Financial Data and Key Metrics Changes - Subscription revenue for Q1 was $64.3 million, up 15% year-over-year, and total revenue was $80.7 million, up 10% year-over-year, both exceeding guidance ranges [44][102] - Non-GAAP subscription gross margin improved to 79%, a year-over-year increase of over 140 basis points, while overall non-GAAP gross margin increased to 67%, an improvement of 315 basis points year-over-year [76] - Adjusted EBITDA for Q1 was $4.6 million, reflecting a near 300% improvement year-over-year [117] Business Line Data and Key Metrics Changes - The PROS Platform saw new customer activations, including ECE Group and Les Schwab, which adopted Smart CPQ and Smart Price Optimization respectively [19] - Hyatt expanded its use of Offer Marketing on the PROS Platform to enhance customer acquisition strategies [41] - Air Baltic activated Dynamic Ancillary Pricing, expected to drive a revenue uplift of 2% to 6% through AI-powered dynamic pricing [73] Market Data and Key Metrics Changes - The company noted that travel continues to drive improvements, with B2B remaining the main growth driver [32][130] - The adoption of dynamic pricing algorithms in B2B industries represents a significant opportunity, with a total addressable market exceeding $30 billion [34] Company Strategy and Development Direction - The company aims to achieve its 2026 financial objectives, focusing on operational efficiency and AI innovations to drive growth [29][102] - The integration of Microsoft Copilot is expected to enhance the visibility of the company's AI-driven solutions in the market [40][89] - The company is committed to a land, realize, and expand strategy to scale its business and improve profitability [57][102] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the visibility for the second half of the year, expecting an increase in revenue [11][106] - The company anticipates a meaningful jump in services revenue in the second half of the year, consistent with historical trends [106] - Management highlighted that the marketplace is still in its infancy but sees significant potential for product-led growth [60] Other Important Information - The company raised its full-year guidance for subscription revenue to a range of $263.5 million to $265.5 million, representing 13% growth at the midpoint [53] - The company welcomed Todd McNabb as Chief Revenue Officer to lead the global go-to-market team [42] Q&A Session Summary Question: Visibility for the second half of the year - Management feels more optimistic about visibility compared to the previous quarter, expecting an increase in revenue [11] Question: Dynamics of calculated billings - Calculated billings increased 3% year-over-year, with expectations for consistency with last year's trends [44][132] Question: Impact of new AI technologies on monetization - The company is excited about the potential to enhance differentiation and possibly increase average revenue per user (ARPU) through new AI functionalities [55] Question: Travel business recovery - The travel business is showing good momentum, with expectations for strong contributions from both new logos and existing customer expansions [62][130] Question: Sales cycle improvements - Sales cycle times for B2B have improved, and the company expects a similar ratio of first half to second half performance as in previous years [121][130]

© 2024 PROS, Inc. All rights reserved. Confidential and Proprietary. This presentation includes certain supplemental non-GAAP financial measures, that we believe are useful to investors as tools for assessing the comparability between periods as well as company by company. Our computation of these measures may not be comparable to other similarly titled measures computed by other companies. These non-GAAP financial measures should be considered in addition to, but not as a substitute for, our financial info ...

FORM 10-Q General Information This section details the Quarterly Report on Form 10-Q, registrant information, and filer status as of March 31, 2024 - This is a Quarterly Report on Form 10-Q for the period ended March 31, 2024[2](index=2&type=chunk) - Registrant: PROS HOLDINGS, INC. (Commission File Number: 001-33554), listed on the New York Stock Exchange under trading symbol **PRO**[3](index=3&type=chunk)[4](index=4&type=chunk)[6](index=6&type=chunk) - Number of shares outstanding of Common Stock: **47,004,361** as of May 1, 2024[7](index=7&type=chunk) Registrant Filer Status | Filer Status | | | | | :-------------------- | :--- | :---------------- | :--- | | Large accelerated filer | ☒ | Accelerated Filer | ☐ | | Non-Accelerated Filer | ☐ | Smaller Reporting Company | ☐ | | Emerging Growth Company | ☐ | | | CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This section warns that the report contains forward-looking statements subject to risks and uncertainties, and should not be relied upon as future predictions - This report contains forward-looking statements based on current estimates, assumptions, trends, and projections, identified by words like 'believes,' 'expects,' 'may,' 'should,' 'intends,' 'plans,' 'anticipates,' and 'estimates'[11](index=11&type=chunk) - Actual results could differ materially due to numerous important factors, risks, and uncertainties described in the Annual Report on Form 10-K and this Quarterly Report on Form 10-Q[11](index=11&type=chunk) - Readers should not rely on forward-looking statements as predictions of future events, and the company undertakes no obligation to publicly update them[12](index=12&type=chunk) PART I. FINANCIAL INFORMATION [Item 1. Interim Condensed Consolidated Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Interim%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) This section presents the unaudited condensed consolidated financial statements, including balance sheets, income statements, cash flows, and equity, with explanatory notes [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's financial position, detailing assets, liabilities, and equity as of March 31, 2024, and December 31, 2023 - Total assets decreased by **$13.9 million**, and total stockholders' (deficit) equity decreased by **$6.1 million** from December 31, 2023, to March 31, 2024[14](index=14&type=chunk) Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | March 31, 2024 | December 31, 2023 | | :------------------------------------------ | :------------- | :------------------ | | Cash and cash equivalents | $156,423 | $168,747 | | Total current assets | $222,909 | $234,674 | | Total assets | $407,889 | $421,833 | | Total current liabilities | $188,873 | $197,331 | | Total liabilities | $491,906 | $499,706 | | Total stockholders' (deficit) equity | $(84,017) | $(77,873) | [Condensed Consolidated Statements of Comprehensive Loss](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss) This section outlines the company's financial performance, including revenue, gross profit, and net loss for the three months ended March 31, 2024 and 2023 - Total revenue increased by **10.26%** year-over-year, driven by a **14.97%** increase in subscription revenue[16](index=16&type=chunk) - Net loss improved by **40.23%** year-over-year, from **$(19.0) million** in Q1 2023 to **$(11.4) million** in Q1 2024[16](index=16&type=chunk) Condensed Consolidated Statements of Comprehensive Loss Highlights (in thousands, except per share data) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Total revenue | $80,688 | $73,182 | | Gross profit | $51,855 | $43,640 | | Loss from operations | $(10,302) | $(18,796) | | Net loss | $(11,357) | $(19,002) | | Basic and diluted net loss per share | $(0.24) | $(0.41) | [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section details the cash inflows and outflows from operating, investing, and financing activities for the three months ended March 31, 2024 and 2023 - Net cash used in operating activities improved by **24.40%** year-over-year, primarily due to increased cash collections[19](index=19&type=chunk) - Net cash used in financing activities increased by **104.70%** year-over-year, mainly due to higher tax withholding payments related to stock awards[19](index=19&type=chunk) Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | $(4,644) | $(6,143) | | Net cash used in investing activities | $(353) | $(1,546) | | Net cash used in financing activities | $(7,314) | $(3,573) | | Net change in cash, cash equivalents and restricted cash | $(12,324) | $(11,251) | | Cash, cash equivalents and restricted cash, end of period | $166,423 | $192,376 | [Condensed Consolidated Statements of Stockholders' (Deficit) Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20(Deficit)%20Equity) This section presents changes in stockholders' (deficit) equity, including common stock, additional paid-in capital, and accumulated deficit for Q1 2024 - Noncash share-based compensation expense was **$12.7 million** for Q1 2024, an increase from **$9.9 million** in Q1 2023[22](index=22&type=chunk) Stockholders' (Deficit) Equity Changes (in thousands, except share data) | Item | Balance at Dec 31, 2023 | Q1 2024 Activity | Balance at Mar 31, 2024 | | :-------------------------- | :---------------------- | :----------------- | :---------------------- | | Common Stock (Shares) | 46,503,861 | 464,579 | 46,968,440 | | Common Stock (Amount) | $51 | $1 | $52 | | Additional Paid-In Capital | $604,084 | $5,485 | $609,469 | | Accumulated Deficit | $(647,252) | $(11,357) | $(658,609) | | Total Stockholders' (Deficit) Equity | $(77,873) | $(6,144) | $(84,017) | [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements [1. Organization and Nature of Operations](index=8&type=section&id=1.