Executive Summary / Key Takeaways

• AI-Powered Commercial Transformation: PROS is at the forefront of intelligent commerce, leveraging decades of AI expertise to deliver mission-critical solutions that optimize pricing, sales, and revenue management for B2B and airline customers, driving tangible margin uplift and operational efficiency.
• Strong Financial Turnaround: The company has demonstrated significant progress towards profitable growth, marked by consistent subscription revenue acceleration (12% YoY in Q2 2025), expanding gross margins (79% subscription gross margin in Q2 2025), and a substantial improvement in free cash flow ($4.3 million in H1 2025, $26.2 million in FY 2024).
• Strategic Market Leadership: PROS maintains a leading position in the Configure Price Quote (CPQ) and Price Optimization markets, recognized by top industry analysts, and is capitalizing on the airline industry's shift to offer and order management, securing key customer wins and expansions in both B2B and travel.
• Enhanced Financial Flexibility & Growth Investments: A recent debt restructuring has improved the balance sheet, while management plans to strategically increase sales and marketing investments in 2025, funded by ongoing operational efficiencies, to accelerate growth and expand market reach.
• Differentiated AI Innovation: The introduction of "Agentic AI" and new solutions like Smart Rebate Management and Fare Finder Genie underscores PROS's commitment to embedding AI at the core of its offerings, providing unique, outcome-based value that differentiates it from broader enterprise software providers.

The AI-Powered Commerce Imperative

PROS Holdings, Inc., founded in 1985, has long been a pioneer in applying artificial intelligence to optimize the complex processes of selling and shopping. From its inception, the company's core business has centered on leveraging AI, self-learning, and automation to dynamically match offers to buyers and prices to products across diverse industries. This deep-rooted expertise in AI and data science has become a foundational strength, enabling businesses to navigate increasingly complex market environments and deliver harmonized experiences across direct, partner, online, and mobile sales channels.

The market today stands at a generational inflection point, with rapid interest in generative AI transforming the future of work. This trend fuels significant demand for solutions that can replace manual processes with intelligent automation. PROS is uniquely positioned to capitalize on this shift, as its solutions are inherently AI-powered, designed to reduce complexity and provide actionable intelligence. The company's strategic acquisition of EveryMundo in November 2021 further bolstered its digital offer marketing capabilities, initially for the travel sector, but with a broader vision to future-proof B2B businesses as they increasingly adopt digital channels and marketplaces. This strategic foresight has allowed PROS to embed AI deeper into its platform and operations, aiming to be an "AI-native" company that drives innovation, efficiency, and unmatched value.

Technological Moat: Decades of AI Expertise Unleashed

PROS's competitive advantage is deeply rooted in its proprietary AI algorithms and its commitment to embedding AI at the core of its solutions. Unlike many competitors that offer AI as an ancillary feature, PROS designs its products with AI as the central engine, driving significant, measurable value. This approach is evident in its Customer Adoption Program, which demonstrates that using PROS price recommendations leads to an average margin uplift of over 650 basis points for customers. This quantifiable benefit directly translates into improved profitability for enterprises, showcasing the tangible impact of PROS's technology.

The company's innovation extends to "Agentic AI," which uniquely combines language models with PROS's proprietary numerical models perfected over decades. These AI agents are designed for goal-oriented execution across a wide range of use cases, from sales and pricing to rebates and revenue management. They are envisioned to act as "the most experienced members of your team with decades of knowledge on how to define commercial strategies and win," driving value faster for customers. These AI agents are currently in pilot phases and are expected to launch for customer testing in the third quarter of 2025, representing a key long-term growth strategy.

Recent technological advancements further illustrate this commitment. The launch of Smart Rebate Management empowers sellers to deliver optimized, comprehensive offers by integrating pricing, discounts, promotions, and rebates, providing a holistic view of economic levers. This solution, applicable to both B2B and travel industries, aims to be an add-on SKU that increases wallet share by embedding AI to drive optimal business outcomes, distinguishing it from pure automation solutions. In the travel sector, innovations like Fare Finder Genie leverage generative AI and real-time fares to create tailored flight search experiences, while an embedded AI agent in the Search Engine Marketing (SEM) solution optimizes bidding strategies for paid search, analyzing click trends, cost per click, and conversion probability to recommend optimized bid proposals. These advancements underscore PROS's focus on delivering outcome-based value through its technology.

Strategic Positioning: Dominating Key Verticals

PROS's strategic focus spans two primary, yet increasingly convergent, markets: Business-to-Business (B2B) and Travel. The company's solutions are designed to address the evolving needs of both, leveraging its core AI capabilities.

B2B Momentum

In the B2B sector, PROS offers Smart CPQ (Configure Price Quote) and Smart POM (Price Optimization and Management) solutions. These tools are critical for businesses seeking to streamline pricing, accelerate sales, and dynamically adapt to market changes. The company has seen consistent momentum, with new customers in Q2 2025 selecting Smart CPQ (e.g., Lennox (LII), Louis Dreyfus, RHI Magnesita) and Smart POM (e.g., a global life sciences leader, a top U.S. auto parts distributor). Expansions with existing partners like Holcim (HCMLY) and Unidas further demonstrate the value proposition. This strong performance is driven by the recognition that PROS's AI-powered solutions are "mission-critical" for B2B companies to navigate market volatility, understand changing demand patterns, and drive efficient self-serve buying and selling motions. The company's sales cycle times have improved, and it maintains a healthy mix of new logo acquisition and expansion within its existing customer base.

