comes back to your sizing, market sizing question $5 billion for example. Does that tally with that historical pricing model that you have where you think about revenue under management? And has there been any change in as you segmented the products more or as you’ve gone into incremental industries? Have there been any changes around ASP’s and deal sizes in general?

Chris Jones

Yeah, so we haven’t seen any changes in the ASP. That actually remains constant. And part of it I would say is, it’s our sales strategy. Our goal is not to sell every solution we have and every capability we have. We wanted to start with something that we can deliver value within six to nine months. And we want to tell our customers on the full vision in all the value, but we also tell them that it’s very important to drive value fast because by driving value and improving the ROI, that’s how they are going to expand on this vision. And that’s been core to our strategy.

In terms of looking at revenue under management, it still works very well because we believe the transaction has to be at the heart of big data. It’s how you link your operational data with other factors to help predict volume, help predict what products you should be selling, how you become more prescriptive, even with your customers, and your interaction, think about it if you are a high tech provider, the number of products that as a consumer or in the B2B, and then you see it’s too much that complexity in half of the products may not even applied to you. So by your understanding, what your customers actually preferring and what preference they have, your engagement model will be more prescriptive and that’s another value potential of bringing these type of technologies.

So it’s still kind of applies not to say that we may not change in the future, and look at data volume in other factors, the only area where we have seen that shifting, we use a different model is on the CRM side, in our quote-to-win products just per user, investing in revenue under management

Unidentified Analyst

And then maybe just one follow-up, you mentioned you have a customer for example, that’s using weather data to think about how they optimize pricing. Is this a trend where you are seeing customers being more sophisticated and actually how they use your tool and bringing in more external data or differentiated data then what they have internally and what does that mean for you?

Tim Girgenti

Yeah, we’re seeing lots of our customers with a high degree of interest in that, and I think this goes along with the value proposition that PROS has is, they’re not buying a piece of software that they just implement and we go away, and they go in use. They’re really buying vision to go towards the highest level of capability on pricing and sales, and that really is our value proposition. We can start with companies that are very early. We worked with the most advanced companies and we helped you get from point A to point B.

And so a lot of our companies they want to, for example, implement an analytical solution first and then they get optimization and price guidance. And invariably they get to a point of how can we improve these predictions over time. So for example, we think we’ll have a much better view of demand, and therefore what the prize is, if we know the correlation between economic data or whether and our ability to have availability of the rental piece of equipment.

Well, that’s extremely valuable information. Companies really go to that level first, but what they get from us is we have the ability to add that level of complexity going forward, and that’s part of our culture as well. We love to innovate with our customers and add that that next level of capability, and there is a high degree of interest in that type of capability from our customers.

Chris Jones

We see to expand a little bit on that. We see customers that had all of this data, but they’ve never been able to get any value from it. So I think we’ve seen and part of it is they have never been able to connect it in a way that they can actually drive value off of it. And when you do analytics of data totally de-coupled, if I look at my warranty claim data, and it’s totally de-couple with my customer and product data, then it’s hard for me to make any decisions, and take any actions. And part of our philosophy has been is when we get other data elements, how are we going to use them to provide better guidance. If we can’t see a way to make it viable for that then it may just be interesting, but it’s not an area where we believe the customers should be spending the time, we should be thinking about what data elements can help us predict volume, can help us predict in instance.

Unidentified Analyst

So, just curious how you guys came to the increase of ‘11 quarter bearing sales heads. Because see in ‘11 you added nine net, ‘12 you had a 10, and this year you added a 11. And the reason I’m asking are you planning on adding 11, the reason I’m asking is it seems to be just from an outsider’s perspective, big data is, it is more on people minds and CIO’s minds these days, it seems like there is more interest in a product like yours. I would think from an outsider’s perspective you would want to accelerate the number of sales people you would add this coming year because on a percentage basis, this is actually that number is actually declining. And I would think that the interest in your product would be accelerating. So just trying to understand how you came to that expectation of adding 11 this year?