%20Organization%20and%20Nature%20of%20Operations) This note describes PROS Holdings, Inc.'s business, focusing on its AI-driven solutions for optimizing shopping and selling experiences - PROS Holdings, Inc. provides AI-driven solutions that optimize shopping and selling experiences for both B2B and B2C companies across various industry verticals[25](index=25&type=chunk) - The company's solutions leverage artificial intelligence, self-learning, and automation to deliver customized prices and offers in real-time, supporting fluid, personalized experiences across sales channels[25](index=25&type=chunk) [2. Summary of Significant Accounting Policies](index=8&type=section&id=2.%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines the key accounting policies used in preparing the financial statements and discusses the impact of new accounting pronouncements - The financial statements are prepared in accordance with GAAP for interim financial reporting, and no material changes in significant accounting policies were reported compared to the Annual Report[26](index=26&type=chunk)[28](index=28&type=chunk) - The company is currently evaluating the impact of new FASB ASUs 2023-07 (Segment Reporting) and 2023-09 (Income Tax Disclosures) on its consolidated financial statements[31](index=31&type=chunk)[32](index=32&type=chunk) Deferred Costs (in thousands) | Metric | March 31, 2024 | December 31, 2023 | | :------------- | :------------- | :------------------ | | Deferred costs | $14,500 | $15,100 | | Amortization expense (Q1) | $1,300 | $1,500 | [3. Deferred Revenue and Performance Obligations](index=9&type=section&id=3.%20Deferred%20Revenue%20and%20Performance%20Obligations) This note details the company's deferred revenue balances and expected revenue recognition from remaining performance obligations - As of March 31, 2024, the company expects to recognize approximately **$447.6 million** of revenue from remaining performance obligations, with **$227.4 million** expected within the next 12 months[35](index=35&type=chunk) Revenue Recognized from Deferred Balances (in thousands) | Period | Revenue Recognized | | :----- | :----------------- | | Q1 2024 | $54,500 | | Q1 2023 | $49,400 | [4. Disaggregation of Revenue](index=10&type=section&id=4.%20Disaggregation%20of%20Revenue) This note breaks down total revenue by geographic region for the three months ended March 31, 2024 and 2023 - The rest of the world segment contributed the largest share of revenue (**35%**) in Q1 2024, increasing from **33%** in Q1 2023[37](index=37&type=chunk) Revenue by Geography (in thousands) | Geographic Region | Q1 2024 Revenue | Q1 2024 Percent | Q1 2023 Revenue | Q1 2023 Percent | | :------------------------ | :-------------- | :-------------- | :-------------- | :-------------- | | United States of America | $26,933 | 33% | $26,232 | 36% | | Europe | $25,671 | 32% | $22,949 | 31% | | The rest of the world | $28,084 | 35% | $24,001 | 33% | | **Total revenue** | **$80,688** | **100%** | **$73,182** | **100%** | [5. Leases](index=10&type=section&id=5.%20Leases) This note provides information on the company's lease arrangements, including cash flows and changes in right-of-use assets and liabilities - A lease modification in February 2024 resulted in a **$2.1 million** increase in right-of-use assets, a **$1.4 million** increase in lease liability, a **$0.7 million** noncash gain, and an **$0.8 million** loss on disposal of assets[40](index=40&type=chunk) - Total operating lease liabilities as of March 31, 2024, were **$30.751 million**, with **$5.738 million** due in the remaining 2024 period[42](index=42&type=chunk) Lease-Related Cash Flow Information (in thousands) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :---------------------------------------- | :-------------------------------- | :-------------------------------- | | Cash paid for operating lease liabilities | $2,233 | $2,251 | | Right-of-use asset obtained | $2,126 | — | [6. Earnings per Share](index=11&type=section&id=6.%20Earnings%20per%20Share) This note presents the calculation of basic and diluted net loss per share, including factors affecting the share count - Potential common shares from RSUs, MSUs, and convertible notes were excluded from diluted EPS calculation due to their antidilutive effect, totaling **1.5 million** and **6.7 million** shares, respectively, for Q1 2024[43](index=43&type=chunk) Earnings Per Share (in thousands, except per share data) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------------- | :-------------------------------- | :-------------------------------- | | Net loss | $(11,357) | $(19,002) | | Weighted average shares (basic and diluted) | 46,817 | 45,926 | | Basic and diluted loss per share | $(0.24) | $(0.41) | [7. Noncash Share-based Compensation](index=11&type=section&id=7.%20Noncash%20Share-based%20Compensation) This note details the company's share-based compensation plans, grants, and related expenses for the reporting period - As of March 31, 2024, **3,281,287** shares remain available for issuance under the 2017 Stock Plan[44](index=44&type=chunk) - In Q1 2024, the company granted **1,196,087** time-based RSUs (weighted average fair value **$35.69/share**) and **131,892** MSUs (weighted average fair value **$41.07/share**)[45](index=45&type=chunk) - Estimated unrecognized compensation costs related to share-based arrangements totaled **$100.0 million** as of March 31, 2024, to be recognized over a weighted average period of **2.8 years**[47](index=47&type=chunk) Share-based Compensation Expense (in thousands) | Category | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------------- | :-------------------------------- | :-------------------------------- | | Cost of revenue | $1,068 | $832 | | Operating expenses | $11,632 | $9,072 | | **Total expense** | **$12,700** | **$9,904** | [8. Convertible Senior Notes](index=12&type=section&id=8.%20Convertible%20Senior%20Notes) This note provides details on the company's outstanding convertible senior notes, including principal balances, interest rates, and fair value - In October 2023, the company exchanged **$122.0 million** of 2024 Notes for **$116.8 million** of newly issued 2027 Notes[53](index=53&type=chunk) - The fair value of the Notes was **$310.7 million** as of March 31, 2024, down from **$320.5 million** at December 31, 2023[55](index=55&type=chunk) Convertible Senior Notes Outstanding (as of March 31, 2024, in thousands) | Note Type | Unpaid Principal Balance | Contractual Interest Rate | Maturity Date | | :-------------------------- | :----------------------- | :------------------------ | :------------ | | 1% Convertible Notes due 2024 | $21,713 | 1% | May 15, 2024 | | 2.25% Convertible Notes due 2027 | $266,816 | 2.25% | September 15, 2027 | | **Total Notes** | **$288,529** | | | Convertible Debt Interest Expense (in thousands) | Component | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------------- | :-------------------------------- | :-------------------------------- | | Coupon interest | $1,555 | $1,203 | | Amortization of debt issuance costs | $323 | $373 | | Amortization of debt premium | $(676) | — | | **Total** | **$1,202** | **$1,576** | [9. Commitments and Contingencies](index=14&type=section&id=9.%20Commitments%20and%20Contingencies) This note discloses the company's legal proceedings, claims, and significant purchase commitments - The company is not currently involved in any legal proceedings or claims that are expected to have a material adverse effect on its business or financial condition[60](index=60&type=chunk) - Remaining purchase commitment for a noncancelable software support services agreement is **$2.4 million**, expiring in March 2027[61](index=61&type=chunk) [10. Severance and Other Related Costs](index=14&type=section&id=10.