PROS Holdings Inc.

10/27/2025 | Press release | Distributed by Public on 10/27/2025 14:21

Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The terms "we," "us," "PROS" and "our" refer to PROS Holdings, Inc. and all of its subsidiaries that are consolidated in conformity with generally accepted accounting principles in the United States.
This management's discussion and analysis of financial condition and results of operations should be read along with the unaudited condensed consolidated financial statements and unaudited notes to unaudited condensed consolidated financial statements included in Part I, Item 1 ("Interim Condensed Consolidated Financial Statements (Unaudited)"), as well as the audited consolidated financial statements and notes to consolidated financial statements and management's discussion and analysis of financial condition and results of operations set forth in our Annual Report.
In addition to historical financial information, the following discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. These statements are often identified by the use of words including, but not limited to, "may," "will," "expect," "believe," "anticipate," "intend," "could," "estimate," or "continue," and similar expressions or variations. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including but not limited to those discussed in the section titled "Risk Factors" and in other parts of this Quarterly Report on Form 10-Q.
Q3 2025 Financial Overview
In the third quarter of 2025, we continued to grow our subscription revenue, increasing subscription revenue by 13% and 12% for the three and nine months ended September 30, 2025, respectively, as compared to the same periods in 2024. Total revenue increased by 11% and 9%for the three and nine months ended September 30, 2025, respectively, as compared to the same periods in 2024.
For the three and nine months ended September 30, 2025, recurring revenue (which consists of subscription revenue and maintenance and support revenue) accounted for 85% of total revenue. Our gross revenue retention rates remained above 93% during the twelve months ended September 30, 2025.
In the third quarter of 2025, we continued to improve on our profitability metrics. Our subscription gross margin was 80% and 79% for the three and ninemonths ended September 30, 2025, respectively, as compared to 78% for the three and nine months ended September 30, 2024 as a result of continued optimization of our cloud infrastructure resulting in improved cost of delivery. Total gross margin was 69% and 68% for the three and ninemonths ended September 30, 2025, respectively, as compared to 66% and 65% for the three and nine months ended September 30, 2024, respectively.
Cash provided by operating activities was $15.8 million for the nine months ended September 30, 2025as compared to $3.4 million for the nine months ended September 30, 2024. The improvement was primarily due to a significant reduction in our net loss.
Proposed Merger
On September 22, 2025, we entered into a Merger Agreement to be acquired by Thoma Bravo, L.P., a leading private equity investment firm. Under the terms of the Merger Agreement, each issued and outstanding share of our common stock (subject to certain exceptions) will be automatically converted into the right to receive cash in an amount equal to $23.25 per share, without interest, net of applicable withholding taxes ("Per Share Price"). Outstanding equity awards will be treated in accordance with the Merger Agreement and generally converted into cash consideration based on the Per Share Price, to the extent vested, subject to the terms and conditions of each award. The Merger Agreement contains customary termination rights and provides for a termination fee of $39.6 million payable by the Company under certain circumstances, or $97.5 million payable by Parent in other specified circumstances.
The Merger, which has been unanimously approved by our Board of Directors, is currently expected to close in the fourth quarter of 2025, subject to approval by PROS shareholders, the satisfaction of regulatory approvals and customary closing conditions.
The full text of the Merger Agreement is included as an exhibit to this Quarterly Report on Form 10-Q, and described in more detail in Item 1.01 of our Current Report on Form 8-K filed with the Securities and Exchange Commission (the "SEC") on September 22, 2025.