Chris Jones

Then I would say a couple of factors. One, we also take into account how are we gaining productivity, and that’s something that’s very important to us is, are we having more productive sales reps. So we don’t ever believe we’re going to remain constant. Chris Jones has done an incredible job every year by driving better productivity around our sales force. He spoke about earlier that we don’t just look at quota carrying reps. It’s almost like logos. We have to look at everything from demand generation, event, lead development reps, everything that have been set to top end of the funnel. And we monitor those metrics at the top end by as well as the direct sales rep, what capacity they can produce.

And that’s what we do to right size the organization to achieve the growth that we expect. We also obviously as a public company have to function to a set of financial objectives and it’s a balancing act. Could we have grow more aggressive, there is definitely a possibility that we could, but we felt that the areas we were investing were the right areas to drive the growth that we want out of the market.

Unidentified Analyst

Okay, and then also I’m not aware of any acquisitions that you’ve done ever or recently. Are there any product goals or opportunities that you see?

Chris Jones

Yes, I wouldn’t say there is any product goals but I would say that the areas that we have looked at, very focused on driving big data around driving sales growth. So if you look at it from the lean to order, we believe there is many opportunities to bring big data capabilities to drive better performance. And there is more and more data available that will help organization to drive sales growth. And I think we’ve been pretty clear that that is the areas, if we think about big data, it’s not just the data application to drive sales growth. And those are areas that we’re looking from an R&D perspective and we’re looking from a potential M&A.

I would say, we haven’t set a particular size for us. What’s important is that it’s a company that is growing at a pace equivalent, or faster than PROS, good recent technology, not the technology stack that’s outdated, good cultural fit, and that can fed into our financial profile.

Yeah, so we have said and Gartner has put public data around, it was about 5% penetration of the total addressable market that’s still very little penetration, even within our customer base. We have little penetration there is a lot of opportunity, the great things we have, very large customers that are spread across hundreds of countries and have the opportunity to expand within those. And that’s why I always go back to believing that customers success is the most important strategy because if we maintain the mass passionate as we are about what we do and us being an extension of their business to help them drive growth. We know we’re going to capture that.

I would say from a sales, we’ve been focused on net new and we’ve talked about last quarter that we’re very pleased that we’re seeing a higher growth in net new. So that’s part of our strategy because we know if we capture net new, it gives us also additional sell back opportunities. So, I would say, we’re not even half penetrated even in our existing customers. I would say it’s probably closer to 30%. There is a lot of opportunities out there.

Unidentified Analyst

Just wanted to ask on competition. Big, very large market, seems like big opportunity. Are you surprised or do you foresee like an IBM or companies like that trying to enter the space?

Chris Jones

I mean, you could always see it. I’m not surprised in a way, because you’ve seen companies like Oracle. They acquired Revenue Technology, maybe eight plus years ago, and they acquired ProfitLogic. I think the challenge is the expertise needed, the expertise needed to build data science and make it in a robust application without any custom code and continuing to maintain that level of innovation to be able to connect data and I do think that’s something that’s not their core expertise. But I would say, we expect that some of them may come. I think our strategy is, continue to innovate faster and in a very focused area, and we believe that more competition will be better. It continues to raise the awareness. So we feel we’re in a great position.

Tim Girgenti

Yeah. On the other side, may think about new entrance. So can they start up, come up with a great idea around sales effectiveness or sales growth and that also we’re less concerned about frankly, because we know what it takes to take in transaction data to held the response time and so forth. It’s extremely difficult. We’ve spend lots of time and years over that. We think that [other] companies won’t come into this, but to have the full value and replicate that we think there is fairly high barriers to entry for the type of work that we do.

Unidentified Analyst

And just we were talking about this a little bit earlier, but the message around big data is something that is relatively new for the company. But the notion of what is sort of a (inaudible). Can you talk about what new technology specifically you’ve adopted to be able to capture this big data thesis and what comes next in that leverage?

Tim Girgenti

Yeah. So we’ve been doing a lot of innovation on the back end of our systems around utilizing those equal databases, utilizing, say the latest database MDX base technologies that allow for higher performance hardware that you need to bring this technology, bringing in capabilities to connect different data that comes at different levels. One of the challenges we’re looking at connecting data is that you never have a one-to-one mapping. You get data and the data may come at a level, but to be able to connect you need to disaggregate it or aggregate it up depending and bringing those capabilities that allow easier ways or two scientists, Neil Biehn will talk about the concept around viability, which we believe is an important component.