%20Severance%20and%20Other%20Related%20Costs) This note outlines severance and related costs incurred due to organizational changes in Q1 2023 - In Q1 2023, the company incurred approximately **$3.6 million** in severance, employee benefits, and related costs due to organizational changes, with **$3.2 million** paid in cash[62](index=62&type=chunk) [11. Other Income, Net](index=14&type=section&id=11.%20Other%20Income,%20Net) This note details the components of other income, net, including interest income, foreign currency effects, and other gains or losses - The decrease in other income, net, was primarily due to an **$0.8 million** loss on disposal of assets related to a lease modification in Q1 2024[63](index=63&type=chunk) Other Income, Net (in thousands) | Component | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------------- | :-------------------------------- | :-------------------------------- | | Interest income, net | $1,762 | $1,730 | | Foreign currency (loss) gain, net | $(536) | $(203) | | Other (includes loss on disposal of assets) | $(768) | $(76) | | **Total other income, net** | **$458** | **$1,451** | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=15&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's analysis of the company's financial condition, operational results, liquidity, and capital resources for Q1 2024 [Q1 2024 Financial Overview](index=15&type=section&id=Q1%202024%20Financial%20Overview) This overview highlights key financial performance metrics for Q1 2024, including revenue growth and cash flow trends - Subscription revenue increased by **15%** and total revenue increased by **10%** for the three months ended March 31, 2024, compared to the same period in 2023[66](index=66&type=chunk) - Recurring revenue accounted for **84%** of total revenue, and gross revenue retention rates remained above **93%** during the twelve months ended March 31, 2024[67](index=67&type=chunk) - Cash used in operating activities improved by **$1.5 million** year-over-year, while free cash flow usage slightly increased by **$0.4 million**[68](index=68&type=chunk)[69](index=69&type=chunk)[70](index=70&type=chunk) Cash Flow Metrics (in thousands) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :---------------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | $(4,644) | $(6,143) | | Free cash flow | $(4,884) | $(4,519) | [Factors Affecting Our Performance](index=15&type=section&id=Factors%20Affecting%20Our%20Performance) This section discusses macroeconomic conditions, strategic priorities, AI market trends, and industry-specific factors influencing the company's performance - Macroeconomic and Geopolitical Environment: Complex conditions (inflation, interest rates, conflicts) create a challenging selling environment, but also drive demand for AI-driven price optimization solutions[71](index=71&type=chunk) - Profitable Growth as a Priority: Focused on disciplined investment to accelerate customer time-to-value, improve efficiency, leverage AI, and develop new applications, expecting operating expenses as a percentage of revenue to decrease long-term[73](index=73&type=chunk) - Artificial Intelligence: Rapid market interest in AI fuels demand for PROS's AI-powered solutions, which utilize deep neural networks and are being expanded for internal business operations to drive efficiencies[73](index=73&type=chunk) - Travel Industry Stabilizing: Global air passenger traffic has recovered to pre-pandemic levels, with strong travel demand forecast for 2024, positioning PROS's solutions well for airlines enhancing digital marketing and booking capabilities[73](index=73&type=chunk) - Digital Purchasing Driving Technology Adoption: Long-term trends toward digital purchasing by consumers and corporate buyers increase demand for technology that provides fast, frictionless, and personalized buying experiences across all sales channels[73](index=73&type=chunk) [Results of Operations](index=17&type=section&id=Results%20of%20Operations) This section provides a detailed analysis of the company's revenue, cost of revenue, gross profit, and operating expenses for the reporting period [Revenue](index=17&type=section&id=Revenue) This subsection analyzes revenue performance by category, including subscription, maintenance and support, and services revenue - Subscription revenue growth was primarily driven by an increase in new and existing customer contracts[75](index=75&type=chunk) - Maintenance and support revenue declined due to customer migration to cloud solutions and, to a lesser extent, customer churn[76](index=76&type=chunk) Revenue Performance (in thousands) | Revenue Category | Q1 2024 | Q1 2023 | Variance ($) | Variance (%) | | :-------------------------- | :------ | :------ | :----------- | :----------- | | Subscription | $64,349 | $55,969 | $8,380 | 15% | | Maintenance and support | $3,595 | $5,712 | $(2,117) | (37)% | | Services | $12,744 | $11,501 | $1,243 | 11% | | **Total revenue** | **$80,688** | **$73,182** | **$7,506** | **10%** | [Cost of revenue and gross profit](index=18&type=section&id=Cost%20of%20revenue%20and%20gross%20profit) This subsection details the cost of revenue and gross profit by category, highlighting changes in profitability - Gross profit increased by **19%** year-over-year, with subscription gross profit percentage improving from **75%** to **77%**[78](index=78&type=chunk) - Services gross profit percentage significantly improved from **(14)%** in Q1 2023 to **3%** in Q1 2024, driven by increased services revenue and decreased costs[80](index=80&type=chunk) Cost of Revenue and Gross Profit Performance (in thousands) | Category | Q1 2024 | Q1 2023 | Variance ($) | Variance (%) | | :-------------------------------- | :------ | :------ | :----------- | :----------- | | Cost of subscription | $14,613 | $14,093 | $520 | 4% | | Cost of maintenance and support | $1,862 | $2,282 | $(420) | (18)% | | Cost of services | $12,358 | $13,167 | $(809) | (6)% | | **Total cost of revenue** | **$28,833** | **$29,542** | **$(709)** | **(2)%** | | **Gross profit** | **$51,855** | **$43,640** | **$8,215** | **19%** | [Operating expenses](index=18&type=section&id=Operating%20expenses) This subsection examines trends in selling and marketing, research and development, and general and administrative expenses - Selling and marketing expenses decreased primarily due to lower employee-related costs and events, partially offset by increased noncash share-based compensation[81](index=81&type=chunk) - Research and development and general and administrative expenses increased mainly due to higher employee-related costs, including share-based compensation[82](index=82&type=chunk)[83](index=83&type=chunk) Operating Expenses Performance (in thousands) | Expense Category | Q1 2024 | Q1 2023 | Variance ($) | Variance (%) | | :---------------------- | :------ | :------ | :----------- | :----------- | | Selling and marketing | $22,682 | $26,010 | $(3,328) | (13)% | | Research and development | $24,413 | $22,291 | $2,122 | 10% | | General and administrative | $15,062 | $14,135 | $927 | 7% | | **Total operating expenses** | **$62,157** | **$62,436** | **$(279)** | **(0.4)%** | [Non-operating expenses](index=19&type=section&id=Non-operating%20expenses) This subsection discusses convertible debt interest and amortization, along with other income and expenses impacting net results - The decrease in convertible debt expense was related to the exchange of 2024 Notes for 2027 Notes[84](index=84&type=chunk) - The significant decrease in other income, net, was primarily due to a loss on disposal of assets associated with a lease modification[85](index=85&type=chunk) Non-Operating Expenses Performance (in thousands) | Category | Q1 2024 | Q1 2023 | Variance ($) | Variance (%) | | :-------------------------------- | :------ | :------ | :----------- | :----------- | | Convertible debt interest and amortization | $(1,202) | $(1,576) | $374 | (24)% | | Other income, net | $458 | $1,451 | $(993) | (68)% | [Income tax provision](index=19&type=section&id=Income%20tax%20provision) This subsection details the income tax provision and effective tax rate, explaining factors influencing tax expense - The effective tax rate varies from the **21%** federal statutory rate primarily due to valuation allowances on deferred tax assets and foreign income and withholding taxes[87](index=87&type=chunk) Income Tax Provision (in thousands) | Metric | Q1 2024 | Q1 2023 | Variance ($) | Variance (%) | | :------------------ | :------ | :------ | :----------- | :----------- | | Income tax provision | $311 | $81 | $230 | 284% | | Effective tax rate | (2.8)% | (0.4)% | n/a | n/a | [Liquidity and Capital Resources](index=19&type=section&id=Liquidity%20and%20Capital%20Resources) This section assesses the company's ability to meet its financial obligations, including cash position and available credit - Principal sources of liquidity include cash and cash equivalents, cash flows from operations, and potential borrowings under a **$50 million** credit agreement[90](index=90&type=chunk) - Management believes the company has adequate liquidity to meet operational requirements, anticipated capital expenditures, and coupon interest for the next twelve months, including principal payments for the remaining 2024 Notes[91](index=91&type=chunk) Liquidity Position (in thousands) | Metric | March 31, 2024 | December 31, 2023 | | :-------------------------- | :------------- | :------------------ | | Cash and cash equivalents | $156,400 | $168,700 | | Working capital | $34,000 | $37,300 | [Off-Balance Sheet Arrangements](index=20&type=section&id=Off-Balance%20Sheet%20Arrangements) This section confirms the absence of any material off-balance sheet arrangements impacting the company's financial position - The company does not have any material off-balance sheet arrangements[97](index=97&type=chunk) [Contractual Obligations and Commitments](index=20&type=section&id=Contractual%20Obligations%20and%20Commitments) This section outlines the company's contractual obligations and commitments, including credit agreements and restricted cash balances - No material changes to contractual obligations and commitments were reported, other than those described in Note 9[98](index=98&type=chunk) - The company has a **$50 million** credit agreement with no outstanding borrowings as of March 31, 2024, and maintains a **$10.0 million** restricted cash balance as a depository condition[99](index=99&type=chunk)[100](index=100&type=chunk) [Recent Accounting Pronouncements](index=20&type=section&id=Recent%20Accounting%20Pronouncements) This section refers to Note 2 for a discussion of recently issued accounting pronouncements not yet adopted - Refer to Note 2 for a discussion of recently issued accounting pronouncements not yet adopted[101](index=101&type=chunk) [Critical accounting policies and estimates](index=21&type=section&id=Critical%20accounting%20policies%20and%20estimates) This section highlights the significant estimates and assumptions required for financial statement preparation, as detailed in the Annual Report - The preparation of financial statements requires significant estimates and assumptions, particularly concerning revenue recognition, receivables, leases, and income taxes[102](index=102&type=chunk) - Critical accounting policies related to these estimates and judgments are discussed in the company's Annual Report[102](index=102&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=22&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section confirms no material changes in the company's market risk exposure compared to its Annual Report disclosures - No material changes in market risk exposure were reported from those disclosed in Part II, Item 7A, of the Annual Report[104](index=104&type=chunk) [Item 4. Controls and Procedures](index=22&type=section&id=Item%204.%20Controls%20and%20Procedures) This section details management's evaluation of disclosure controls and procedures and reports on changes in internal control over financial reporting [Disclosure Controls and Procedures](index=22&type=section&id=Disclosure%20Controls%20and%20Procedures) This subsection confirms the effectiveness of the company's disclosure controls and procedures as of March 31, 2024 - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2024[105](index=105&type=chunk) [Changes in Internal Control over Financial Reporting](index=22&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) This subsection reports no material changes in the company's internal control over financial reporting during Q1 2024 - There have been no material changes in the company's internal control over financial reporting during the three months ended March 31, 2024[106](index=106&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=23&type=section&id=Item%201.%20Legal%20Proceedings) This section confirms the company is not involved in any legal proceedings expected to materially adversely affect its business - The company is not currently aware of any legal proceedings or claims that are believed to have a material adverse effect on its business, financial condition, results of operations, or cash flows[108](index=108&type=chunk) [Item 1A. Risk Factors](index=23&type=section&id=Item%201A.%20Risk%20Factors) This section states no material changes in the company's risk factors from those disclosed in its Annual Report - No material changes in the company's risk factors were reported from those disclosed in Part I, Item 1A, of the Annual Report[109](index=109&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=23&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section reports no unregistered sales of equity securities or use of proceeds during the reporting period - None reported[110](index=110&type=chunk) [Item 3. Defaults Upon Senior Securities](index=23&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section indicates no defaults upon senior securities occurred during the reporting period - None reported[111](index=111&type=chunk) [Item 4. Mine Safety Disclosure](index=23&type=section&id=Item%204.%20Mine%20Safety%20Disclosure) This section states that there is no mine safety disclosure information to report - None reported[112](index=112&type=chunk) [Item 5. Other Information](index=23&type=section&id=Item%205.%20Other%20Information) This section reports on other information, specifically regarding securities trading plans of directors and executive officers - None of the company's directors or officers adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the three months ended March 31, 2024[113](index=113&type=chunk) [Item 6. Exhibits](index=23&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed as part of the Form 10-Q, including certifications and XBRL documents - Exhibits include certifications from the Chief Executive Officer and Chief Financial Officer (31.1, 31.2, 32.1) and various XBRL taxonomy documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE)[114](index=114&type=chunk) SIGNATURES This section provides the signatures of the company's President, Chief Executive Officer, and Chief Financial Officer, certifying the report - The report was signed on May 7, 2024, by Andres Reiner, President and Chief Executive Officer, and Stefan Schulz, Executive Vice President and Chief Financial Officer[118](index=118&type=chunk)

EXHIBIT 99.1 PROS HOLDINGS, INC. REPORTS FIRST QUARTER 2024 FINANCIAL RESULTS HOUSTON – May 7, 2024 — PROS Holdings, Inc. (NYSE: PRO), a leading provider of AI-powered SaaS pricing, CPQ, revenue management, and digital offer marketing solutions, today announced financial results for the first quarter ended March 31, 2024. "We delivered a strong start to 2024, exceeding our guidance ranges across all metrics, driving 15% subscription revenue growth and delivering a near 300% improvement to adjusted EBITDA ye ...

Table of Contents (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2023 or UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 001-33554 PROS HOLDINGS, INC. (Exact Name of Registrant as Specified in Its Charter) (State or Other Jurisdiction of In ...

PROS Holdings, Inc. (NYSE:PRO) Q4 2023 Results Conference Call February 8, 2024 4:45 PM ET Company Participants Belinda Overdeput - Director, IR Andres Reiner - President, CEO Stefan Schulz - CFO Conference Call Participants Brian Schwartz - Oppenheimer Chad Bennett - Craig-Hallum Jason Celino - KeyBanc Capital Markets Rob Oliver - Baird Parker Lane - Stifel Nehal Chokshi - Northland Capital Markets Operator Greetings. Welcome to the PROS Holdings Fourth Quarter 2023 Earnings Conference Call. At this time, ...

PROS Holdings, Inc. (NYSE:PRO) Q3 2023 Earnings Conference Call October 31, 2023 4:45 PM ET Company Participants Belinda Overdeput - Director, IR Andres Reiner - President & CEO Stefan Schulz - CFO Conference Call Participants Chad Bennett - Craig-Hallum Capital Group Rob Oliver - Baird Jason Celino - KeyBanc Capital Markets Scott Berg - Needham Parker Lane - Stifel Camden Levy - Oppenheimer Victor Cheng - Bank of America Operator Greetings. Welcome to the PROS Holdings Third Quarter 2023 Earnings Conferenc ...

The Power of AI Drives Measurable Business Outcomes Updated October 31, 2023 ir@pros.com 2 Investors are encouraged to review the reconciliation of our historical non-GAAP financial measures to the comparable GAAP results, which can be found, along with other financial information, on the investor relations' page of our website at PROS.com. We are unable to reconcile forward-looking non-GAAP financial measures to their directly comparable GAAP financial measures because the information needed to complete a ...

[PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents the company's interim condensed consolidated financial statements and management's discussion and analysis of financial performance [Item 1. Interim Condensed Consolidated Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Interim%20Condensed%20Consolidated%20Financial%20Statements%20%28Unaudited%29) This section presents the unaudited condensed consolidated financial statements, including the balance sheets, statements of comprehensive loss, cash flows, and stockholders' (deficit) equity, along with detailed notes explaining the company's financial position, performance, and significant accounting policies for the periods ended September 30, 2023 [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's financial position, detailing assets, liabilities, and equity as of September 30, 2023, and December 31, 2022 **Key Balance Sheet Data (in thousands)** | Metric | September 30, 2023 | December 31, 2022 | | :----------------------------------- | :------------------- | :------------------ | | Total Assets | $431,854 | $452,952 | | Cash and Cash Equivalents | $159,080 | $203,627 | | Total Liabilities | $486,732 | $488,425 | | Total Stockholders' (Deficit) Equity | $(54,878) | $(35,473) | | Current Portion of Convertible Debt | $21,635 | — | | Derivative Asset, Noncurrent | $22,260 | — | [Condensed Consolidated Statements of Comprehensive Loss](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss) This section presents the company's revenue, expenses, and net loss for the three and nine months ended September 30, 2023 and 2022 Revenue Performance (in thousands) | Category | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Change ($) | Change (%) | | :-------------------------------- | :------------------------------ | :------------------------------ | :--------- | :--------- | | Subscription | $59,987 | $51,763 | $8,224 | 16% | | Maintenance and support | $4,693 | $7,071 | $(2,378) | (34)% | | Services | $12,570 | $11,514 | $1,056 | 9% | | **Total Revenue** | **$77,250** | **$70,348** | **$6,902** | **10%** | | Category | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | Change ($) | Change (%) | | :-------------------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Subscription | $173,260 | $150,914 | $22,346 | 15% | | Maintenance and support | $15,498 | $22,175 | $(6,677) | (30)% | | Services | $37,466 | $32,113 | $5,353 | 17% | | **Total Revenue** | **$226,224** | **$205,202** | **$21,022** | **10%** | Net Loss and EPS (in thousands, except per share data) | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | | :-------------------------- | :------------------------------ | :------------------------------ | | Net Loss | $(13,868) | $(13,853) | | Basic and Diluted EPS | $(0.30) | $(0.31) | | Metric | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :-------------------------- | :----------------------------- | :----------------------------- | | Net Loss | $(46,159) | $(64,899) | | Basic and Diluted EPS | $(1.00) | $(1.44) | [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section details the cash inflows and outflows from operating, investing, and financing activities for the nine months ended September 30, 2023 and 2022 Cash Flow Summary (Nine Months Ended Sep 30, in thousands) | Activity | 2023 | 2022 | | :---------------------------------------- | :--------- | :--------- | | Net cash used in operating activities | $(3,967) | $(21,936) | | Net cash used in investing activities | $(2,281) | $(1,014) | | Net cash (used in) provided by financing activities | $(28,269) | $2,510 | | Net change in cash, cash equivalents and restricted cash | $(34,547) | $(20,729) | - Net cash used in operating activities significantly improved from **$(21.9) million** in 2022 to **$(4.0) million** in 2023, primarily due to increased sales, cash collections, interest income, and reduced cash operating expenses[18](index=18&type=chunk)[81](index=81&type=chunk)[109](index=109&type=chunk) - Net cash used in financing activities increased to **$(28.3) million** in 2023, mainly due to a **$22.8 million** purchase of capped call and higher tax withholding payments on stock awards[18](index=18&type=chunk)[111](index=111&type=chunk) [Condensed Consolidated Statements of Stockholders' (Deficit) Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20%28Deficit%29%20Equity) This section outlines the changes in the company's stockholders' (deficit) equity, including accumulated deficit and additional paid-in capital, for the period ended September 30, 2023 Stockholders' (Deficit) Equity Changes (in thousands) | Metric | December 31, 2022 | September 30, 2023 | | :-------------------------- | :------------------ | :------------------- | | Total Stockholders' (Deficit) Equity | $(35,473) | $(54,878) | | Accumulated Deficit | $(590,898) | $(637,057) | | Additional Paid-In Capital | $590,475 | $617,402 | - The accumulated deficit increased from **$(590.9) million** to **$(637.1) million**, reflecting the net loss incurred during the period[23](index=23&type=chunk) - Additional paid-in capital increased by **$26.9 million**, primarily driven by noncash share-based compensation and proceeds from employee stock plans[23](index=23&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the interim condensed consolidated financial statements, covering significant accounting policies and specific financial items [Note 1. Organization and Nature of Operations](index=9&type=section&id=Note%201.%20Organization%20and%20Nature%20of%20Operations) This note describes PROS Holdings, Inc.'s business, its AI-powered solutions, and the markets it serves - PROS Holdings, Inc. provides AI-powered solutions to optimize shopping and selling experiences for B2B and B2C companies, leveraging artificial intelligence, self-learning, and automation[26](index=26&type=chunk) - The company's solutions cover selling, pricing, revenue optimization, distribution, retail, and digital offer marketing, enabling personalized experiences across various sales channels[26](index=26&type=chunk) [Note 2. Summary of Significant Accounting Policies](index=9&type=section&id=Note%202.%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines the key accounting principles and policies used in preparing the unaudited condensed consolidated financial statements - The unaudited condensed consolidated financial statements are prepared in accordance with GAAP for interim financial reporting and SEC regulations[27](index=27&type=chunk) - No material changes in significant accounting policies were reported compared to the Annual Report on Form 10-K for the fiscal year ended December 31, 2022[29](index=29&type=chunk) Fair Value of Treasury Money Market Funds (in millions) | Date | Amount | | :----------------- | :------- | | September 30, 2023 | $149.7 | | December 31, 2022 | $168.1 | - Amortization expense for deferred sales commissions was **$1.4 million** for Q3 2023 and **$4.4 million** for YTD Q3 2023[35](index=35&type=chunk) - No impairment charges on long-lived assets were recorded for the three and nine months ended September 30, 2023, compared to **$1.6 million** in the prior year period[37](index=37&type=chunk) [Note 3. Deferred Revenue and Performance Obligations](index=11&type=section&id=Note%203.%20Deferred%20Revenue%20and%20Performance%20Obligations) This note provides details on revenue recognized from deferred balances and the company's remaining performance obligations Revenue Recognized from Deferred Balances (in millions) | Period | 2023 | 2022 | | :-------------------------------- | :----- | :----- | | Three Months Ended September 30 | $52.5 | $46.0 | | Nine Months Ended September 30 | $100.7 | $86.4 | - As of September 30, 2023, remaining performance obligations totaled approximately **$403.9 million**, with **$199.0 million** expected to be recognized over the next 12 months[40](index=40&type=chunk) [Note 4. Disaggregation of Revenue](index=11&type=section&id=Note%204.%20Disaggregation%20of%20Revenue) This note breaks down the company's total revenue by geographic region for the reported periods Revenue by Geography (Three Months Ended Sep 30, in thousands) | Region | 2023 Revenue | 2023 Percent | 2022 Revenue | 2022 Percent | | :--------------------- | :----------- | :----------- | :----------- | :----------- | | United States of America | $26,925 | 35% | $24,952 | 35% | | Europe | $25,691 | 33% | $20,816 | 30% | | The rest of the world | $24,634 | 32% | $24,580 | 35% | | **Total Revenue** | **$77,250** | **100%** | **$70,348** | **100%** | Revenue by Geography (Nine Months Ended Sep 30, in thousands) | Region | 2023 Revenue | 2023 Percent | 2022 Revenue | 2022 Percent | | :--------------------- | :----------- | :----------- | :----------- | :----------- | | United States of America | $80,381 | 36% | $72,054 | 35% | | Europe | $73,388 | 32% | $62,504 | 31% | | The rest of the world | $72,455 | 32% | $70,644 | 34% | | **Total Revenue** | **$226,224** | **100%** | **$205,202** | **100%** | [Note 5. Leases](index=11&type=section&id=Note%205.%20Leases) This note details the company's operating lease arrangements, including types of leased assets, lease terms, and associated cash payments - The company holds operating leases for data centers, computer infrastructure, corporate offices, and equipment, with terms ranging from **1 to 10 years**[43](index=43&type=chunk) Cash Paid for Operating Lease Liabilities (in thousands) | Period | 2023 | 2022 | | :-------------------------------- | :----- | :----- | | Three Months Ended September 30 | $1,859 | $2,175 | | Nine Months Ended September 30 | $5,767 | $6,370 | - Total operating lease liabilities as of September 30, 2023, amounted to **$29.8 million**[46](index=46&type=chunk) [Note 6. Earnings per Share](index=13&type=section&id=Note%206.