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PROS Holdings, Inc. PROS 2019 Outperform Investor Luncheon & Fireside Chat May 22, 2019

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Page 1: PROS Holdings, Inc. PROS 2019 Outperform Investor Luncheon & Fireside Chat … · 2019-05-27 · PROS Holdings, Inc. – PROS 2019 Outperform Investor Luncheon & Fireside Chat, May

PROS Holdings, Inc.

PROS 2019 Outperform Investor Luncheon & Fireside Chat

May 22, 2019

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PROS Holdings, Inc. – PROS 2019 Outperform Investor Luncheon & Fireside Chat, May 22, 2019

INVESTOR PANEL P A R T I C I P A N T S

1. Shannon Tatz, VP Investor Relations (Moderator)

2. Dan Stone Stone- Sr. Director of Finance- American Hotel Register (AHR)

3. Jody Fales- VP of IT- Anixter

4. Scott Nelson Nelson- VP of Global Pricing Operations- Hitachi Vantara

5. Elton D´Souza - Chief Revenue Officer - Air Portugal

6. Dee Waddell - Global Managing Director, Travel & Transportation Industries at IBM

7. Andres Reiner, CEO

8. Stefan Schulz, CFO

9. Celia Fleischaker, CMO

10. Tom Dziersk, EVP Sales

11. Sunil John, VP Product Development

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PROS Holdings, Inc. – PROS 2019 Outperform Investor Luncheon & Fireside Chat, May 22, 2019

Shannon Tatz:

All right. While everyone's getting seated, I just wanted to start by thanking you all for attending today. We

are thrilled that you were able to make it out here, and really thrilled that all of you were able to join us for

the keynote beforehand. Little did I realize how much I would learn about how I'm doing my job incorrectly

from Dan Stone Pink, so I apologize right now about scheduling this during everybody's mood trough, but

hopefully a little bit of food, a little bit of coffee and we will have a great session anyway.

Let me just start out by thanking all of our investors and analysts in the room one more time. I know it's a

big time investment for you to come out here. We appreciate you doing that. We think this is the

absolutely best way to learn more about PROS, our customers, our partners, our people, and our

technology, so we hope that you view this as a good use of your time over the next day or two. We invite

you to attend any of the sessions that you think will be useful in helping you understand a little bit more

about us, and next I just want to cover a little bit about our plan for the next hour and a half that we have

together.

We're going to break this up into three segments. During the first segment, we will cover a bit about our

travel space, so we have Dee Waddell from IBM, and Elton, who you met during the keynote, from TAP

Air Portugal, that'll join us to talk a little bit about what's going on in the airline space, what changes we're

seeing in that market, and the role of technology.

Next, we'll go to our B2B panel. We have customers joining us from American Hotel Register, from

Anixter, and from Hitachi Vantara, who will share their stories; what they've been doing with PROS,

what's new in their business, and how PROS is helping them meet some of their business strategies, and

then we'll end with an executive panel and you'll have the opportunity to really speak with our broader

Executive Team. I know most of you know Andres and Stefan and myself very well. We also have Tom

and Celia (inaudible) that'll be joining us in order to answer some of your questions around marketing and

sales and the products.

Right before we kick off, I need to read our Safe Harbor, so we'll take care of that from a logistics

standpoint.

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 any forward-

looking statements to reflect future events or circumstances. As a reminder, during today's meeting we

will discuss non-GAAP metrics. These non-GAAP metrics should be considered in addition to, but not as

a substitute for, our financial information and results prepared in accordance with U.S. GAAP. These U.S.

GAAP metrics are available in our SEC filings.

Okay, now with that, let's go ahead and get started. I'd like to invite Dee and Elton to join me up front.

Yes. Right there in the middle, I think, would work. Perfect. Thank you both so much for taking the time to

be here today. Yes.

Elton, I wanted to start out with you. We got to hear a bit today about some of the newer things that you're

doing with your business in TAP Air Portugal. Can you maybe step back for a minute and help us

understand the history of your partnership with PROS, how you've been leveraging PROS in your

business over time? I believe you stood up when we asked those customers that had been with us 20

years or more to stand up, so there's quite a story to share here.

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PROS Holdings, Inc. – PROS 2019 Outperform Investor Luncheon & Fireside Chat, May 22, 2019

Elton D’Souza:

Yes, so first of all, I need to separate a bit between TAP. I've been in TAP for the last three years, but I've

worked for many European airlines for many years, and I know PROS for the last 20 years, so I was the

Head of Revenue Management at Swiss just after the bankruptcy of Swiss Air. I also am an old Swiss Air

person and I also worked with (inaudible) and came back to Swiss. I'm happy to say that actually we used

PROS O&D. We were the launch customer in the world; the first airline to have it. We had the (inaudible)

from Andres at that time, so Andres, and so actually we used it to turn around Swiss. It was an immense,

immense help to us to be able to compete very strong in the market, and this is where my knowledge and

relation with the PROS actually was founded.

I was then asked by the chairman of the Board of Lufthansa to go to Austrian to do the same when they

bought Austrian in 2010, and I did that, and also in the process implemented PROS in Austrian, and still

continue to actually implement PROS from the group level to the RMA/RMU level as well. At the same

time, Andres was appointed as CEO, and we actually worked together to make the whole Lufthansa

Group, which was with Amadeus, and moved to PROS RTDP, and I'm glad it worked, and what

happened was that The Lufthansa Group appointed PROS as one of their preferential suppliers in that,

and I think we know what happened after that, so I think PROS is—so this is my interaction with PROS.

I've been in TAP for three years, TAP Air Portugal. TAP is a PROS customer also since 1999, but they

didn't update their systems with the privatization. With the investment from David Neeleman, we basically

have done a lot of upgrades, so we went to O&D III, first of all, from O&D II. We launched, in the

beginning of January this year, RTDP with O&D III. GSO launched last month, and we have—in the

pipeline, we've already signed contracts for the RMA and RMU; hopefully RMA by the end of this year

and RMU the end of next year.

We're also working on a pilot project with PROS where we—which I will present this afternoon, and

basically it's about using personalization and the artificial intelligence to ensure that we can make the

correct offer to the correct customer. The focus is on ancillaries where basically we want to move from a

static environment of offering ancillaries to a dynamic offer, and bundling possibilities and also non-

bundling possibilities, so we want to go to dynamic pricing using AI, and also make a personalized offer to

the customers, so we've had, let's say, the first steps completed, or the first phase, which I will present

this afternoon, but it has been successful and I think we're in the right direction and we hope to be

somebody who launches that in the market by the first quarter of 2020.

Shannon Tatz:

Excellent.

Elton D’Souza:

I hope it was not too long.

Shannon Tatz:

No, no. That was fantastic, but I do want to make one clarification for those in the room. You mentioned a

few acronyms, so RMA, RMU, and GSO. Can you maybe share with a group what those products are and

what you're looking to accomplish in your business?

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Elton D’Souza:

They're basically upgrades of O&D III, which we have. RMA is Revenue Management Advantage, U is

Ultimate, so additional functionalities that allow us to go down the path of e-commerce and the future that

we expect to come to our industry.

Shannon Tatz:

Awesome. Very cool. One concept that I've heard a lot about in the airline space is NDC, or New

Distribution Capabilities, and I think this ties in a bit with what Elton was speaking about in terms of e-

commerce and creating different types of offers. Can you help break down this concept of NDC for the

audience; explain what it is, why it's important, and what airlines are doing to really use technology in

order to adapt to NDC?

Dee Waddell:

Sure, sure. First of all, thank you for having us here. We're glad to be partners of PROS, and we see a

bright future for PROS as well, but NDC, just to be very clear, I won't use any real labels. It's the next

generation capability for airlines, and what it was intended to do was to drive a way that they could have

further ownership of the distribution models and have a little bit more freedom and flexibility, but really,

what NDC is, is a technology protocol of how to exchange data, and that includes a richer base of

content, so it's not just the O&D; origination and destination for those—I would imagine that most people

know that, but the point is, is it was intended and broaden out the types of products that could be offered

through the channels, but also directly, and I think what's happened is you've basically had a number of

people adopt it, so what I see is the airlines—yes, they're interested in that as a mix for their distribution

model.

I think the original plan of trying to reduce some of the value, or perhaps some of the grip that the GDS

has had on some of the—particularly the international, high-value travelers, was also there originally, but

what I think happened is the GDS's were also pretty smart at this as well saying, hey, I can add value by

leveraging NDC as well, so what's happened is, of course, the GDS's are very interested in using NDC in

addition to some of the older protocols that they've used for many, many years.

