PROS Holdings, Inc. (NYSE:PRO) is a leading provider of AI-powered SaaS pricing, CPQ, revenue management, and digital offer marketing solutions. The company's vision is to optimize every shopping and selling experience. With nearly 40 years of industry expertise and a proven track record of success, PROS helps B2B and B2C companies across the globe, in a variety of industries, including airlines, manufacturing, distribution, and services, drive profitable growth.

Financials

In the first quarter of 2024, PROS delivered a strong start to the year, exceeding the high end of its guidance ranges across all metrics. The company grew subscription revenue by 15% and total revenue by 10% year-over-year, while also achieving a near 300% improvement in adjusted EBITDA compared to the same period in the prior year. This reflects PROS' continued focus on its 2026 goal of being a Rule of 40 company.

For the full year 2024, PROS has raised its guidance for subscription revenue, total revenue, and adjusted EBITDA. The company now expects subscription revenue to be in the range of $263.5 million to $265.5 million, representing 13% growth at the midpoint, and total revenue to be in the range of $332.5 million to $334.5 million, representing 10% growth at the midpoint. Adjusted EBITDA is expected to be in the range of $17 million to $20 million, representing an improvement of $12.5 million year-over-year.

Recurring Revenue and Gross Margins

PROS' recurring revenue, which consists of subscription revenue and maintenance and support revenue, accounted for 84% of total revenue in the first quarter of 2024. The company's trailing 12-month gross revenue retention rate remained above 93% during the same period.

In terms of profitability, PROS' non-GAAP subscription gross margin was 79% in the first quarter, an improvement of over 140 basis points year-over-year. The company also delivered a 9% non-GAAP services gross margin in the first quarter, an improvement of over 1,500 basis points year-over-year. With these improvements, PROS' overall non-GAAP gross margin increased to 67% in the first quarter, an improvement of 315 basis points year-over-year.

Geographic Diversification

PROS' revenue is geographically diversified, with 33% generated in the United States, 32% in Europe, and 35% in the rest of the world during the first quarter of 2024.

Business Overview

PROS' solutions leverage artificial intelligence (AI), self-learning, and automation to ensure that every transactional experience is fast, frictionless, and personalized for every shopper, supporting both B2B and B2C companies across industry verticals. The company's AI-powered pricing, revenue optimization, and digital offer marketing solutions enable its customers to assess their market environments in real-time and deliver customized prices and offers.

One of PROS' key innovations is the PROS Copilot for Sales plugin, launched in partnership with Microsoft in the first quarter of 2024. This solution seamlessly integrates PROS' AI-powered quote insights into Microsoft Copilot for Sales, empowering sellers to deliver fast, personalized offers to customers directly from email threads. PROS is the first vendor to integrate quote insights into Microsoft's Copilot for Sales, uniquely harnessing the power of data from across PROS' solutions and Microsoft's platforms to drive AI-powered offers that win.

Expansion and New Customer Wins

In the first quarter of 2024, PROS welcomed several new customers, including ECE Group, a global leader in real estate management, and Les Schwab, a leading automotive tier and parts distributor. These customers chose to activate PROS' Smart CPQ and price optimization solutions to accelerate time-to-quote, drive better customer experiences, and power real-time dynamic pricing across their retail networks.

PROS also expanded its relationships with existing customers, such as Hyatt, which expanded its use of PROS' digital offer marketing solutions, and Air Baltic, which activated PROS' dynamic ancillary pricing capabilities to drive revenue growth through ancillary services.

Liquidity

As of March 31, 2024, PROS had $156.4 million in cash and cash equivalents and $34.0 million in working capital. The company's principal sources of liquidity are its cash and cash equivalents, cash flows generated from operations, and a $50 million credit agreement.

PROS' capital structure includes $288.5 million in convertible senior notes, with $21.7 million due in May 2024 and $266.8 million due in September 2027. The company plans to pay the 2024 notes due this month using its existing cash and investments.

Risks and Challenges

PROS operates in a complex macroeconomic environment impacted by factors such as inflation, higher interest rates, volatile capital and financial markets, supply chain disruptions, and geopolitical conflicts. These uncertain conditions create a challenging selling environment for enterprise technology deployments, including more complex customer review and approval cycles.

Additionally, PROS' growth and recurring revenue are contingent on a vibrant economy, as the companies it serves are sensitive to economic conditions. While PROS believes its AI-driven solutions can help customers navigate these challenges, the company may face headwinds in maintaining its growth trajectory in the near term.

Conclusion

PROS Holdings, Inc. is well-positioned to capitalize on the growing demand for AI-powered pricing, revenue optimization, and digital offer marketing solutions. The company's strong financial performance, recurring revenue, and expanding customer base demonstrate its ability to deliver value to its clients and drive profitable growth.

Despite the macroeconomic uncertainties, PROS' innovative solutions, strategic partnerships, and focus on operational efficiency position the company for continued success. As PROS continues to invest in its go-to-market strategy and leverage the power of AI, it is poised to solidify its leadership in the AI-powered pricing and revenue optimization market.