%20Earnings%20per%20Share) This note presents the basic and diluted loss per share and explains the treatment of potential common shares in the calculation Basic and Diluted Loss per Share | Period | 2023 | 2022 | | :-------------------------------- | :----- | :----- | | Three Months Ended September 30 | $(0.30) | $(0.31) | | Nine Months Ended September 30 | $(1.00) | $(1.44) | - Potential common shares from RSUs, MSUs, equity consideration, and convertible notes were excluded from diluted weighted average shares outstanding as they were antidilutive[47](index=47&type=chunk) [Note 7. Noncash Share-based Compensation](index=14&type=section&id=Note%207.%20Noncash%20Share-based%20Compensation) This note provides information on the company's equity incentive plan, share-based compensation expenses, and unrecognized compensation costs - The 2017 Equity Incentive Plan's authorized share limit was increased to **10,550,000 shares** in May 2023, with **4,281,409 shares** remaining available for issuance as of September 30, 2023[48](index=48&type=chunk) Share-based Compensation Expense (in thousands) | Category | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :-------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Cost of revenue | $1,033 | $1,050 | $2,850 | $2,881 | | Selling and marketing | $2,992 | $2,897 | $9,023 | $9,413 | | Research and development | $2,817 | $2,995 | $7,840 | $9,607 | | General and administrative | $4,091 | $3,684 | $11,876 | $10,716 | | **Total** | **$10,933** | **$10,626** | **$31,589** | **$32,617** | - Unrecognized compensation costs related to share-based arrangements totaled an estimated **$79.5 million**, to be recognized over a weighted average period of **2.6 years**[51](index=51&type=chunk) [Note 8. Convertible Senior Notes](index=15&type=section&id=Note%208.%20Convertible%20Senior%20Notes) This note details the company's convertible senior notes, including their principal balances, interest rates, and recent exchange transactions Convertible Senior Notes Summary (as of Sep 30, 2023, in thousands) | Note Type | Date of Issuance | Unpaid Principal Balance | Contractual Interest Rate | | :-------------------------------- | :--------------- | :----------------------- | :------------------------ | | 2024 Notes | May 2019 | $21,713 | 1% | | 2024 Notes (subject to exchange) | May 2019 | $122,037 | 1% | | 2027 Notes | September 2020 | $150,000 | 2.25% | | **Total Notes** | | **$293,750** | | - An exchange of **$122.0 million** of 2024 Notes for 2027 Notes was initiated on August 23, 2023, resulting in a **$1.8 million** loss on debt extinguishment[57](index=57&type=chunk)[58](index=58&type=chunk) - A derivative loss of **$3.8 million** was recorded for the embedded derivative feature related to the variability in the principal amount of the 2027 Notes issued in the exchange[59](index=59&type=chunk) - The fair value of the Notes in aggregate was **$296.3 million** as of September 30, 2023, up from **$263.7 million** at December 31, 2022[61](index=61&type=chunk) - An Additional Capped Call transaction was entered into in August 2023, initially recorded as a **$22.8 million** noncurrent derivative asset, with a **$0.5 million** derivative loss for Q3 2023[64](index=64&type=chunk)[65](index=65&type=chunk) [Note 9. Credit Facility](index=17&type=section&id=Note%209.%20Credit%20Facility) This note describes the company's secured credit agreement, including the revolving line of credit, minimum cash balance requirements, and compliance with covenants - The company entered into a three-year secured credit agreement in July 2023, providing a revolving line of credit up to **$50.0 million**[66](index=66&type=chunk) - The Credit Agreement requires maintaining a minimum cash balance of **$10.0 million** with the administrative agent, which is included in restricted cash[67](index=67&type=chunk) - As of September 30, 2023, there were no outstanding borrowings under the Credit Agreement, and the company was in compliance with all financial covenants[68](index=68&type=chunk) [Note 10. Commitments and Contingencies](index=17&type=section&id=Note%2010.%20Commitments%20and%20Contingencies) This note addresses the company's legal proceedings and significant purchase commitments as of the reporting date - The company is not currently involved in any outstanding litigation that is expected to have a material adverse effect on its business or financial condition[69](index=69&type=chunk) - A remaining purchase commitment of **$3.5 million** for software support services exists as of September 30, 2023, expiring in March 2027[70](index=70&type=chunk) [Note 11. Severance and Other Related Costs](index=17&type=section&id=Note%2011.%20Severance%20and%20Other%20Related%20Costs) This note details the severance, employee benefits, and related costs incurred due to organizational changes during the period - The company incurred **$3.6 million** in severance, employee benefits, and related costs during the nine months ended September 30, 2023, due to organizational changes[71](index=71&type=chunk) - Cash payments for these costs totaled **$3.9 million** for the nine months ended September 30, 2023[71](index=71&type=chunk) [Note 12. Other (Expense) Income, Net](index=18&type=section&id=Note%2012.%20Other%20%28Expense%29%20Income%2C%20Net) This note provides a breakdown of non-operating income and expenses, including interest income, foreign currency fluctuations, and derivative losses Other (Expense) Income, Net (in thousands) | Category | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :-------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Interest income, net | $2,086 | $891 | $5,867 | $889 | | Foreign currency (loss) gain, net | $(238) | $(7) | $(700) | $(514) | | Loss on derivatives | $(4,343) | — | $(4,343) | — | | Loss on debt extinguishment | $(1,779) | — | $(1,779) | — | | Gain on equity investment | — | $3,308 | — | $3,308 | | Other | $(14) | $(34) | $(91) | $55 | | **Total** | **$(4,288)** | **$4,158** | **$(1,046)** | **$3,738** | - The shift from net income to net expense was primarily driven by a **$4.3 million** derivative loss and a **$1.8 million** loss on debt extinguishment related to the convertible notes exchange, partially offset by higher interest income[101](index=101&type=chunk) [Note 13. Subsequent Event](index=18&type=section&id=Note%2013.%20Subsequent%20Event) This note discloses significant events that occurred after the reporting period, specifically the settlement of convertible notes exchange - On October 10, 2023, the company settled the exchange of **$122.0 million** aggregate principal amount of its 2024 Notes for **$116.8 million** aggregate principal amount of newly issued 2027 Notes[75](index=75&type=chunk) - Following the exchange, **$21.7 million** of 2024 Notes and **$266.8 million** of 2027 Notes remain outstanding[75](index=75&type=chunk) - The deferred premium on the Additional Capped Call was settled at a final value of **$22.2 million**[75](index=75&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=19&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results of operations for the three and nine months ended September 30, 2023, discussing key financial highlights, factors affecting performance, and liquidity [Q3 2023 Financial Overview](index=19&type=section&id=Q3%202023%20Financial%20Overview) This section summarizes the company's key financial performance metrics for the third quarter and year-to-date periods of 2023 - Subscription revenue increased by **16%** for Q3 2023 and **15%** for the nine months ended September 30, 2023, compared to the same periods in 2022[79](index=79&type=chunk) - Total revenue grew by **10%** for both the three and nine months ended September 30, 2023[79](index=79&type=chunk) - Recurring revenue constituted **84%** of total revenue for Q3 2023 and **83%** for the nine months ended September 30, 2023[80](index=80&type=chunk) - Cash used in operating activities improved significantly from **$(21.9) million** in the nine months ended September 30, 2022, to **$(4.0) million** in the same period of 2023[81](index=81&type=chunk) Free Cash Flow (in thousands) | Period | 2023 | 2022 | | :-------------------------------- | :----- | :----- | | Three Months Ended September 30 | $8,494 | $(9,067) | | Nine Months Ended September 30 | $(2,265) | $(22,781) | [Factors Affecting Our Performance](index=19&type=section&id=Factors%20Affecting%20Our%20Performance) This section discusses macroeconomic conditions, strategic priorities, industry trends, and technological advancements influencing the company's financial results - The company operates in a complex macroeconomic environment, but pricing volatility and inflation are catalysts for demand for its price optimization and management solutions[84](index=84&type=chunk)[85](index=85&type=chunk) - A strategic priority is profitable growth through disciplined investment, aiming to decrease product development, sales and marketing, and general and administrative expenses as a percentage of total revenues[86](index=86&type=chunk) - The travel industry, particularly airlines, continues to recover, driving increased technology investments, especially in direct booking channels[86](index=86&type=chunk) - Mainstream interest in generative AI is increasing focus on business applications leveraging AI, with PROS's solutions already powered by **4th generation AI**[86](index=86&type=chunk) - Ongoing customer migrations from on-premises to cloud solutions are expected to lead to a decline in maintenance and support revenue and an increase in subscription revenue[86](index=86&type=chunk) [Results of Operations](index=21&type=section&id=Results%20of%20Operations) This section analyzes the company's