Shannon Tatz:

Yes. That's really interesting. When I think NDC, I think one of the value propositions is how do you really

publish the offer that you have? There's so much beyond just the price, and if I were to think of what

airlines have been dealing with over the past several years, regardless of what they're doing around

offers, around fleet, etc., it comes down to price because that's the way the offers are displayed, and so I

think NDC and this movement plays a big part in that.

Now Elton, some of the newer things that you're working on seem to be around maybe moving beyond

price and bringing in the whole offer, so can you describe a little bit about how your strategy plays into

this whole NDC phenomenon and what you're doing to sell more around the whole customer experience?

Elton D’Souza:

Yes, so as a airline in TAP, and all other airlines in the industry, as Dee mentioned, we were restricted

because of the lack of functionality of—and not a common standard for the call to deliver content to

different groups of people and differentiate the content, and it also had to do with the legacy agreements

that we had in GDS’s, so I have also in my team at TAP Distribution, and we have actually launched a

new distribution strategy.

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PROS Holdings, Inc. – PROS 2019 Outperform Investor Luncheon & Fireside Chat, May 22, 2019

In addition, we have a huge cost of distribution via GDS; not only lack of functionality, but also a huge

cost of distribution, so we have a completely new distribution strategy. We will build direct connect

channels. One is NDC, but we will also look at other direct connects, and we are in the process of

launching them by 2020. One of them will be supported by PROS, so we will—what we'd like to do is offer

a pallet to our travel agencies or our B2B customers and ask them to choose what they want, and there

will also be the so-called private channel of the GDS, so for a small airline like TAP this is a $600

million—€600 million saving over the next six years.

We have negotiated already with Amadeus, the PSF, which is the inventory system, and also the GDS

part. We have already signed, also, with (inaudible). We are in the process of Travelport, but the whole

technology gives us a lot of freedom to distribute our content, or not distribute content to certain people,

so we have—our strategy is based on a cost to revenue ratio, so I don't mind selling an $800 ticket for €8,

but I don't want to sell a €8 ticket for €8. I hope you understand what I mean, so that's what we're doing

today. Some of our low fares in Europe are €1, and then we have a fuel surcharge and taxes and we are

selling—the cost of selling them is €5 or €6, so this is what we have to get away from, and also we cannot

differentiate content. We are forced to give all the content because of these old agreements to everybody,

and now we—they're going to move away from that and basically offer whoever gives us the best price for

distribution with the best content.

Shannon Tatz:

Excellent. Very interesting. Dee, I did you a bit of a disservice in that I didn't properly introduce you, but in

your role you cover a bit more than travel. You're also in transportation and logistics, and as investors in

this room know, those are other industries that we're involved in, so could you maybe share a bit about

how pricing and offers play a role in the travel space in general, as well as the other industries that are

under your purview at IBM?

Dee Waddell:

Yes. Sure, so yes, I do lead up our travel and transportation space, and IBM has been going through a

transformation as well, so I have all of our client responsibilities for the product portfolio at IBM for

specifically the travel and transportation clients, and having been in the industry with United Airlines, I

was with Amtrak for a while, and then also in others too, but I think on—let me just kind of go to this,

because I think this is a key piece that airlines are dealing with.

I think Elton hit it right on the head. This is about a distribution strategy, and I love the metric they're using

about the revenue to price—the cost to revenue measure, because what that does is it allows you to take

a look at which areas are providing value, and you just heard him say that, hey, I'm more than willing to

give a commission on larger ticket items. Most companies will, so what I'm seeing is what’s unique in the

travel space—of course you have the GDS, and frankly, we can't minimize the value that they can bring

because they do have access to high-quality revenue and high-paying clients, so I think that's an

important piece, and understanding the value they can bring those—for those clients to your business is

very important, and I think the industry does a—sometime a disservice.

I'm not trying to promote GDS. What I am saying is there's value in a distribution strategy, and for

instance like at TAP, who needs international travelers, needs business travelers that often fly multiple

segments on different airlines. I mean, I was just flying—I mentioned I flew over to Seville, or Séville, here

recently, flying TAP, and oftentimes I'll fly separate carriers, so I flew a United over to Boston and then

Boston over to another—to—over to Lisbon, and that's how I then got over to Séville. The point is having

that on one booking is very important for us—and let me just say I pay a lot of money for travel as well—

but that's very important for us, and that's what the GDS's can do.

All right, so that's on the travel side. Now, on the logistics side, what's unique about the airline is we have

IOTA standards. We know that I want to be able to buy a TAP segment, as well as a United segment.

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We've got our alliances. Now, let me try to translate that in the transportation side. There is no governing

bodies like that, and so in many respects it's a little bit like the wild, wild west. It truly is, because you have

government, you have price fixing, particularly on the maritime container shipping and others, but trucking

and others.

There's a little bit more competition there, but what they all lack is this data—this transparency to be able

to use data for good decisioning around pricing their product mix as well, and what I think—what I'm so

excited about PROS is it's the expertise of data science. Of course, with AI and other things go along with

that, but I also think it's in how do I apply that into problems where there are a lot of places with data.

Trucking, travel have a lot of data, and we talk about data that they don't even know about, that they're

not using, so how do you expose the value of the data?

I'm all excited because PROS does have the expertise to help companies understand the value, employ

tools and techniques to then unlock that value, to then drive value for the goal, particularly in the revenue

profit space, which every CEO, every investor’s looking to maximize, so that's a little bit about both sides.

Shannon Tatz:

That's really interesting. For us, with our transportation logistic customers, I think they uniquely benefit

from the capabilities that we have in revenue management, as well as price optimization, so it's

interesting to hear your perspective on some of the challenges that they're facing and how using data can

really help them solve those challenges.

Now, I did want the session to be interactive, so I don't want to ask all of the questions today. If there are

any questions within the audience—yes.

Shannon Tatz:

Apologies. For the benefit of the webcast—I know we are a small group—for the benefit of the webcast,

you could use a mic, that’d be great.

Male Speaker:

Yes, sure. A question for Elton, really. When you think about the revenue management piece, obviously

you've got a PFS as well, I'm wondering kind of (inaudible) to kind of try and operate in this space as well.

They could make it easy or difficult for an airline to integrate with their revenue management tool. How do

you say that kind of playing out? How easy has it been for you? For example, at Lufthansa to get off

Amadeus, and how do you see that going in the future in terms of what various types of PFS players

could do?

Elton D’Souza:

As a customer, we always have a challenge when there's more than one supplier. I think that's what

you're hitting on, so with PROS and Amadeus—we basically have a good relationship with PROS and

we're also a good customer of Amadeus, so I think we have been able, so far, to get them two together.

The point is, as you said, that Amadeus has a competing product, which is (inaudible), for example,

compared to RTDP, but with my experience, I have no doubt choosing RTDP because I've also been

involved in the development of (inaudible), so I don't want to say more, but basically it's the—RTDP and

RMA and RMU are much superior products from a user perspective and from an airline perspective, and

also to optimize my revenue, so for me it's an easy choice. I would choose PROS every day.

Shannon Tatz:

Time for probably one more question before moving on. Yes.

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PROS Holdings, Inc. – PROS 2019 Outperform Investor Luncheon & Fireside Chat, May 22, 2019

Male Speaker:

Yes. Hi. A quick question. I guess just in the last week or so United dropped—started to drop a lot of the

airline travel agencies, and obviously you guys got to be thinking about that too. How does that change

your business and how you would use PROS in your pricing strategy? Thank you.

Elton D’Souza:

I hope I understood the question right. You said that United dropped some agencies? Online service.

Yes. From my perspective, I think we don't need to drop anybody in the—this is our opinion, because as

Dee said, there are some of those agencies—and not some, there are many, who bring a lot of value to

(inaudible) so the point is about differentiating content, so we will still offer them content where they can

still service their high yielding passengers. I'm not so sure we need to drop them. We are basically

building technology.

We actually have a change request with PROS, which is the—to change RTDP to allow us to differentiate

the content of a channel, so I can give Amadeus GDS a different content compared to a Sabre (phon)

one or a Travelport one, because I don't have any restrictions with the new agreements, which I've talked

about and been signed, so basically they will sell—if some travel agency is selling higher content,

because that's what most corporate customers want. They want flexibility. This is at the higher end. It's no

problem to give them that because the price relation—cost revenue ratio relation is better, so I don't see

us dropping any travel agencies on the—in the process. I just want to be able to differentiate my content

to them.