Factors Affecting Our Performance
Key factors and trends that have affected, and we believe will continue to affect, our operating results include:
•Macroeconomic, Regulatory and Geopolitical Environment. The companies we serve continue to navigate a challenging and uncertain macroeconomic, regulatory and geopolitical environment, exacerbated by ongoing tariff negotiations and announcements by the United States and its trading partners. Macroeconomic factors, such as tariffs, trade restrictions and uncertainty regarding trade policy and tariff rates, risk of recession, inflation, fluctuating interest and foreign exchange rates, supply chain disruptions, market volatility, constrained liquidity and other uncertainties, impact our customers' businesses in various ways that are difficult to quantify and predict. Regulatory developments, including emerging AI-specific regulations, increase scrutiny for companies utilizing AI solutions, even when such solutions are compliant with existing frameworks. Geopolitical conflicts, including the ongoing Russia-Ukraine war, Middle East conflicts, and other regional conflicts, add to uncertainty and disrupt global markets. We continue to see these factors and uncertainty regarding the macroeconomic environment drive measured buying behavior by our customers, including more complex customer review and approval cycles and an emphasis on smaller scope or incrementally scaled initial purchases, with a continued focus on rapid return on investment.
•Artificial Intelligence. The rapid market interest in generative AI continues to drive businesses around the world and across industries to consider, invest in and use applications leveraging both generative and other types of AI. The pace of change across industries helps fuel business demand for solutions that help replace manual processes with AI. We have utilized AI in our solutions for years, and our deep experience in the use of AI at scale continues to influence our category-leading solutions. We are also utilizing and considering new ways to expand AI use in our own business to increase the pace of innovation, improve knowledge management and drive operating efficiency.
•Digital Purchasing. We believe the long-term trends toward digital purchasing drive demand for technology that provides fast, frictionless and distinctive buying experiences aligned across digital and traditional sales channels. Buyers often prefer to conduct their own research rather than rely on sales representatives, and tend to make purchases online once they have decided what to buy. We believe companies increasingly compete based on customer experience and must adopt technologies which power consistent offers and experiences across sales channels.
Results of Operations
The following table sets forth certain items in our unaudited condensed consolidated statements of comprehensive (loss) income as a percentage of total revenues for the three and nine months ended September 30, 2025 and 2024:
Three Months Ended September 30, Nine Months Ended September 30,
2025 2024 2025 2024
Revenue:
Subscription
83 % 81 % 83 % 80 %
Maintenance and support
2 4 3 4
Total subscription, maintenance and support 85 85 85 84
Services
15 15 15 16
Total revenue 100 100 100 100
Cost of revenue:
Subscription
17 17 17 18
Maintenance and support
2 2 2 2
Total cost of subscription, maintenance and support 19 20 19 20
Services
13 15 13 15
Total cost of revenue 31 34 32 35
Gross profit 69 66 68 65
Operating Expenses:
Selling and marketing
24 24 27 27
Research and development
25 25 26 27
General and administrative
22 16 20 18
Total operating expenses 72 66 73 72
Convertible debt interest and amortization
(2) (1) (2) (1)
Other income, net 1 2 4 1
(Loss) income before income tax provision (4) 1 (3) (7)
Income tax provision
1 - 1 -
Net (loss) income (5) % - % (4) % (8) %
Revenue:
Three Months Ended September 30, Variance Nine Months Ended September 30, Variance
(Dollars in thousands) 2025 2024 $ % 2025 2024 $ %
Subscription
$ 76,006 $ 67,068 $ 8,938 13 % $ 220,169 $ 197,017 $ 23,152 12 %
Maintenance and support
2,105 3,361 (1,256) (37) % 7,402 10,341 (2,939) (28) %
Total subscription, maintenance and support 78,111 70,429 7,682 11 % 227,571 207,358 20,213 10 %
Services
13,565 12,273 1,292 11 % 39,142 38,045 1,097 3 %
Total revenue $ 91,676 $ 82,702 $ 8,974 11 % $ 266,713 $ 245,403 $ 21,310 9 %
Subscription revenue. Subscription revenue increased primarily due to an increase in new and existing customer subscription contracts.
Maintenance and support revenue.Maintenance and support revenue decreased primarily as a result of customer maintenance churn. We expect maintenance revenue to continue to decline as we continue to migrate maintenance customers to our cloud solutions.