revenue, cost of revenue, gross profit, and operating expenses for the reported periods Revenue Mix and Gross Profit Percentage | Metric | Q3 2023 | Q3 2022 | YTD Q3 2023 | YTD Q3 2022 | | :-------------------------------- | :------ | :------ | :---------- | :---------- | | Subscription Revenue % of Total | 78% | 74% | 77% | 74% | | Maintenance & Support Revenue % of Total | 6% | 10% | 7% | 11% | | Gross Profit % | 63% | 61% | 62% | 60% | [Revenue](index=21&type=section&id=Revenue) This section analyzes the performance of subscription, maintenance and support, and services revenue streams - Subscription revenue increased by **16%** (Q3) and **15%** (YTD Q3) due to growth in new and existing customer contracts[88](index=88&type=chunk) - Maintenance and support revenue decreased by **34%** (Q3) and **30%** (YTD Q3) primarily due to customer migrations to cloud solutions and, to a lesser extent, customer churn[89](index=89&type=chunk) - Services revenue increased by **9%** (Q3) and **17%** (YTD Q3) driven by higher sales of professional services related to subscription contracts and follow-on services[90](index=90&type=chunk) [Cost of Revenue and Gross Profit](index=22&type=section&id=Cost%20of%20Revenue%20and%20Gross%20Profit) This section examines the cost of revenue and gross profit percentages across subscription, maintenance and support, and services segments - Subscription gross profit percentages improved to **76%** (Q3 2023) and **75%** (YTD Q3 2023) from **73%** in both prior periods[93](index=93&type=chunk) - Maintenance and support gross profit percentages decreased to **62%** (Q3 and YTD Q3 2023) from **72%** in prior periods, mainly due to lower revenue and relatively fixed costs[94](index=94&type=chunk) - Services gross profit percentages improved to **3%** (Q3 2023) from **(3)%** (Q3 2022) and to **(1)%** (YTD Q3 2023) from **(9)%** (YTD Q3 2022), driven by increased revenue and greater efficiencies[95](index=95&type=chunk) [Operating Expenses](index=22&type=section&id=Operating%20Expenses) This section analyzes changes in selling and marketing, research and development, and general and administrative expenses - Selling and marketing expenses decreased by **9%** in Q3 2023, primarily due to reduced events, employee-related costs, and intangible asset amortization[96](index=96&type=chunk) - Research and development expenses decreased by **5%** (Q3) and **7%** (YTD Q3) due to prior organizational changes, reduced use of contracted resources, and lower noncash share-based compensation[97](index=97&type=chunk) - General and administrative expenses increased by **5%** (Q3) and **1%** (YTD Q3) due to higher employee-related expenses, including share-based compensation, and professional fees[98](index=98&type=chunk) - No impairment of fixed assets was recorded in 2023, compared to a **$1.6 million** charge in the nine months ended September 30, 2022[99](index=99&type=chunk) [Non-operating Expenses](index=23&type=section&id=Non-operating%20Expenses) This section discusses convertible debt interest, amortization, and other non-operating income and expenses - Convertible debt interest and amortization remained relatively stable[100](index=100&type=chunk) - Other (expense) income, net, shifted from income to expense, primarily due to a **$4.3 million** derivative loss and a **$1.8 million** loss on debt extinguishment related to the convertible notes exchange, partially offset by higher interest income[101](index=101&type=chunk) [Income Tax Provision](index=23&type=section&id=Income%20Tax%20Provision) This section details the income tax provision and effective tax rate for the reported periods - The income tax provision decreased by **5%** in Q3 2023 and **32%** in YTD Q3 2023[102](index=102&type=chunk) - The effective tax rate was **(1.8)%** for Q3 2023 and **(1.0)%** for YTD Q3 2023, primarily influenced by valuation allowances on deferred tax assets and foreign income/withholding taxes[103](index=103&type=chunk) [Liquidity and Capital Resources](index=24&type=section&id=Liquidity%20and%20Capital%20Resources) This section assesses the company's cash position, working capital, and ability to meet its financial obligations through operating, investing, and financing activities Liquidity Position (in millions) | Metric | September 30, 2023 | December 31, 2022 | | :-------------------------------- | :----------------- | :------------------ | | Cash, Cash Equivalents and Unrestricted Cash | $159.1 | $203.6 | | Working Capital | $42.5 | $106.3 | - Principal sources of liquidity include cash and cash equivalents, operating cash flows, and potential borrowings under the **$50.0 million** Credit Agreement[106](index=106&type=chunk) - Management believes existing liquidity, including future operating cash flows and the Credit Agreement, will be adequate to meet operational requirements and debt obligations for the next twelve months[107](index=107&type=chunk) [Operating Activities](index=24&type=section&id=Operating%20Activities) This section analyzes the net cash flow generated from or used in the company's core business operations - Net cash used in operating activities improved to **$(4.0) million** for the nine months ended September 30, 2023, from **$(21.9) million** in the prior year, driven by increased sales, cash collections, interest income, and reduced cash operating expenses[109](index=109&type=chunk) [Investing Activities](index=24&type=section&id=Investing%20Activities) This section details the cash flows related to the acquisition and disposal of long-term assets and investments - Net cash used in investing activities increased to **$(2.3) million** for the nine months ended September 30, 2023, primarily due to higher capital expenditures, including a third-party software license renewal[110](index=110&type=chunk) [Financing Activities](index=24&type=section&id=Financing%20Activities) This section outlines cash flows from debt, equity, and dividend transactions - Net cash used in financing activities was **$(28.3) million** for the nine months ended September 30, 2023, a significant increase from **$2.5 million** provided in the prior year, mainly due to a **$22.8 million** purchase of capped call and higher tax withholding payments on stock awards[111](index=111&type=chunk) [Off-Balance Sheet Arrangements](index=24&type=section&id=Off-Balance%20Sheet%20Arrangements) This section confirms the absence of material off-balance sheet arrangements that could impact the company's financial position - The company does not have any material off-balance sheet arrangements that would significantly affect its financial condition or results of operations[112](index=112&type=chunk) [Contractual Obligations and Commitments](index=25&type=section&id=Contractual%20Obligations%20and%20Commitments) This section discusses any material changes to contractual obligations and commitments, including covenants under the Credit Agreement - No material changes to contractual obligations and commitments were reported other than those described in Note 10[114](index=114&type=chunk) - The Credit Agreement includes affirmative and negative covenants, with financial covenants becoming effective if liquidity falls below a certain level[115](index=115&type=chunk) [Recent Accounting Pronouncements](index=25&type=section&id=Recent%20Accounting%20Pronouncements) This section confirms that no significant recent accounting pronouncements have materially impacted the company - There have been no significant recent accounting pronouncements or changes during the nine months ended September 30, 2023, that are of significance or potential significance to the company[38](index=38&type=chunk)[116](index=116&type=chunk) [Critical Accounting Policies and Estimates](index=25&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section highlights the significant estimates and assumptions inherent in the preparation of the financial statements - The preparation of financial statements requires significant estimates and assumptions affecting reported amounts, including those for receivables, credit losses, leases, asset useful lives, income taxes, and stock awards[117](index=117&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=26&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section outlines the company's exposure to market risks, specifically foreign currency exchange risk and interest rate risk, and its current strategies for managing these exposures [Foreign Currency Exchange Risk](index=26&type=section&id=Foreign%20Currency%20Exchange%20Risk) This section discusses the company's exposure to foreign currency fluctuations from international operations and contracts - The company is exposed to foreign currency exchange risk from foreign-denominated contracts and operations in countries like France, the United Kingdom, and Germany[119](index=119&type=chunk) - A hypothetical **10%** adverse change in exchange rates would result in an approximate **$0.8 million** loss on foreign denominated receivables[119](index=119&type=chunk) - The company currently does not use derivative financial instruments to mitigate foreign currency exchange risks but may consider them in the future[120](index=120&type=chunk) [Interest Rate Risk](index=26&type=section&id=Interest%20Rate%20Risk) This section addresses the company's exposure to interest rate changes, particularly concerning its variable-rate credit facility and fixed-rate convertible notes - The company is exposed to market risk from changes in interest rates related to the variable interest rate on borrowings under its Credit Agreement, though no borrowings were outstanding as of September 30, 2023[121](index=121&type=chunk) - The 2027 and 2024 Notes are fixed-rate instruments, meaning results of operations are not subject to interest rate fluctuations, but their fair values are exposed to interest rate risk[122](index=122&type=chunk) [Item 4. Controls and Procedures](index=26&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms the effectiveness of the company's disclosure controls and procedures and reports on any changes in internal control over financial reporting [Disclosure Controls and Procedures](index=26&type=section&id=Disclosure%20Controls%20and%20Procedures) This section confirms management's conclusion on the effectiveness of the company's disclosure controls and procedures - Management, with the participation of the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2023[124](index=124&type=chunk) [Changes in Internal Control over Financial Reporting](index=26&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) This section reports on the absence of material changes in internal control over financial reporting during the quarter - There have been no material changes in internal control over financial reporting during the three months ended September 30, 2023[125](index=125&type=chunk) [PART II. OTHER INFORMATION](index=27&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section provides additional information not covered in the financial statements, including legal proceedings, risk factors, and other disclosures [Item 1. Legal Proceedings](index=27&type=section&id=Item%201.