Shannon Tatz:

What's interesting about that, tying it back to Andres' keynote, Omni-channel is a big theme, and it seems

like you're really taking the opportunity right now to think through how do you use the online travel agent,

how do you differentiate amongst these channels by really tailoring offers in that space? In general, in the

travel space, do you see this theme recurring? How are you seeing other airlines reacting to when and

how to use different types of channels?

Dee Waddell:

Yes, well, the airline you mentioned is a good, strong client. Lufthansa’s a good, strong client. We have a

number of shared clients here. It's interesting. I'll go back to what Elton said, is it's about the strategy, and

there may be some fluctuations. There have been statements made by airlines, for instance, charging for

segments if you book through a GDS. I know Lufthansa’s done that. We've seen BA, if I recall, or IG do

some of this, and they're trying to make statements.

My guess is with United—I don't have any specific information on that, but I mean it's a similar play. It's

back and forth, and when I ran united.com back in the mid 2000s, there were lots of conflicts in the

channel going on. We wanted to be able to publish private fares, but of course, as you know, we had to

make sure that that—there were full content available in all of the channels, so that kind of restricts you in

what you can do, so again, I think part of this is a constant negotiation by the airline. I mean, if they can

distribute at a lower cost, let me just say that they've well thought through it, and I think some of

the PROS tools, in particular, help that decision making, but I do think it comes back down to the strategy,

the cost for the revenue, and the value that it can provide as well, and all the airlines do it.

Actually, one more thing that I think is very important is around going beyond just the fare, and we didn't

talk much about the broader views of content, and when we say content it's adding all of the other pieces

of why you'd buy, and not just the price, and I do think that there are a lot of airline CEOs, a lot of

investors are saying, how do I become a (inaudible) company, and the question is in how do I extract

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more of the share of wallet of clients, not just specifically the airline piece, and I do believe there are tools,

especially you've taken it beyond into other areas, particularly with the acquisition—the recent acquisition

with (inaudible) and others, the way that you've brought that together. I see a bright future for PROS as

well.

Shannon Tatz:

Thank you, both.

Elton D’Souza:

Let me add something to it. There are some airlines, as we've mentioned, with like United. Lufthansa

does it too, so in the whole Iberian Peninsula, Lufthansa doesn't allow the travel agents to sell the three

lowest classes. They just close them out. As Dee said, some of them offer surcharges, some of them—

whatever, so I hope we—I don't want to say too much, but I hope the solution that we find with PROS is

much more innovative and much more friendly to the agents, while still capturing their business at the

right price (inaudible).

Shannon Tatz:

Awesome. Well, I can tell you we are very committed to finding new ways to create value for you, so with

that, I want to thank you both so much for joining me today.

Elton D’Souza:

Thank you.

Shannon Tatz:

Thank you so much. All right, so for our next segment I want to invite some of our B2B customers. Scott

Nelson, Jody Fales, Dan Stone, if you could join me on the front that would be wonderful.

To kick-off, I was hoping we could have each of you share a little bit about your story. What was the

business compelling you then, or what was your rationale when you decided to start your journey

with PROS? What were you trying to accomplish? Where have you taken this relationship over time, and

just really help our investors understand what your business is, what you do within the business, and how

PROS plays a part in that, so Jody Fales, would you mind kicking us off?

Jody Fales:

Sure. It's a lot to unpack there. First introductions, I lead our customer-facing digital transformation for

Anixter. We're a $8.5 billion, on our way to $9 billion, on our way beyond that, services and distribution

company serving a lot of markets, including industrial distribution—or industrial and OEM business from

electronics. We do security, audio visual. We do distribution and transmission of power, so really, there's

just a wide gamut of things that we offer product.

There's about 600,000 SKUs and we operate in over 50 countries, so when you think about our footprint,

we do that through 20, 24 different channels. We're brick and mortar. We're web. We're working with

exchanges. One of the keys, to get to your point, on the journey was we needed an Omni-channel way to

deliver pricing and guidance to each of these channels. Frankly, from a digital perspective, it was

challenging to get some adoption using some of our digital tools when you're offering your customers

different pricings and different experiences across those channels, and so PROS was a big part of

helping to centralize that for us.

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I think we've been with you for five years now, and had just taken the plunge into Cloud, I think a month

ago it was, but it's been a really—it's been a big game-changer. It's really helped us from a profitability

perspective. If you look at the quarterly earnings release that we had just this last quarter, our CEO talks

about the margin initiatives we've had in the business, and while it's not all PROS, PROS has certainly

been a very material part of that journey for us. I think we're up 9% gross margin, 30 bps year-over-year,

so it's really helping and improving the experience and profitability of the company.

Shannon Tatz:

That's great to hear. We truly believe here at PROS that having that Omni-channel experience provides a

great customer experience, and I'm really thrilled to hear it’s really coming through in your results.

Scott Nelson, so you're our rookie up here in the panel as one of our newer customers, so thank you for

joining us.

Scott Nelson:

Certainly.

Shannon Tatz:

With your journey, I was hoping that maybe you could focus a bit on what was the buying experience like

with PROS? What did you look at? What were the solutions that you were considering and how did you

come to your solution—how did you come to your answer with PROS?

Scott Nelson:

Sure. A little bit of backdrop first.

Shannon Tatz:

Perfect. Yes.

Scott Nelson:

We were on a pricing transformation journey as a company for about 18 months before we got to the

point where we were going to do a big awesome vendor evaluation and all of that, so we did a lot of

foundational work in advance hoping that we would turn this part of the journey into a very fast journey for

us, and it worked out that way, so we went through a vendor evaluation, the normal suspects; Zilliant,

Vendavo, PROS. We had IT involved, sales involved, sales operations, partner operations, our pricing

operations team, so it was a really cross-functional set of folks evaluating. As we went through that

process and we were doing it all very fast, as your sales team can attest. It was weeks and days.

Shannon Tatz:

We don't mind (inaudible).

Scott Nelson:

We really, I think, stressed the PROS organization through the process, as well as the others, and we got

to the point where IT loved the solution; specialty security, Cloud, all of that part of the story. Sales loved

what they thought they were going to get and what they knew they could get, and so that part of it was

really pretty simple. Then it was up to the pricing operation, does it deliver the science, the segmentation,

the ask, all the things that we were looking for, and the answer was yes, so we signed the contract in

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June. We went live at the end of November with our first pilot district globally in each of our three

geographies, and next week we will turn on 100% of the company, so it will have been a six-month

implementation globally.

Shannon Tatz:

That's exciting. Thank you for sharing.

Now Dan Stone, one thing that I've always admired about American Hotel Register is the company is, I

think over 100 years old and...

Dan Stone:

One hundred and fifty.

Shannon Tatz:

One hundred and fifty, and they continue—you, as a company, continue to innovate around the customer

experience, and I had the opportunity several years ago to visit some of your employees and spend a

little bit of opportunity—or spend a little bit of time understanding what you're looking to accomplish. I was

hoping maybe you could share a little bit about your story and what you've done around customer

experience and changing the way that your customers are buying from American Hotel Register.

Dan Stone:

Sure, and I want to say we've been connected with Anixter, and actually have a very eerily similar journey

as them, which is, I think, good for you to know. It is a consistent experience, and I thank PROS for being

willing to connect their customers to talk about their experiences, but we started with PROS in an on-

premise environment almost five years ago, I guess, and used it basically just for guidance.

We were giving guidance to our sales force when they were getting called for quotes, asked for discounts

based on what we were providing on the web or in our catalog, and that worked very well for us, but as

we've continued our digital transformation, we went live on SAP in November of 2017, and after we hit a

stable point there, immediately started working on a new e-commerce solution, and so we went live on

SAP Hybris just earlier this year, just a couple of months ago, and as part of that we made the decision to

bring PROS in to drive our pricing on the web rather than list just a published price for customers, so it's

not Amazon dynamic pricing.

It's American Hotel dynamic pricing. We move a little bit slower, but we are now using PROS and

segmentation and all the science behind it to deliver pricing right on the web. As part of that, we identified

that our on-premise solution was just not going to cut it; the volume, the speed, the potential downtime

and managing all of the maintenance on that, so when we went live with Hybris in our new e-commerce

platform, we have also implemented a Cloud solution, and the one thing that I have to say is it was not an

easy project.

We definitely hit challenges, but all the way up to the top when we needed something, PROS was

engaged. They were there for us, true partners, pulled out all the stops to make sure that our launch was

successful, and it was. It was very successful. A few snags, which you can expect, but in terms of a large-

scale IT project implementation, it went very well, and PROS was part of that.