Airline Industry Resurgence

The airline industry is undergoing profound changes, characterized by shifts in buying patterns towards premium products and increased complexity in ancillary offerings. This dynamic environment creates significant demand for PROS's offer management solutions. Airlines are actively redefining their technology stacks, prioritizing "offer and order management" to drive strategic differentiation. PROS is at the forefront of this transformation, helping carriers build stronger customer loyalty and sustainable growth through intelligent offer optimization and marketing.

Recent successes in Q2 2025 include new customer wins like Air Greenland and ValueJet, alongside expanded partnerships with American Airlines (AAL) and Scoot, which upgraded to PROS's RM Advantage and added Real-Time Dynamic Pricing (RTDP). These adoptions highlight airlines' trust in PROS's industry-leading forecasting and optimization capabilities to unlock new revenue opportunities. The company notes that many airlines are comfortable with a "best-of-breed" approach for offer management, which plays directly into PROS's specialized strengths. While the pace of investment in the travel industry has lagged in some areas, PROS views this as a short-term "quarter's type issue, not a year's issue," given the strategic importance of offer optimization for airlines' long-term goals. The company anticipates the next three years will be heavily focused on offer optimization, with the subsequent decade focusing on next-generation order management, positioning PROS for sustained relevance.

Competitive Landscape: Outpacing Giants with Specialized AI

PROS operates in a competitive enterprise software market, facing off against large, diversified players like Salesforce (CRM), Oracle (ORCL), SAP (SAP), and Microsoft (MSFT), as well as specialized niche providers and in-house solutions. While these larger competitors offer broad CRM or ERP suites, PROS carves out a distinct and defensible position through its deep specialization in AI-powered pricing, CPQ, and revenue management.

Salesforce, a dominant player in CRM, boasts higher gross margins around 77% and robust revenue growth, driven by its extensive ecosystem and AI integration (Einstein AI). However, PROS's offerings provide a more focused value proposition in pricing analytics, with qualitative advantages in dynamic pricing scenarios, potentially offering faster deal processing times. Oracle, with its strong cloud infrastructure and data analytics, commands higher gross margins (around 71%) and operating margins (around 31%). While Oracle's enterprise-scale solutions excel in integration with broader ERP systems, PROS's AI-driven tools offer greater efficiency in real-time pricing for travel and logistics. SAP, deeply integrated into manufacturing and logistics, also presents a formidable presence with gross margins around 73%. PROS differentiates through faster, more agile pricing tools and its unique "point-to-end platform with embedded AI," which sets it apart from SAP's comprehensive but often more complex ERP suites. Microsoft, with its immense scale and cloud dominance via Azure AI, presents a broad challenge, but PROS maintains its niche through specialized AI accuracy and industry-specific solutions.

PROS's competitive advantage stems from its singular focus on AI-driven commercial optimization. The company has consistently earned leader rankings from every key industry analyst evaluation specific to its solutions, including ISG, Gartner, Forrester, and IDC for CPQ. Management explicitly states that PROS is "ahead of SAP, Salesforce and Oracle" in the CPQ space. This leadership is a testament to its ability to deliver superior, outcome-based value in its specialized domains, even against competitors with significantly larger R&D budgets and broader market reach. While larger players may offer comprehensive suites, PROS's agility and deep domain expertise allow it to provide more precise and impactful solutions for complex pricing and selling challenges, particularly in volatile markets where its AI becomes "mission-critical."

Financial Performance: A Turnaround Story

PROS has demonstrated a compelling financial turnaround, marked by consistent top-line growth and significant profitability expansion. For the three months ended June 30, 2025, subscription revenue grew by 12% year-over-year to $73.333 million, contributing 83% of total revenue. Total revenue for the quarter increased by 8% year-over-year to $88.715 million. For the first six months of 2025, subscription revenue grew 11% to $144.163 million, and total revenue increased 8% to $175.037 million. This growth is underpinned by a strong gross revenue retention rate, consistently above 93% over the last twelve months.

Profitability metrics have shown remarkable improvement. The subscription gross profit margin reached 79% for both the three and six months ended June 30, 2025, up from 78% in the prior year periods. This improvement is attributed to the continued optimization of cloud infrastructure, enhancing cost of delivery. Overall gross profit margin expanded to 67% in Q2 2025, from 65% in Q2 2024. The company's net loss significantly narrowed, reducing to $1.756 million in Q2 2025 from $7.386 million in Q2 2024, and to $5.445 million in H1 2025 from $18.743 million in H1 2024.