%20Legal%20Proceedings) This section states that the company is not currently involved in any legal proceedings or claims that are expected to have a material adverse effect on its business, financial condition, results of operations, or cash flows - The company is not currently aware of any legal proceedings or claims that are believed to have a material adverse effect on its business or financial results[126](index=126&type=chunk) [Item 1A. Risk Factors](index=27&type=section&id=Item%201A.%20Risk%20Factors) This section highlights the risks associated with the company's indebtedness, including convertible notes and potential borrowings under its credit agreement, and their potential adverse impact on financial condition and cash flows - The company's indebtedness from convertible notes (2027 Notes: **$150.0 million** outstanding; 2024 Notes: **$143.8 million** outstanding as of Sep 30, 2023) and potential Credit Agreement borrowings may adversely affect its financial condition and cash flows[128](index=128&type=chunk)[129](index=129&type=chunk)[130](index=130&type=chunk)[131](index=131&type=chunk) - Post-exchange (October 10, 2023), **$266.8 million** of 2027 Notes and **$21.7 million** of 2024 Notes remain outstanding[128](index=128&type=chunk)[129](index=129&type=chunk) - Failure to comply with debt covenants or repay debt could lead to default and acceleration of repayment obligations, impacting the ability to obtain future financing[131](index=131&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=27&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section reports on the company's share repurchase authorization and confirms no common stock repurchases were made during the three months ended September 30, 2023 - The company has an ongoing authorization to repurchase up to **$15.0 million** in common stock, with **$10.0 million** remaining available as of September 30, 2023[132](index=132&type=chunk) - No purchases of common stock were made under the repurchase program during the three months ended September 30, 2023[132](index=132&type=chunk) [Item 3. Defaults Upon Senior Securities](index=27&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section states that there were no defaults upon senior securities during the reporting period - No defaults upon senior securities were reported[134](index=134&type=chunk) [Item 4. Mine Safety Disclosure](index=28&type=section&id=Item%204.%20Mine%20Safety%20Disclosure) This section indicates that there is no mine safety disclosure required for the company - No mine safety disclosure is applicable or required[135](index=135&type=chunk) [Item 5. Other Information](index=28&type=section&id=Item%205.%20Other%20Information) This section discloses the adoption of Rule 10b5-1 trading plans by certain directors and executive officers during the third quarter of 2023 [Securities Trading Plans of Directors and Executive Officers](index=28&type=section&id=Securities%20Trading%20Plans%20of%20Directors%20and%20Executive%20Officers) This section details the Rule 10b5-1 trading plans adopted by various directors and executive officers - Leland Jourdan (Director) adopted a Rule 10b5-1 trading plan on August 1, 2023, to sell up to **2,162 shares** for tax obligations[136](index=136&type=chunk) - Scott Cook (Chief Accounting Officer) adopted a Rule 10b5-1 trading plan on August 10, 2023, to sell up to **12,000 shares**[137](index=137&type=chunk) - Stefan Schulz (Chief Financial Officer) adopted a Rule 10b5-1 trading plan on August 11, 2023, to sell up to **64,000 shares**[138](index=138&type=chunk) - Andres Reiner (Chief Executive Officer) adopted a Rule 10b5-1 trading plan on August 30, 2023, to sell up to **200,000 shares**[139](index=139&type=chunk) [Item 6. Exhibits](index=29&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including various certifications and XBRL documents - The report includes certifications from the Chief Executive Officer and Chief Financial Officer (Exhibits 31.1, 31.2, 32.1)[141](index=141&type=chunk) - XBRL Instance Document and Taxonomy Extension Documents are provided as exhibits (Exhibits 101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE)[141](index=141&type=chunk) [Signatures](index=30&type=section&id=Signatures) This section contains the formal signatures of the company's principal executive and financial officers, certifying the report - The report was signed on October 31, 2023, by Andres Reiner, President and Chief Executive Officer, and Stefan Schulz, Executive Vice President and Chief Financial Officer[147](index=147&type=chunk)

Financial Data and Key Metrics Changes - Subscription revenue grew by 14% year-over-year, totaling $57.3 million, while total revenue increased by 11% year-over-year to $75.8 million [73][45] - The second quarter recurring revenue accounted for 82% of total revenue, with calculated billings rising 27% year-over-year [73][74] - Non-GAAP subscription gross margin improved to 78%, up from 76% a year ago, and non-GAAP services margin was reported at 11%, a 15 percentage point improvement [74][55] Business Line Data and Key Metrics Changes - The company reported a record quarter in deal activity, particularly in B2B, with win rates and sales velocity improving [11][120] - The land-and-expand strategy has led to quicker customer onboarding and expansion, with new customers adopting the platform rapidly [48][54] - The professional services team achieved a non-GAAP services gross margin of 11%, indicating improved efficiency in service delivery [55] Market Data and Key Metrics Changes - Strength was observed across various B2B industries, including technology, automotive, industrial, chemical, energy, and healthcare, with positive reception in both EMEA and the Americas [25][54] - The travel sector is recovering, but IT spending remains below pre-pandemic levels, with airlines still facing staffing shortages [1][2] Company Strategy and Development Direction - The company is focused on a platform strategy that emphasizes rapid customer adoption and expansion, leveraging AI capabilities to enhance pricing and sales processes [54][62] - There is confidence in achieving the long-term growth goal without needing to expand into new industries immediately, as current focus areas are expected to drive growth [6][10] Management's Comments on Operating Environment and Future Outlook - Management noted that sales cycles for new customers have improved by 30% year-over-year, driven by effective go-to-market strategies and the adoption of AI solutions [21][64] - The company anticipates positive free cash flow in the second half of the year, with expectations for total revenue to reach between $300 million and $302 million, representing a 9% year-over-year growth at the midpoint [32][29] Other Important Information - The company has a current liability of approximately $143 million related to convertible debt due in May 2024, which is expected to be retired with cash and investments [30][31] - The company raised its guidance for adjusted EBITDA to a range of $5.5 million to $7.5 million, reflecting a year-over-year improvement of over $21 million at the midpoint [33][32] Q&A Session Summary Question: Can you provide insights on the sales cycle improvements and macro factors influencing them? - Management attributed faster sales cycles to both internal go-to-market improvements and external demand factors, including interest in AI solutions [21][22] Question: What are the geographical performance trends, particularly in Europe and the U.S.? - Strength was noted in both the Americas and EMEA, with positive growth across various B2B industries [25][24] Question: How does the RPO performance align with strong billings and subscription revenue growth? - Management explained that the RPO metrics are influenced by the focus on shorter-term deals, which are expected to trend upwards in the latter part of the year [27][28] Question: What is the outlook for the travel sector and its impact on revenue? - While the travel sector is recovering, it is not yet back to pre-pandemic IT spending levels, but there is an expectation for revenue contributions from booked deals in the second half of the year [35][1] Question: How is the competitive environment evolving? - Management indicated no major changes in the competitive landscape, with continued improvements in win rates and sales velocity [76][120]