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Shannon Tatz:

That's excellent to hear. Just a quick follow-up. I believe you have Opportunity Detection as one of your

solutions as well. Could you maybe share a little bit about how you're using Opportunity Detection in your

business?

Dan Stone:

Sure. We kind of are taking a crawl-walk-run approach there, but we implemented Opportunity Detection

almost a year ago, and while the dream would be to integrate that directly with our CRM software, we're

not there yet. Just with the other IT projects we've had going on, we're not there, so essentially the

solution that we've worked out with PROS is they run the model every month or two and we get a

spreadsheet, and so we filter that down to our top prospects by rep, and we do deliver that in our CRM

using a call campaign, so we're identifying kind of the highest dollar value leads that are generated by the

Opportunity Detection solution and then feeding that to the reps and saying, here's what you should be

calling on; not only what customer should you be calling on, but the top three product categories that you

should be calling on, because they're either they used to buy and they're not anymore, or they're buying

less, or similar customers are buying those. We actually, in the keynote this morning, saw a demo of one

of a—the food company, and these are other similar products that you might like, and so we're not yet

driving that to our website, but that's essentially what we're doing is going through that data with PROS

and driving that to our sales force to sell more effectively and more efficiently.

Shannon Tatz:

Excellent. How's your sales team reacted to those recommendations?

Dan Stone:

They loved it. The feedback has been almost unanimously positive. They love having some direction that

they were lacking before.

Shannon Tatz:

Excellent. I'm going to pause for a minute and take some questions. Yes, Jason (phon). Oh, the

microphone. Thank you for remembering, even though I didn't.

Jason:

Hi. This is Jason from KeyBanc Capital Markets. Actually, one question for the American Hotel Register.

We haven't seen a lot of use cases of using dynamic pricing for a B2B website yet. Can you tell me

something about your business as to why you’d need a dynamic pricing for hotel products? I mean, it

seems pretty straightforward.

Dan Stone:

It would seem that way, yes, but it's actually driven a lot by our customer base. We have a very—you

don't think it's that diverse, but it is. We have some very large relationships with certain chains and some

smaller relationships with certain chains, and we do have relationships with all of the major chains and

brands, but we don't only service the hotel industry either. We market similar products, but into education

facilities, into healthcare facilities; even as broad as gas stations and fitness clubs and campgrounds, so

the diversity of that customer base and how we would leverage price differently into how we'd service

those is really what drives the factor. Once we know who you are and what you're trying to buy, we can

now deliver based on that willingness to pay.

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Shannon Tatz:

That's really great to hear that your customers are the ones really helping lead the way in terms of what's

the right delivery experience. Excellent.

Any other questions? Yes, go ahead Chad (phon).

Chad Bennett:

Yes. This is Chad Bennett from Craig-Hallum. Maybe for Dan Stone, I don't think we heard kind of who

you evaluated on the front end of the process from a vendor perspective, and then maybe for all of you,

versus pick your historical time point, two, three years ago, how is the evolution of your—the way you do

business from a e-commerce standpoint changed, and how crucial is PROS in that evolution? Thanks.

Dan Stone:

The first question, who do we evaluate? It was similar. All the usual suspects. It came down to PROS and

Zilliant, and while we obviously loved the product, honestly the differentiating factor for us is American

Hotel is a family-owned company and culture is very important to us, and it—what it came down to was

the—that we felt PROS was a very good culture fit for us with the people we met through the evaluation

process, and that's held true for us. The customer success organization really is that. It's aptly named.

They are focused on making us successful, and it's a partnership, and so when we went to move to our e-

commerce platform, at that point we didn't evaluate anyone else. We knew it was going to be PROS. It

was just a matter of how far we were going to take it at this point.

Scott Nelson:

I'm going to explain a little bit about Hitachi Vantara as a way to dodge your question.

Shannon Tatz:

I like it. I like your style.

Scott Nelson:

Hitachi Vantara is in the information technology space. We sell hardware, software, and services. Use

Andres' example of a Formula One car, those sensors on that car, somewhere between 50% and 90%,

depending on the manufacturer, are made by Hitachi, so we take that operational technology, figure out

how to get that data through a network to storage, compute, analytics, deliver that in real time back to the

race team. Those are the kind of solutions we put together, so they're—we jokingly refer to ourselves as a

snowflake factory, so we don't do e-commerce.

Jody Fales:

Got you, and for us, I know same names, and it's amazing how close our journey is. We've got to talk

after, but I know they looked at Vendavo and Zilliant as well five years ago, and then when we decided to

go Cloud—and there's a number of reasons that compelled us to go Cloud, some good ones—there was

a table top review again of the space and PROS was just absolutely the fastest time to market for us to

get the leverage we needed, and as an incumbent you had an advantage, but I still think they would have

been selected regardless.

They're very progressive, have the greatest vision, the best Cloud strategy at this point for us, and then

for our—how's the business shaped over the last three years, absolutely going digital. What I do now

didn't exist a number of years ago. Anixter tiptoed into the e-commerce space kind of as a B2C. We have

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millions of skews. There's all kinds of things we can sell. If we just put those on the web people will swipe

their credit cards and we'll just sell lots of stuff. It'll be great, and we did.

I mean, it's an interesting—it's accretive, but it's not moving the decimal for our business. It's absolutely

B2B for us, and our customers—the customer chooses the channel, and so they're showing up and

saying, you need to go here with us, and we had—recently, we had a very large customer, I would tell

you $40 million a year in size, who basically said, in spite of the fact that nobody else can do the global

services you do, nobody can deal with transportation, import management, all the things that Anixter does

so well, if I can't have that digital experience and you can't find a way to make my project and program

execution simpler for me, we're going to leave and go somewhere else, so it's both very proactive. We

see lots of opportunity—tremendous opportunity in the digital space, and it's also being compelled by a lot

of our customers, and what's interesting is every time we build one of these digital capabilities, there's 10

more customers that show up that we can get operating leverage out of that, so it's changing very fast.

Shannon Tatz:

When Andres put that data up earlier today and said, hey, some folks in the room may be surprised by

this, I think it's fair to say that you were not.

Jody Fales:

Not at all. I took pictures of all the slides.

Shannon Tatz:

Got it. Love it. Any other questions? Yes, please.

Tom Roderick:

Tom Roderick with Stifel. Listening to Jody Fales and Dan Stone, both of you sort of talking about going

to the Cloud and going to the Cloud relatively recently, I thought it was interesting, Dan Stone, where you

were citing complexity and scale as issues that on-prem can't handle anymore and it wasn't so long ago

that this is the reason why people just refused to go to the Cloud, so would love to hear about some of the

inhibitors in your business thinking that kept you from moving to the Cloud until recently.

Why just now, and then as you look at the cost and the cost-benefit analysis, what are the puts and takes.

I'm sure you don't want to get into exact sort of pricing and all that fun stuff, but what are the puts and

takes as you think about this has been sort of more expenses than we thought and this is a step back and

cost of moving to the Cloud versus this is where we're saving a lot of money moving to the Cloud?

Dan Stone:

I guess to start, the reason now really comes down to we're using it in a different way. When it was on-

prem, we were literally just delivering it as guidance to our sales force, so when they were inputting a

quote into our system, when they were putting it into—an order into the system, and only on non-

contracted products, so we've got a heavy contracted base, so we were able to—we didn't need much

scale, quite honestly, and that's why the on-premise really worked for us, but we expected our volume to

grow based on how we were using it exponentially, and that really was the driving factor in moving there,

so to your point without getting into a ton of detail, the business case has shifted.

When we put it in just as guidance it was really more about margin maximization, but now driving that

price to the web and driving a relevant price to the web for that customer for the product that they're trying

to buy, yes, we still want to protect our margin, but we've added a component of revenue maximization. If

we can deliver that price to the customer that is relevant to them and it makes them more willing to buy,

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we expect to not only gain business out of that, gain customers, gain greater share of wallet, but it's also

more efficient for our sales force because that customer isn't seeing our list price and saying, I know I

need to call and negotiate that, so we gain some efficiencies in our workforce as well.

Shannon Tatz:

That's excellent. Staying on that topic of value for a minute, Scott Nelson, in terms of your project overall,

can you help us understand how are you planning to measure results? What part did value and the

potential for value creation play in your decision to move forward?

Scott Nelson:

Oh, I'd say it played a huge part, and we've actually stood up an enterprise data repository, and we did all

of that on the basis of capturing and measuring the value, so we're looking at the margin optimization, the

price optimization. We're looking at operational efficiencies. We're looking at quote turnaround times.