Operational efficiencies have been a key driver of this financial performance. In 2024, PROS achieved a record-high non-GAAP subscription gross margin of 81% in Q4 and 80% for the full year, a notable increase from 78% in 2023. The company also demonstrated impressive operating leverage, adding $0.90 to adjusted EBITDA for every incremental revenue dollar generated in 2024.

Liquidity and capital resources are robust. As of June 30, 2025, cash and cash equivalents stood at $178.958 million, an increase from $161.983 million at the end of 2024. Working capital improved to $78 million from $52.1 million.

Net cash provided by operating activities for the first six months of 2025 was $4.430 million, a significant improvement driven by the reduced net loss.

The company also strategically managed its debt, exchanging $186.9 million of 2027 Notes for $185 million of new 2030 Notes in June 2025, resulting in a $4.2 million gain on debt extinguishment and reducing the outstanding 2027 Notes to $79.947 million. This transaction, along with a $27.9 million capped call purchase, enhances financial flexibility and reduces potential dilution.

PROS believes it has adequate liquidity to meet its operational requirements and debt obligations for the next twelve months.

Outlook and Strategic Execution

PROS's forward-looking guidance reflects confidence in its strategic direction and operational execution. For the third quarter of 2025, the company expects subscription revenue between $74.8 million and $75.3 million, representing 12% year-over-year growth at the midpoint. Total revenue is projected to be between $90.5 million and $91.5 million, indicating 10% year-over-year growth. Adjusted EBITDA is guided to be between $11 million and $12 million, a 24% year-over-year improvement at the midpoint, with non-GAAP EPS in the range of $0.15 to $0.17.

For the full year 2025, PROS has raised its guidance for both subscription ARR and subscription revenue. Subscription ARR is now expected to be between $310 million and $313 million, representing 11% year-over-year growth at the midpoint. Subscription revenue is projected to be in the range of $295.5 million to $297.5 million, also an 11% year-over-year increase at the midpoint. Total revenue is anticipated to be between $360 million and $362 million, a 9% year-over-year growth. Adjusted EBITDA is guided to be between $42 million and $44 million, a substantial 43% year-over-year improvement, and free cash flow is expected to be between $40 million and $44 million, a remarkable 61% year-over-year improvement. The company anticipates a less seasonal cash flow profile in 2025, with a 20/80 cash generation split between the first and second halves, compared to 5/95 in 2024.

This robust outlook is supported by strategic investments. While operational efficiencies continue to drive margin expansion, PROS plans to increase its sales and marketing investments in 2025 to accelerate growth. This includes applying greater rigor to the top of the sales funnel, expanding market reach through targeted campaigns, and doubling down on strategic platform partnerships to broaden distribution. The recent partnership with Commerce (BIGC) is a prime example, aiming to combine PROS's pricing and CPQ capabilities with Commerce's e-commerce solutions to redefine B2B digital commerce. The company's new CEO, Jeff Cotten, who assumed the role on June 2, 2025, is focused on amplifying these go-to-market efforts and leveraging PROS's AI leadership to drive long-term value.

Risks and Challenges

Despite its strong momentum, PROS operates within a complex and uncertain global environment. Macroeconomic factors, including ongoing tariff negotiations, trade restrictions, risk of recession, inflation, and fluctuating interest and foreign exchange rates, continue to drive "measured buying behavior" among customers. This often translates into more complex review cycles and an emphasis on smaller, incrementally scaled initial purchases focused on rapid return on investment. Geopolitical conflicts, such as the Russia-Ukraine war and Middle East conflicts, further add to market uncertainty and can disrupt global operations.

Regulatory developments, particularly emerging AI-specific regulations, are increasing scrutiny for companies utilizing AI solutions. While PROS emphasizes its responsible approach to AI innovation, prioritizing transparency, ethics, compliance, and trust, the evolving regulatory landscape could introduce compliance costs or impact product development. Furthermore, the "One Big Beautiful Bill Act," signed on July 4, 2025, introduces changes to U.S. income tax provisions that the company is currently evaluating for potential impact on its financial statements. While PROS's AI-powered solutions are designed to help customers navigate volatility, these external factors could still influence the pace of customer adoption and overall market demand.

Conclusion

PROS Holdings is demonstrating a compelling investment thesis built on its deep AI heritage, a strong financial turnaround, and a clear strategic roadmap. The company's decades of expertise in AI are not merely a historical footnote but a living, evolving competitive advantage, driving tangible benefits like a 650 basis point margin uplift for its customers. This technological differentiation, particularly with the advent of Agentic AI and specialized solutions, positions PROS to capture significant value in the rapidly transforming digital commerce and airline industries.

With subscription revenue accelerating, gross margins expanding, and free cash flow generation significantly improving, PROS is proving its ability to deliver profitable growth. The strategic focus on expanding its go-to-market reach through targeted campaigns and key partnerships, coupled with the leadership transition to Jeff Cotten, signals a renewed push for market share. While macroeconomic uncertainties and regulatory shifts present ongoing risks, PROS's mission-critical AI solutions and disciplined operational execution provide a robust foundation. For investors seeking exposure to a company that is not just participating in the AI revolution but leading it in its core markets, PROS offers a compelling opportunity for long-term value creation.