Bringing noise can actually produce bad results. So being able to test data to understand the sparsity and being able to audit sensor data, if we detect outliers, those are capabilities that we are continuing to build that have built in our data platform. And it’s interesting that a lot of our [exacting] experience from the travel helped us understand these problems because if you think of an airline, you may have a lot of cancellations that happen because of a storm. Well, you want sensor that because those cancellations aren’t reflective of a real even that’s going to happen again. And as you continue to build big data capability to stay connected, you have to build these mechanisms to audit, detect and sensor data as well, so that you don’t bring noise and bad results, because that’s how a business user may lose confidence and we know data will not be perfect in continuing to enhance the mechanisms to deal with sparsity, to deal with noise. In those areas we are continuing to expand within our technology framework.

As well as looking at dealing with, say, double, triple the data volumes. In that scenario, performance, I would say, is an area that we are constantly working on our data, on our whole platform in at all levels. I would say that two or three years ago, the biggest bottlenecks we found were in the I/O side. The data by own got a point where at the I/O layer we just couldn’t read fast enough, write fast enough and that’s where we moved to technology like Violin and get to a whole new level. So I think it involves, as a technology fact, the platforms to use and looking at the new platforms like the Sandra, all of these new Violin or SQL server 12, in all of these technologies as well as the hardware stack and whether the new hardware trends to help you deal with larger volumes of data in real time.

Unidentified Analyst

From the platform being able to acknowledge and adapt a deal with larger volumes of data, and a size from the notion that the theme of big data gives you a more viability in the marketplace a more interest. Should investors anticipate specific modules that take advantage of the specific means here that will be an up sold or it’s just part of the broader evolution of the whole offering?

Tim Girgenti

Bob, I would say we said we have looked at new areas where we can expand from modules just like we did with Rebate Optimizer, and those are areas that we’re always looking at it. If you think about our strategy, the way that we’ve looked at it is how do we create future start-ups within PROS that will drive revenue growth three to five years now. And if you think about the areas that’s going into the mid market, looking at products like Rebate Optimizer, those, based on our current revenue run rate well those aren’t going to move the needle that much short term but we know those investments will start to move two, three years south, so that we can maintain the revenue growth expectations that we have. And we see other capabilities in the future where we can expand as well. Yeah.

Unidentified Analyst

Pardon me. Last question I guess on implementation timeframes. Your implementation timeframe have been pretty steady over the last three or four years, a little at least consistent from that timeframe. Given how much more depth of experience you’ve had in the last couple of years, is there way to improve those implementation timeframes to get customers running faster? And then thinking forward giving where your deal flow has been lately, there’s probably some benefits here in those customers up in running more quickly obviously with same efficiencies?

Tim Girgenti

We always believe there is ways to improve. I would say for leader Wagner Williams of the professional services organization is always working on ways to accelerate. And it’s really looking at automating processes on the implementation side. I think are the most bringing inventory templates and being much more prescriptive on how we deliver services. It helps a lot, it helps our customers to be more successful, helps us to deliver time to value faster. So I would say that that those are expectations of us is that we continue to improve in those areas and we have seen improvements over the last three years and we’re continuing to invest and improving, okay.

Unidentified Analyst

Great.

Tim Girgenti

Well, thank you very much for attending our event. We really think this is a great opportunity for you to meet with our customers and our partners and with extended leadership team that again I really give them all the credit for what we’ve accomplished and where we’ve set the business for the future, so I really appreciate you taking the time and that’s not easy sometimes to take the full day, but we’re greatly appreciative. So thank you. I hope you enjoyed the rest of the afternoon. We have incredible speakers out there and enjoy the opportunity to go and talk to other prospects and customers and get their point of you. Thanks.

Andres D. Reiner

Great. Thank you, Tim.

Tim Girgenti

Thanks.

Operator

This call is concluded. Thank you for your participation.

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