We're looking at approval times. We're looking at all aspects of that quote lifecycle, including the dollars

and cents that come out of it, but I will say, while we can't give too many numbers away, we've done

really well and even better than we were expecting in just this short period of time.

Shannon Tatz:

Glad to hear it. That’s great. Any other questions in the audience?

Okay. Well, thank you all so much. I really appreciate you coming here today and sharing your stories.

We really appreciate it.

All right, and for our last part of the segment I want to invite our Executive Team up here. Yes, you. I think

you are mic'd, so I'll get these out of the way. There's no assigned seating, except that one's mine.

I figured we could start with brief introductions. I think most people in the room know all of you, but I think

it would still be good to start off, and since I have you in the right seat now, Tom, I'll let you kick off.

Tom Dziersk:

I'm Tom Dziersk. I'm responsible for global sales. I've been with PROS for about 20 months, and that's it.

Shannon Tatz:

Excellent.

Celia Fleischaker:

Hi. I'm Celia Fleischaker. I'm the Chief Marketing Officer here at PROS. I've been here about a year and a

half.

Stefan Schulz:

I'm Stefan Schulz. I'm the CFO and I think I've been here 50 months, if I did my math right.

Shannon Tatz:

I can't believe we're not talking in terms of quarters.

Tom Dziersk:

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That's something you talk months.

Shannon Tatz:

Excellent. Well, thank you all so much for joining us up here. Celia, I wanted to start off with you. I was

hoping maybe you could share a little bit about what’s new at Outperform this year, what's different from

years past, and help folks in the room understand what makes 2019 special.

Celia Fleischaker:

Yes. Yes, yes. It's good. We're so excited to have you here and have the rest of the attendees here. Year-

over-year, we're up over 20% from a non-PROS perspective, so we're thrilled with that. I don't know if it's

Vegas or not, but it certainly didn't hurt being here, and if we look at the types of attendees, I actually

think Andres' panel this morning was a great mirror of kind of the types of attendees we've got. We had

Randy (phon) on there who's a VP of digital transformation. We're seeing more of those types of titles.

Meredith (phon) from the revenue side with Adobe, and of course, Elton heads up things at TAP as well,

so lots of chief revenue, chief commercial officers that we're seeing here.

Still a real heavy majority of our attendees are a director and above, so senior people, but one other thing

that's a little different and I'll talk a little bit about, content, is we're seeing a bigger pull on the user side.

We’ve put, and as you'll notice on the agenda we have—a lot of things are for the industry side of things,

selling, pricing, and travel, but also user tracks; driving how you use our solutions, how you drive value

out of our solutions as well.

Shannon Tatz:

That's awesome, and I hope you all take advantage of the sessions later today. They are all open to you

to learn more about the products. Outperform is a great time to understand more about our technology,

about our customers, about our partners. It's also a great opportunity for you all to meet our people and

our team, so Andres, I was hoping you could share a little bit about what makes PROS culture special

and what types of individuals will folks meet as they're going through the exhibition hall today or the

innovation center?

Andres Reiner:

Yes. No, I would say that the most special part about PROS is the people, and I think that, for me, it's—

our teams are very connected. We don't have silos, and I think I like people and leaders that don't just

want to be great themselves, but want to make people around them great, and I think that a lot of our

culture is collaborating, collaborating inside of PROS, and I think we're very connected across

organizations. You can take sales, marketing, product, or professional services, customer success. We're

all one. We're all one team run the same way.

We're also having our culture—one of the greatest things is that change is constant. We're not change-

averse. We love to and thrive in change, and I would tell you, being 20 years at PROS, change has been

constant. There hasn’t been a time when we're not changing and innovating, but all of it doing very

connected with our customers, and I think the passion that our teams have for our customers, and not just

the companies; the people behind the companies, because every one of our customers, there's someone

that's making a decision and it can be a career decision of selecting PROS and knowing that we're

actually living for them, making them successful and making their company successful, and knowing that

projects aren't always perfect.

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Everyone can say they're all perfect. There are challenges, because we're doing complex problems, very

innovative, leading-edge, but I think what defines a company and people are what do you do when things

don't go well and how do you react, and I think what I'm really proud of our team is what defines PROS is

when things don't go well we're all in. We're not trying to find blame. We're not trying to find whose fault it

is and how do we get somebody else to do it. We're going to be all in from the top down to organization

and make it right, and I think customers expect and want that.

They don't expect perfection. I think customers expect that when there are problems, that action is taken,

and I think that, to me, our connectedness within our culture—humility; we have a lot of really smart

people, PhDs, Masters, but we have this philosophy that we're constantly learning and that we can't be

full of ourselves, and now everyone talks about AI. We've never hyped the market. We've never been out

there saying we're doing the best, and I think results talk for themselves and I think spending time hyping

and--is not necessarily—it's not that it's bad, but it gets in the way from real results, and I think that's been

a little bit of the essence of the culture.

Shannon Tatz:

Yes, I think that's great. You had mentioned innovation's a big part of the culture, I wanted to talk to you

little bit about our innovation process. Can you help the people in the room understand a bit about how

we think about innovation, and then also would you maybe share a little bit of context around the

agreements innovations that you and Amber showed today? What's the business use case that you

expect with that, and really, how did we come to find that that's what—it—we should focus on?

Sunil John:

Our innovations process works very closely, hand in hand with our customers, as well as other market

(inaudible). Often times we feel like customers come to us with problems that they're facing in their

business and they're looking for software solutions that can help take their business to another level. We

work with them, and we think about how do we take that solution that we're proposing, productize it so

that we can make sure that we don't do one-offs and make sure that we can distribute that, and that

process that worked really.

We got a lot of market feedback from additional customers, from prospects, from industry analysts, from

our Customer Advisory Board who just met yesterday. There's a lot of signals that we get from the market

and we want to bring these innovations to life. (Inaudible) in product definition, but our UX (phon) team

engages very heavily to make sure that the AI recommendations can be trusted and they're deployed in a

strong engineering architecture underneath so that—we want to make sure that, in a Cloud environment,

we can deploy them.

Speaking to the exclusivity (phon) of agreements, you probably heard throughout the conference that a

lot of our customers have contract and off-contract business. Now, when they're dealing with contracts,

often there's a relationship set up where there's an agreement of some sort. It's got a timeframe, usually

involves a large number of products. It's a little bit more negotiated in terms of commercial terms, and

they need tp set this up in a very simple way and play the trade-off of product versus price versus terms;

being able to take those agreements, publish them, walk them through an approval process.

They're more complex deals than simple quotes. Being able to understand the right analytics that help

you know where this deal's going to go south at some point, and then being able to put those prices in a

way such that when orders are coming in, those orders can hit off of that agreement so people get the

contracted prices they expect.

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Shannon Tatz:

That's great. Tom, I'd love to hear your perspective on how the market's responding to some of these

latest innovations. What are the changes you've seen maybe over the past year or so in the market,

what's been proven by these innovations, and what are you really seeing in the market in general that's

driving demand these days?

Tom Dziersk:

I think the innovation's across the board. We see it on the travel side in the new version of the revenue

management, the buying products. Also on the real time pricing engine is a great innovation that

differentiates us, and so what we're seeing is that the reaction time of the customer’s increasing. You

heard it today. As a result of that, we see the decision cycles being collapsed. We've seen about a 33%

reduction in the lead time on sales, which is huge. We see the average deal size increasing. We see the

deal volume increasing, and we see—it's kind of a positive perfect storm. Our competitors are failing at a

rate that we're actually surpassing them, so it's kind of a win-win for us, but truly, I think we're doing a

much better job in sales execution, but the innovation leads the sales, so I think it's really important.

Shannon Tatz:

That's great. Now, in the area of sales execution you've made a few changes, rounding out the edges of

the sales org. Can you talk a little bit about what you've done and opportunities you've found to help to

continue to better our motions there?

Tom Dziersk:

Yes, so when I arrived about 20 months ago we had a very similar sales motion for all deals, and what we

did is we implemented a segmented approach; small, medium, large, global accounts, that kind of thing,

and we're also much more of a virtual motion, so being a Company that's 30 plus years old, why do we

have to do the diligence on every single transaction as if we're a startup, and so it's kind of flipping it on its

head and saying we're the leader in the space, why wouldn't you just buy us, that kind of thing, and as a

result of that, that's really helped collapse the sales cycle. It lowers our cost of sales and allows us to be

much more virtual, and we're seeing success on all fronts; small, medium, and large deals as a result of

that.