Services revenue.Services revenue increased primarily as a result of higher billable utilization of our professional services organization. Services revenue varies from period to period depending on different factors, including the level of professional services required to implement our solutions, which in turn can vary depending on the mix of new versus existing
customer software sales. Services revenue is also impacted by the timing of services revenue recognition on certain subscription contracts and efficiencies in our software implementations requiring less professional services during a particular period.
Cost of revenue and gross profit:
Three Months Ended September 30, Variance Nine Months Ended September 30, Variance
(Dollars in thousands) 2025 2024 $ % 2025 2024 $ %
Cost of subscription
$ 15,396 $ 14,470 $ 926 6 % $ 45,381 $ 43,653 $ 1,728 4 %
Cost of maintenance and support
1,589 1,698 (109) (6) % 4,933 5,311 (378) (7) %
Total cost of subscription, maintenance and support 16,985 16,168 817 5 % 50,314 48,964 1,350 3 %
Cost of services
11,554 12,130 (576) (5) % 35,352 36,986 (1,634) (4) %
Total cost of revenue 28,539 28,298 241 1 % 85,666 85,950 (284) - %
Gross profit $ 63,137 $ 54,404 $ 8,733 16 % $ 181,047 $ 159,453 $ 21,594 14 %
Cost of subscription. Cost of subscription increased primarily due to higher infrastructure cost to support the growth in our current subscription customer base, partially offset by a decrease in amortization expense for intangible assets. Our subscription gross profit percentages increased to 80% and 79% for the three and nine months ended September 30, 2025, respectively, from 78% as compared to the same periods in 2024, mainly due to continued optimization of our cloud infrastructure improving our cost of delivery.
Cost of maintenance and support.Cost of maintenance and support decreased mainly due to lower personnel costs as our maintenance customer base has decreased over time. Maintenance and support gross profit percentages were 25% and 49% for the three months ended September 30, 2025 and 2024, respectively, and 33% and 49% for the nine months ended September 30, 2025 and 2024, respectively. Gross profit percentages decreased for the three and nine months ended September 30, 2025 as compared to the same periods in 2024 primarily due to lower maintenance and support revenue withthe cost of maintenance and support being partially fixed.
Cost of services. Cost of servicesdecreased primarily due to a decrease in contract labor and employee-related costs driven by lower headcount during the three and nine months ended September 30, 2025 as compared to the same periods in 2024. Services gross profit percentages improved to 15% from 1% for the three months ended September 30, 2025 as compared to the same period in 2024, and to 10% from 3% for the nine months ended September 30, 2025 as compared to the same period in 2024, mainly due to an increase in services revenue and the implementation of continued operational efficiencies.Services gross profit percentages may fluctuate due to product/service mix, customer acquisition strategies and/or investments in growth.
Operating expenses:
Three Months Ended September 30, Variance Nine Months Ended September 30, Variance
(Dollars in thousands) 2025 2024 $ % 2025 2024 $ %
Selling and marketing $ 22,460 $ 20,074 $ 2,386 12 % $ 73,259 $ 66,293 $ 6,966 11 %
Research and development 23,042 21,081 1,961 9 % 68,668 67,280 1,388 2 %
General and administrative 20,501 13,218 7,283 55 % 53,410 43,335 10,075 23 %
Total operating expenses
$ 66,003 $ 54,373 $ 11,630 21 % $ 195,337 $ 176,908 $ 18,429 10 %
Selling and marketing expenses.During the three months ended September 30, 2025, selling and marketing expenses increased primarily due to employee-related costs as headcount was higher. Additionally, we had lower noncash share-based compensation expense in the third quarter of 2024 due to a $1.3 million reversal of expense, as certain performance criteria as a condition to vest were not expected to be met. The increase was partially offset by a decrease in travel expense during the period.
During the nine months ended September 30, 2025, selling and marketing expenses increased primarily due to an increase in employee-related costs which included $1.1 million of severance accrual associated with the departure of our former Chief Revenue Officer, and an increase in sales and marketing events and initiatives.