Shannon Tatz:

That's great, so the follow-up to that for Celia. I'd love to hear a little bit more about what you're seeing at

the top of the funnel. Your team's responsible for demand generation, so where do you see demand

coming in? What’s new in that area? What trends are you seeing?

Celia Fleischaker:

I mean it's been interesting. It was good to come in with Tom, and we've been able to evolve the orgs at

the same time and to gather and partner on it, which has been great, and we're definitely seeing a lot of

nice growth at the top of the funnel. We really focus on not only similar as to what you've been

doing; looking at that top of the funnel and how we bring in more, but also how do we optimize that funnel,

move it through faster, have it convert better, higher-quality leads and transactions for Tom to close, and

then I think the type of things we're bringing in has really changed, so when we looked and evaluated

from a marketing perspective where we were getting the deals, where the leads were coming in, our high-

quality ones, we were getting things from events, which was terrific, and some other things, but what we

wanted to do is really smooth out that demand, so really drive it from a digital perspective; kind of a

perpetual demand engine, always on, so you saw us redo our website. You saw us to a lot more in those

areas to drive demand, and we're seeing really nice success from things like engagement from a chatbot

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perspective. Last quarter, over a hundred meetings spoke through a chatbot. That's technology we didn't

have last year.

Shannon Tatz:

Yes. That's really incredible. Stefan, how is that playing out in the financials? These changes we're seeing

in sales and marketing, how are we seeing that impact our (inaudible), our CAC, and what are some of

the changes that you've seen in these areas?

Stefan Schulz:

Yes. There's a lot converging in our financials right now, this being one topic, but four years ago when we

made the decision to do Cloud, and there was a lot of investment that was needed. We not only needed

to build out the infrastructure from a delivery perspective, but we also needed to build an entire revised

process within our R&D community, and about that same time, as you now have learned that Andres and

our development team also saw this vision around digital being the key, and so at the same time we were

making the switch to be on-prem to Cloud, we were also really emphasizing the digital nature to our

products, and so all of those things come together, and then, Shannon, to your point, as the last couple of

years have unfolded, we've also seen an increase in opportunity in the market.

Therefore, we've been investing more, obviously, in leadership, but also in just the number and quality of

people that we have in those areas, while at the same time continuing to invest in our R&D to maintain

that competitive advantage, but the good news is all of that's converging right now in our financial

statements, so a lot of the decisions that were made three, four years ago that didn't really manifest

themselves after a year, or even two, are really starting to show up. They're starting to show up in the

growth rate in revenue now being more indicative of what we've been seeing from a bookings perspective

over the last several years.

We're starting to see the leverage in our delivery model in the sense that our margins have really started

to improve and getting to where we thought they would be from a subscription perspective, and then

we're also seeing the increased leverage in our operating expenses. You talked about CAC ratios as one

key indicator, and our CAC ratios, when we first started this as a combined group, were well over two.

Now they're in the upper ones, with our target being kind of in the mid ones, so we're definitely making the

right steps and taking the right strides to manifest itself, and I think our income statements and balance

sheet are showing that.

Shannon Tatz:

That's great. I want to pause for a minute and see if there's any other questions in the audience. Yes.

Yes.

We'll start with Jason, and then we'll go to (inaudible) next. How about that? Okay.

Jason:

Hi. This is Jason again. I've had opportunity to talk to a lot of customers at the event, and a lot of new

faces to PROS, but a lot of people have been focusing on your existing maintenance customers, and

there's a lot of plays in the playbook that you could get these customers to move over. One of them is

kind of ending life of certain version. I was wondering what your thoughts are on that.

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Andres Reiner:

Yes. No, I'll answer that. I've had a strong point of view that I'm not a big fan of end of life or forcing

putting a gun to a customer's head to say we're going to stop supporting you, and I think the same thing

goes with PROS culture and why customers pick PROS. Our approach is more a cared approach. It's

showing the greatest new innovations and giving value to our customers and having then migrate

because they're adding value. I think, for us, our confidence level is we think the world's moving digital,

and as you move digital an on-premise model won't support our customers.

If you think about it, our whole movement to the Cloud is because we knew the world was moving to

digital, and we knew that, to support our customers, we needed to build next generation technology. We

needed to have four-nine availability. We needed to do real-time processing to support Omni-channel,

and that—if we think every customer implementing the initial on-premise offering is doing all of that, that's

a whole new level of complexity that every company would have to build, and that's where the Cloud has

helped, so I don't think you would expect at any point for us to end of life.

I'm never going to say never, because maybe 10 years from now it's a different story, but that's not our

strategy, and I think—from a customer perspective, I think—as you've seen some examples here today, I

think when customers can get more value because you're opening up more channels, everyone wins. We

win because we're driving more business. They win because they're enabling more use cases of our

platforms. Those are the types of motions we're trying to power in our customer base to make sure that

we're driving success and value to them.

Yao Chen:

Hi everyone. This is Yao Chen from RBC. Thanks, again, for having us at this event. I have two

questions. First one for Tom, I wanted to hone in on a comment you made on succeeding more than our

competitors are failing. Can you elaborate a bit on that? Is it a feature set, a product set? Is it a buyer

mismatch of expectations? What's going on there, because we're picking up the same stuff with the

channel, but I want to hear...

Tom Dziersk:

I think that some of our competitors have not made the investment to Cloud in time. They're just doing it

right now and they're years behind us, and I think the gap between our offerings and theirs has gotten

lighter. Also, we're seeing a lot more displacement—competitive displacement, so I think that momentum

of displacing our competitors in the marketplace is visible, and as a result we're getting more and more

people coming to us as opposed to, let's say, a couple of years ago when we had to go to them. We're

seeing more inbound traffic as well.

Yao Chen:

The other thing is just a brief question. I spoke with some customers this morning, and it may have been

just the nature of larger customers, but one thing that surprised me was an incident of PROS existing

alongside competitors; Vendavo and Zilliant, and the exact wording was they all serve different solutions

for different processes within the firm. Can you speak a bit more to that phenomenon? Is it a common

situation or did I just get lucky with this one customer? Is the pricing CBQ (phon) more of a single

solution, or is the coexistence within company budget depending of the size?

Andres Reiner:

Yes, so very few customers—I would say there's coexisting from one platform, say pricing. The customer

you're probably talking about is probably Cargill or someone like that. There is a few customers that

began their journey with a platform and then moved to PROS, and sometimes they don't go back and

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replace that platform in those given situations, but in some large organizations—you can imagine, some

of the customers we have are a $100 billion business global, and they may have certain countries, certain

areas where they made a very different decision and they went with another solution.

That could happen, but it's very rare. I would say there's more instances where you may have a CBQ

solution and our pricing solution. I think that happens more, but in the pricing space it's very little, and

usually it's been sometimes when we've replaced, they haven't gone back to every small—usually the

small business units, they end up staying with the old technology.

Shannon Tatz:

Great. Go to Tom, and then we'll make our way over this way and get to Chad and (inaudible).

Male Speaker:

Did you have a question? Sorry.

Shannon Tatz:

I'm sorry. You were out of my line of sight. I'll get you after.

Tom Roderick:

It’s Tom Roderick with Stifel again. Andres, I think we should have a little game show where you just

guess which customers (inaudible).

Andres Reiner:

I know a few of them.

Shannon Tatz:

You did pretty good (inaudible).

Tom Roderick:

I wanted to go back to your comment, Andres, just on the notion of this carrot and stick approach of

encouraging customers, offering them more functionality, and sort of an open joke that you guys were AI

long before AI was AI, so now that everything's being rebranded as AI, there is, yet, a customer push out

there to make changes, to go digital. Can you just talk about what the role of AI means to your customers,

how they see it, and what role that is in terms of being one of the carrots at the end of the sticks and

encourage them to go to Cloud?

Andres Reiner:

Yes. No, absolutely. That's a great question. I would say, look, we have two parts of our business. Travel,

look, AI, it's a must, and they've been believers from day one and they compete and win based on that.

B2B, I would say five years ago customers felt maybe we don't need it, and not everyone—and some

were afraid, oh, how's the algorithm going to work? Is it black box? I think the great thing is the movement

to AI has thoroughly changed the conversation.

I think there's, in general, a lot—more and more companies are just very at ease of using algorithms to

price, and I would tell you that a tipping point, when you start moving from pure direct sales into now

powering an e-commerce or a digital commerce experience, at that point in time e-commerce doesn't

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negotiate, so you have two choices; either go with list price or you pick from segment, you decide—but

you don't have much flexibility in an e-commerce platform, and in a B2B world it's been negotiated. You're

not going to get transactions happening if you don't have some sort of dynamic pricing, so we think that

movement in B2B is moving more and more because of that, because to really power and orchestrate

your digital sales motion you need that.

I also think that—we talked a lot about the buyer is really changing, and speed is important, and where

before companies could take time to negotiate and start at a high price point and it may take multiple

turns, I think companies are coming back and wanting a rational price from the very beginning, and if you

want a rational price from the very beginning you're going to have to use—it can't be gut-feel oriented. It

can't be that rep deciding what's really the rational price, and if you're selling thousands of SKUs how are

you going to get that right? This notion that you're going to discount everything by some percentage and

you have different margin profiles across your product, just a complexity.

You can't do it, so I think this natural shift to digital and companies—buyers changing, I think that's really

what's enabling, and that's why I think—I know the investment community's concerned that we're not

driving migration fast enough and we're not moving that needle fast enough, but, for us, the center is

making our customers successful, and I think the migrations naturally will happen because they're moving

their businesses to digital, and if we focus on the angle that we're making them successful and we're

giving them the tools to compete in this era, they're going to go with PROS when they move.

I think if we started tomorrow and told them, hey, we're going to—effective in two years, we're no longer

going to support you, we would have worse outcomes, I believe, because then we're basically telling them

go test the market. Go look for somebody else because we don't want you anymore, and I think that the

opportunities for us because of the relationships that we build—I think we have a great opportunity. Some

will move faster than others, but I think with the movement to digital we're going to see an acceleration

just naturally because companies need to move.

Shannon Tatz:

Go to Josh (phon), we'll start over here and then come over to Chad.

Josh Riley:

This is Josh Riley (phon) from Needham. You've already touched a little bit on this, but what new product

features in B2B and travel that might not be available in the on-premise model are driving customers to

migrate to the Cloud?

Andres Reiner:

Yes, so a couple of things. I would say, look, for example, if we look at price guidance, our next

generation guidance is significantly—in fact, it's 100% new lines of code from the old guidance. It's a

whole new platform, multi-tenant. The algorithms are more powerful. The segmentation processing in the

past in a non-premise model used to be done online for—offline, for example, where scientists would help

to look at significant attributes and tune them.

With the new guidance product, it's all done in the Cloud. A customer can change it. It has a lot more

powerful capability, so there's a lot of innovations that are being implemented that are Cloud-only that are

not being replicated on-prem. If you want to adopt our data technology or bring your own science

capability, I mean—or agreement technology, none of those we're going to replicate on-prem, because

we can't. These technologies have been built together to innovate.

If we look at the new quote object, for example, in our smart CPQ, that powers agreement and can also

power and orchestrate, e-commerce can handle a level of scale that our old technology couldn't handle,

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but you're going to have to move to the Cloud to use these type of capabilities, so Opportunity Detection

that's cross-sell, up-sell recommendation, that's only Cloud-enabled, so you're going to see that all of the

massive innovation that we always have done, and will continue to do, is coming on the Cloud-only

editions.

Shannon Tatz:

Just a quick follow-up on the innovations, (inaudible), you had talked a bit about bring your own science

on stage, and I just wanted to peel back layers on that a little bit. Can you help us understand what's the

business context around that? What are you hearing from customers, and maybe even what aren't you

hearing from customers, but you expect to hear over the next several years that's leading us that way?

Male Speaker:

Yes, so I'll give you an example use case. We've got a guidance solution, and that guidance solution

does really, really well in terms of driving our customers towards improved margin outcomes. Now, we

sometimes hear that here in this corner of my business the segmentation model is—it could be slightly

off. Let's do something. We've been investing in some data scientists on our own. We've got a model, but

it's in R. It's in Python. We have no way to distribute that. We've got a recommendation, but how are we

going to get in the hands of the salespeople to use in this specific situation?

Well, rather than them say, well, for this part of the business we're not going to use PROS, we'd rather

have them bring that model into PROS so that, look, 90%, 95% of the business you continue to use our

guidance. For this, because it's a custom solution, effectively, for the small corner of their business, go

ahead and use that model, and we can work with both, and that some of the drive...

Andres Reiner:

Yes, and think of bring your own science as very futuristic. Don't think of that being—I mean we have a

few customers—we have a customer that will go live this year, very innovative; a customer that's been

with us over two plus decades. They have data scientists. This is not going to be used by now, but I think

when you see companies that are trying to buy AI today, I think in the future you're going to have to

support pluggable models.

Since I've talked a lot, we always get asked why can't broad AI platforms compete with PROS, and I think

it's because the more that the algorithms get customized to the problem area and the industry, they

become much more powerful, and I think that the beauty of bring your own science is it gives us a new

canvas to start building new algorithms, deep industry algorithms, and then have, whether it be partner or

customers, be able to plug those into the platform, because obviously if you're doing fuels for example,

fuels downstream pricing, we want to get commodity price information.

We get competitive price postings. We forecast competitive price moves. That's all embedded into the

algorithm. These algorithms are more sophisticated than some of more B2B standard algorithms, or more

safe. Not sophisticated, they're just more specialized to that particular problem area, and bring your own

science will allow us both inside of PROS through partners, or customers through specialized

algorithms for different types of industries, different problem areas, so it opens a whole new canvas of

innovation, frankly, for us, all while being on one common platform, which is the beauty of it.

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Male Speaker:

Great. Thanks for taking my question again. At least at the last two or three, Andres, you've been talking

about digital transformation and modern commerce and B2B, and so forth. I think some of the questions I

get from investors with kind of the change you’re making strategically, or have made years ago

strategically around digital commerce, is there are a lot of companies, bigger companies out there with

B2B commerce platforms, so whether it's Salesforce, CloudCraze, and Demandware, and then you have

a very good relationship with SAP Hybris, and where do they end and where do you begin, and IBM has

their own B2B, so—and Oracle and so forth, so I get questions like where do you guys really play relative

to these big e-commerce B2B platform vendors?

Andres Reiner:

Yes. No, that's a great question. I'll tell you kind of our vision, because we always thought do we want to

play in the e-commerce space or integrate with the e-commerce? The approach we took is to integrate,

and here's why. I think a lot of the e-commerce companies have incredible products, and we're really

proud to partner with them, whether it be SAP Hybris, CloudCraze that you'd talked about, or from a B2B

partner, Community Cloud and Salesforce, or whatever platforms are out there, but the future of digital

means you're going to have to support and orchestrate multiple platforms.

You're not going to be able to compete in a digital world only saying it's going to be Hybris, because even

if you use Hybris for your own company's e-commerce, you want to partner with another company and

they pick Magento, which also happens to be a great partner of ours, you want to be able to power and

orchestrate, so the way that we looked at it is more of a (inaudible) that can power and orchestrate all

those motions, so a lot of our innovation that we've done in our products is to create micro-services.

It's been a big engineering effort in decomposed CPQ into micro-services around our catalog, around our

quote objects that can power and orchestrate whether it be CRM, whether it be a partner channel, or new

digital channels. My belief, everyone talks about, well all this—CPQ vendors then build on top of CRMs.

In a digital world, you're not going to power quoting out of your CRM. I would tell you that. CRM platforms

aren't designed for scale. They're not designed for high visibility. You're not going to copy all of your

pricing and product data into your CRM repository. That just does not make sense.

What makes sense is to—and it's not because I think PROS has done it different, because just logically

you want to have one common platform that manages how you distribute, just like in the airline. A lot of

these aren't new patterns. The great thing about PROS is we've been in the B2C space. We've seen the

change that digital has done and how you have to manage and be in these channels, because if you're

not you're going to lose a part of business, and that's how we design our B2B strategies.

How do we support multiple channels, traditional and digital, in a seamless way, and that means that

we're going to have to integrate with many e-commerce providers, but we’re the intelligence that powers

them, the intelligence that powers what products we show, the intelligence that powers the price of those

products, the configuration intelligence, because a lot—in B2B especially, some of the complexities is in

some industries—well, obviously distribution, there isn't as much complexity in products, but in some of

the complex engineering you have to have a guided selling model too.

We're not just using configuration of the product. We're actually using the configuration engine to guide

the user into selecting certain questions that tell us what product and configuration of those products we

should be recommending for that particular end use, and those are the capabilities that e-commerce

providers need built, but I think you're not going to want to have them only in your e-commerce platform.