Research and development expenses. During the three months ended September 30, 2025, research and development expenses increased primarily due to employee-related costs mainly driven by a lower noncash share-based compensation
expense in the third quarter of 2024 due to a $1.3 million reversal of expense, as certain performance criteria as a condition to vest were not expected to be met.
During the nine months ended September 30, 2025, research and development expenses increased primarily due to an increase in employee-related costs mainly related to noncash share-based compensation and an increase in consulting expenses.
General and administrative expenses. General and administrative expenses increased primarily due to higher noncash share-based compensation expense driven by stock awards granted to our new CEO and accelerated expense related to the upcoming retirement of our former CEO. In addition, there was an increase in professional fees related to the pending merger, see Note 1 for more information.
Non-operating expenses:
Three Months Ended September 30, Variance Nine Months Ended September 30, Variance
(Dollars in thousands) 2025 2024 $ % 2025 2024 $ %
Convertible debt interest and amortization $ (2,014) $ (1,121) $ (893) 80 % $ (4,370) $ (3,471) $ (899) 26 %
Other income, net $ 1,121 $ 1,531 $ (410) (27) % $ 10,359 $ 3,312 $ 7,047 213 %
Convertible debt interest and amortization.Our convertible debt expense consists of coupon interest and amortization of debt premium and debt issuance costs attributable to our Notes. See Note 8 for more information.
Other income, net. The change in other income, net for the three months ended September 30, 2025 was primarily related to foreign currency fluctuations period over period. During the nine months ended September 30, 2025, other income, net increased mainly due to the $4.2 million gain on debt extinguishment related to the Notes Exchange transaction. See Note 8 for more information. The change also included the impact of foreign currency fluctuations period over period as well as loss on disposal of assets associated with the lease modification in the first quarter of 2024. See Note 5 for more information.
Income tax provision:
Three Months Ended September 30, Variance Nine Months Ended September 30, Variance
(Dollars in thousands) 2025 2024 $ % 2025 2024 $ %
Effective tax rate (13) % 47 % n/a n/a (17) % (5) % n/a n/a
Income tax provision $ 488 $ 206 $ 282 137 % $ 1,391 $ 894 $ 497 56 %
Income tax provision. The tax provision for the three and nine months ended September 30, 2025 included both foreign income and foreign withholding taxes. No tax benefit was recognized on jurisdictions with a projected loss for the year due to the valuation allowances on our deferred tax assets.
Our effective tax rate was (13)% and 47% for the three months ended September 30, 2025 and 2024, respectively. Our effective tax rate was (17)% and (5)% for the nine months ended September 30, 2025 and 2024, respectively. The income tax rate varies from the 21% federal statutory rate primarily due to the valuation allowances on our deferred tax assets. While our expected tax rate would be 0% due to the full valuation allowance on our deferred tax assets, the income tax provision and related effective tax rates were due to foreign income and withholding taxes.
Jurisdictions with a projected loss for the year where no tax benefit can be recognized due to the valuation allowances on our deferred tax assets are excluded from the estimated annual federal effective tax rate. The impact of such an exclusion could result in a higher or lower effective tax rate during a particular quarter depending on the mix and timing of actual earnings versus annual projections.
Liquidity and Capital Resources
At September 30, 2025, we had $188.4 million of cash and cash equivalents, $10.0 million of restricted cash and $99.3 million of working capital as compared to $162.0 million of cash and cash equivalents, $10.0 million of restricted cash and $52.1 million of working capital at December 31, 2024.
Our principal sources of liquidity are our cash and cash equivalents, cash flows generated from operations and potential borrowings under our $50 million credit agreement (the "Credit Agreement"). In addition, we could access capital markets to supplement our liquidity position. Our material drivers or variants of operating cash flow are net income (loss) and the timing of invoicing and cash collections from our customers. Our operating cash flows are also impacted by the timing of payments to our vendors and the payments of other liabilities.
We believe we will have adequate liquidity and capital resources to meet our operational requirements, anticipated capital expenditures, and coupon interest of our Notes for the next twelve months. Our future working capital requirements depend on many factors, including the operations of our existing business, growth of our customer subscription services, future acquisitions we might undertake, expansion into complementary businesses, timing of adoption and implementation of our solutions and customer churn.
The following table presents key components of our unaudited condensed consolidated statements of cash flows for the nine months ended September 30, 2025 and 2024:
Nine Months Ended September 30,
(Dollars in thousands) 2025 2024
Net cash provided by operating activities $ 15,802 $ 3,370
Net cash used in investing activities (556) (840)
Net cash provided by (used in) financing activities 13,005 (30,930)
Effect of foreign currency rates on cash (1,830) 217
Net change in cash, cash equivalents and restricted cash $ 26,421 $ (28,183)
Operating activities
Net cash provided by operating activities for the nine months ended September 30, 2025 was $15.8 million.The improvement was primarily due to a significant reduction in our net loss.
Investing activities
Net cash used by investing activities for the nine months ended September 30, 2025 remained relatively consistent period over period.
Financing activities
Net cash provided by financing activities for the nine months ended September 30, 2025 was $13.0 million. The increase was primarily due to $50.0 million of proceeds from the issuance of the 2030 Notes, partially offset by the purchase of a capped call for $27.9 million and a payment of $3.8 million in related debt issuance costs. The cash used in financing activities in 2024 included repayment of $21.7 million of our 2024 Notes. In addition, tax withholding payments associated with the settlement of stock awards were lower in 2025 as compared to 2024, mostly driven by a lower stock price at vesting.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material. We do not have any relationships with unconsolidated entities or financial partnerships, such as variable interest entities, that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Contractual Obligations and Commitments
See Note 9 above for information on our contractual obligations and commitments.
Credit facility
As of September 30, 2025, there were no outstanding borrowings under our Credit Agreement. As of September 30, 2025, $0.2 million of unamortized debt issuance costs related to the Credit Agreement is included in prepaid and other current
assets in the unaudited condensed consolidated balance sheets. For the three and nine months ended September 30, 2025 and 2024, we recorded an insignificant amount of amortization of debt issuance costs which is included in other income, net in the unaudited condensed consolidated statements of comprehensive (loss) income.
The Credit Agreement also has a depository condition which requires us to maintain a cash balance of at least $10.0 million with the administrative agent throughout the term of the Credit Agreement. This amount is included in restricted cash in the unaudited condensed consolidated balance sheets. Since the Credit Agreement expires in July 2026, the restricted cash is classified as current as of September 30, 2025.
Recent Accounting Pronouncements
See "Recently issued accounting pronouncements not yet adopted" in Note 2 above for discussion of recent accounting pronouncements including the respective expected dates of adoption, if any.
Critical accounting policies and estimates
Our unaudited condensed consolidated financial statements are prepared in accordance with GAAP. The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and related disclosures. Actual results could differ from those estimates. The complexity and judgment required in our estimation process, as well as issues related to the assumptions, risks and uncertainties inherent in determining the nature and timing of satisfaction of performance obligations and determining the standalone selling price of performance obligations, affect the amounts of revenue, expenses, unbilled receivables and deferred revenue. Estimates are also used for, but not limited to, receivables, allowance for credit losses, operating lease right-of-use assets and operating lease liabilities, useful lives of assets, depreciation, income taxes and deferred tax asset valuation, valuation of stock awards, other current liabilities and accrued liabilities. Numerous internal and external factors can affect estimates. Our critical accounting policies related to the estimates and judgments are discussed in our Annual Report under management's discussion and analysis of financial condition and results of operations.
PROS Holdings Inc. published this content on October 27, 2025, and is solely responsible for the information contained herein. Distributed via Edgar on October 27, 2025 at 20:22 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]