You want that intelligence to appear on your e-commerce, your mobile, your for sales quoting solution,

and have one instance of that; not have to replicate it in every one, and have multiple copies of your

products, your configuration, your price, and then you don't have the channel consistency that we're

talking about that you have to have in a digital world, so.

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Male Speaker:

Tom, maybe a couple for you. Just from your seat, I mean what do you think is your biggest bottleneck

today in terms of accelerating the growth of the business on the B2B side?

Tom Dziersk:

Next quarter. I don't look at it as a problem. I look at it as an opportunity, and I think the next phase of this

next chapter of the book is really investing in our partner ecosystem, and we have long-established

partnerships with companies like IBM, and so forth, but really building an ecosystem where we get

leverage, and I think that over the next 24 months or so as we expand that ecosystem, you will see a lot

of uplift, and really getting more reach in the marketplace, and that really comes through relationships,

partnerships.

Male Speaker:

Then the second one is maybe if you take a step back, the sales force has undergone a lot of change. I

think maybe almost 70% of it got turned over, over the last, call it, four—three or four years, making up

some numbers, but...

Twenty months, right?

Male Speaker:

But at this point what is the right way to think about it, okay, well, I needed to reach sort of a national

efficiency gain, which, at some point I'm going to start to lap, but there's probably still more efficiency

gains to be had. Where's the just end demand that's coming your way, probably mostly in the B2B side,

so can you qualitatively help us understand sort of the push and pull between those two metrics, because

obviously when you look at the financials everything's going up into the right, but part of it is just the

model and the efficiency gains, but then there's also a demand function which seems to be going your

way, so can you maybe qualitatively or quantitatively give us some insight into just new demand that is

coming and you guys are able to execute on versus just getting the existing reps efficient?

Tom Dziersk:

Yes. I mean, I think in the first 12 months we really focused on upgrading from a sales management

capability capacity, and as a result of that now we're in a situation where we can add more execution

capacity to scale, and the other thing is one of our biggest competitors when I first arrived was a

competitor called Do Nothing, and Do Nothing is like where you're providing free McKinsey-like education

to somebody that's just really interested in your products, but not necessarily a buyer, and I think the

combination of focusing more on people who are actually in the buying process—also, I think the

importance of pricing, as an example, is much more important today than it was two years ago in the

boardroom, and I think that competitive pressures of when people call it the Amazon effect is causing

people to have the fear of God around having the right price at the right moment and the right time, and

then I think our scaling capacity and all those factors together has resulted in the collapse of the sales

cycle, and I see that even going further as a result of that.

Shannon Tatz:

Now we'll go back here to (inaudible).

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Male Speaker:

Yes, so everything seems to be wind at your back. Products are doing well. Attendance is up, but—so,

this is probably for Andres and for Mr. Schulz. Your 2022 model, as we get closer to that we seem to

have a little bit of stress if we're going to exceed the top line or how we're going to maintain the margin

goals. How should we think about that as we get closer? If you're going to exceed, where are you going

to—where would you prefer to do it? I'm assuming it's on the growth side. Maybe you can sort of walk us

through how you're balancing the growth opportunity in front of you.

Stefan Schulz:

If we're going to exceed, I would definitely agree with you it would be more on the growth side. When we

put that model out—I mean, that was a model we put out almost at the same time we made the decision

to go from on-prem to Cloud, and it was really more of a statement about what we really felt like the

potential was in this business in the marketplace that we were going after, and I think Andres, you used

these words, we feel better today about what we said about 2022 than we even did back in 2015 when

we said it initially, which is a little, phew, but also—it's also a validation of what we were thinking and how

we've been able to execute.

I always want to say this, though, that we reserve the right to invest a little more or build something in for

future growth, so that's why I said that the more likely option is higher growth, because not only are we

seeing that today, because as you put it, there seems to be wind in our sales, and I think there are some

definite signs that there's wind in our sails, but there's still a lot of hard work. There's a lot of things that

we want to do. There's a lot of things that we feel like we can still achieve as a business that we're going

to still be pursuing, and some of those require additional investment, so might we sacrifice a little bit of

that targeted profit for future—for better growth? Absolutely, we would make that trade, but it is very

important to us to demonstrate that this model is profitable, that there is the potential to achieve those

margins that we laid out three, four years ago.

We still want to make sure that we can do that, and so it's important for us to show the capacity to deliver

those types of margins, even though we may decide to invest more in development or more in sales and

marketing, but we want to be able to at least prove and demonstrate that the capacity is there.

Male Speaker:

I've just got a question on how much value there is in owning certain verticals with the decision making for

your AI, and so whether you think you or your competitors will own a vertical and that can cross-sell onto

different customers and that's value in the base, or if just having the value across a whole bunch of

verticals you can kind of transition across.

Andres Reiner:

Yes. No, I think, look, there's value—I think today we're powering over 40 industries, B2B and B2C, but I

think as we talked about, the more that we power deeper in industry, the more value we can drive to our

customers, so I think with our platform we can drive value across all industries, but you've probably seen

we've done a ton of innovation in our algorithms for the food industry, for example, because they're very

commodity-driven for the fuels or chemicals.

We're willing to innovate on our algorithms to bring industry depth so that the algorithms perform at a new

level. Innovation is a core at PROS, and I would say, look, we're always looking at ways within an

industry, as well as across industry, to bring more value to our customers and to continue to innovate. If

you look at on the food industry we're doing mix optimization where you can take the raw material, and

we don't market that at times because it's very specific towards the food industry, but you can take a raw

material and we can tell you what mix of products you should be creating at a point in time that works

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cohesively with our price guidance technology and our quoting platform that drives immense value for that

industry, even though that algorithm really only applies today for the food industry, and I would expect

that over time we're incorporating more and more algorithms and some of them may be industry-specific,

because why customers will stay with us is because we go deep in industry, not just at a high level. We

don't want to be a high-level platform that kind of brings value.

We want to make sure—I think the reason why we've driven value for decades is because we're always

innovating. I mean our solutions in travel today are very different to the ones when I joined 20 years ago,

and we've always been willing to build for the future and innovate for the future.

Shannon Tatz:

Great.

Andres Reiner:

But it is a balance, because they all have to use one common platform, and you have to leverage the

platform model, but be able to innovate within industry as well.

Shannon Tatz:

I have a follow-up for that for (inaudible). In your industry, what role will data play in the future? We talked

a bit about, during Andres' keynote, what data we expect to be bringing in later on, and I think data's a

great opportunity to help continue to build in the space of the industry, so can you maybe talk through that

a bit; what we're doing around data and how that influences our industry strategy?

Sunil John:

Absolutely. I think external data signals, as you heard this morning, I think that's going to be really key to

making sure that our algorithms are listening not only to how the business is performing, but also external

signals in the market, and most industries have a couple of different data sources that are just unique to

that industry, so for example, in some of our oil and gas solutions we use Opus (phon) and Plex (phon)

indexes—indices, and we bring those in and we incorporate those in a particular way. Weather is pretty

common in a lot of industry.

You'd be surprised. Between construction, delivery schedule, companies that have delivery schedule

windows, I mean there's a lot of things where weather really affects the—what can happen right there.

Macroeconomic conditions, these are all things that'll float, but what we want to make sure is that we're

listening to market signals so that if there's pockets of markets—let's say a particular state is not doing as

well than the entire region, we want to make sure that the pricing reflects those kind of conditions, so I

think there's a broad opportunity to invest more in that area.

Shannon Tatz:

Great. We're almost out of time, so I figured the last question I would ask would be of Celia. Could you

make some recommendations as to what you'd recommend our analysts and investors attend this

afternoon or tomorrow in terms of the session?

Celia Fleischaker:

Sure. I'll focus on this afternoon. I’ve heard a lot of you that might just be here for the day and coming up

we've got a couple of digital transformation panels that have a nice mix of industry experts and

customers, or one and the same, on them. A little later today, I think 3:30, (inaudible) is going to be on the

main stage with Jeff (inaudible), who runs our Solutions Marketing Group. They're going to be talking

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about making the shift to digital selling. You'll hear a lot more, a little deeper information about what's

going on in that B2B side of the business, and then at 4:30 Dr. Michael Wu, our Chief AI Strategist, is

speaking. He speaks a lot for—it's just a great session. I’d really recommend that just for an overview of

AI in general and what we're doing with AI.

Shannon Tatz:

That sounds great. Well, I want to thank you all again for attending, and thank you to our customers and

to our partners for attending today as well and for joining us on state. Appreciate everyone’s time. Thank

you.