Executive Summary / Key Takeaways

• AI-Driven Market Leadership: PROS Holdings has established itself as a leader in AI-powered pricing and selling solutions, leveraging decades of data science expertise to deliver significant value and efficiency gains for B2B and travel industry clients. The company's proprietary AI agents and optimization tools are critical differentiators in a volatile market.
• Strong Financial Momentum Pre-Acquisition: The company demonstrated robust financial performance leading up to its acquisition announcement, with subscription revenue growing 13% year-over-year in Q3 2025 and total gross margin reaching an all-time high of 69%. Operational efficiencies, particularly in cloud infrastructure and services, significantly improved profitability and free cash flow.
• Strategic Acquisition by Thoma Bravo: PROS is set to be acquired by Thoma Bravo in an all-cash transaction valuing the company at approximately $1.4 billion, with shareholders receiving $23.25 per share. This move will take PROS private, with its travel business operating as a standalone entity and its B2B segment combining with Thoma Bravo's portfolio company, Conga.
• Outlook and Future Focus: Prior to the acquisition, PROS had raised its full-year 2025 guidance, anticipating 11% subscription ARR growth and 9% total revenue growth, driven by continued investment in sales and marketing and accelerating subscription revenue from travel bookings. The acquisition redefines the long-term outlook, focusing on specialized growth under private ownership.
• Competitive Moat and Risks: PROS's competitive advantage stems from its deeply embedded, outcome-driven AI technology and strategic partnerships. However, the pending merger introduces specific risks related to completion, business disruption, and operational restrictions, while broader macroeconomic volatility remains a persistent challenge.

The AI Imperative: PROS's Journey to Intelligent Commerce

PROS Holdings, Inc. (NYSE:PRO) has long been at the forefront of optimizing shopping and selling experiences in the digital economy, leveraging its deep expertise in artificial intelligence (AI), self-learning, and automation since its incorporation in 1985. Headquartered in Houston, Texas, PROS has built a formidable platform designed to dynamically match offers to buyers and prices to products, serving a diverse clientele across business-to-business (B2B) and business-to-consumer (B2C) sectors, including automotive, industrial manufacturing, distribution, transportation, and travel. This foundational commitment to AI has not only shaped its product development but also positioned it as a critical enabler for companies navigating increasingly complex and volatile market environments.

The company's strategic evolution has been marked by continuous innovation and targeted expansion. A notable move was the acquisition of EveryMundo around 2021, which significantly bolstered PROS's Offer Marketing product suite, particularly for its travel industry clients, while also laying groundwork for future B2B applications. This foresight aimed to "future-prove" B2B businesses as they increasingly shift towards digital channels and marketplaces. In 2024, PROS further solidified AI as a core strategic pillar, embedding it deeper into both its internal operations and its platform offerings. This period saw the release of over 560 new features, including Smart Rebate Management, Dynamic Ancillary Pricing, and the generative AI-powered Fare Finder Genie, all contributing to record-high non-GAAP subscription gross margins and double-digit improvements in customer time to value. This relentless pursuit of AI leadership has garnered significant industry recognition, with PROS achieving leader rankings in the Gartner Magic Quadrant, IDC MarketScape, and Forrester Wave for Configure Price Quote (CPQ) solutions in late 2024 and early 2025.

Technological Edge: The Power of PROS's AI Platform

PROS's core technological differentiation lies in its sophisticated AI-powered platform, which integrates decades of data science and proprietary numerical models with advanced language models to create specialized, "Agentic AI." This approach goes beyond mere conversational AI, designing agents that act as highly experienced team members, driving goal-oriented execution across sales, pricing, rebates, and revenue management.

The tangible benefits of this technology are evident in its quantifiable impact on customer operations. For instance, PROS's price recommendations lead to an average margin uplift of over 650 basis points for its customers. The platform's robust infrastructure processed an astounding 4.4 trillion transactions in 2024, representing a 29% year-over-year increase in volume, underscoring its scalability and real-time processing capabilities. Key product offerings exemplify this technological prowess:

• Smart CPQ (Configure Price Quote): This solution enhances sales productivity and accelerates deal velocity by streamlining complex quoting processes and supporting diverse selling scenarios. Its digital collaboration features transform the customer experience, moving beyond static PDFs to interactive portal experiences.
• Smart Price Optimization and Management (POM): This enables businesses to optimize, personalize, and harmonize pricing strategies, empowering them to control commercial strategies and deliver superior buying experiences. PROS Smart Price Optimization and Management is now available on SAP® Store, integrating with SAP S/4HANA Cloud and SAP Business Technology Platform to deliver AI-powered pricing insights for real-time omnichannel commerce.
• PROS AI Agents: Unveiled at the Outperform conference, these agents combine language models with PROS's proprietary numerical models, bringing specialized intelligence to Agentic AI. They are designed to drive goal-oriented execution across various use cases, from sales and pricing to rebates and revenue management. These agents are currently in pilot phases, with customer testing expected to launch in Q3 2025, and are seen as a key to long-term growth by accelerating value delivery.
• Dynamic Ancillary Pricing (DAP) and Fare Finder Genie: In the travel sector, DAP utilizes an AI-based reinforcement learning algorithm, while Fare Finder Genie leverages generative AI and real-time fares to offer tailored flight search experiences, aiming to inspire travelers and drive higher conversion of sales.

The "so what" for investors is clear: PROS's continuous innovation in AI creates a sustainable and expanding competitive advantage. This technological moat allows the company to offer solutions that directly translate into revenue uplift, margin expansion, and operational efficiency for its customers, thereby strengthening its market positioning and driving long-term growth. The company's strategy is to create more "sellable SKUs" that bring significant tangible value, enabling both net new logo acquisition and expansion within existing accounts.

Competitive Landscape: A Niche Leader Against Giants

PROS operates in a competitive landscape dominated by larger enterprise software providers such as Oracle Corporation (ORCL), SAP SE (SAP), and Salesforce, Inc. (CRM), alongside indirect competitors like open-source solutions and in-house developed systems. While these larger players offer broader enterprise suites, PROS has carved out a strong niche by specializing in AI-powered pricing and revenue optimization.

PROS's competitive standing is robust in its specialized areas. The company has achieved leader rankings from every key industry analyst evaluation specific to its solutions, including the Gartner Magic Quadrant, IDC MarketScape, and Forrester Wave for Configure Price Quote (CPQ) applications. In the 2025 ISG CPQ Buyers Guide, PROS was recognized as both an Exemplary Vendor and a Leader among 18 evaluated vendors, reflecting top performance in areas critical to enterprise buyers. This recognition underscores its differentiated product capabilities and expanding market presence.

Compared to Oracle, SAP, and Salesforce, PROS's offerings, such as Smart CPQ and Smart Price Optimization, emphasize user-friendly automation and dynamic market responsiveness. While Oracle and SAP offer comprehensive ERP and business software, their systems can sometimes be perceived as less tailored or more rigid for specific pricing and revenue management needs. Salesforce, a dominant CRM player, extends into pricing, but PROS's specialized focus often provides more granular control and faster processing for complex pricing scenarios. PROS's "best-of-breed" approach, particularly in the airline industry, allows it to co-invest with carriers in next-generation offer management, a strategic differentiator against all-encompassing platform players.

Financially, PROS's agility and innovation in specific applications enable effective competition, though it may lag in overall financial performance metrics like profitability and cash flow compared to the sheer scale of its larger rivals. For instance, PROS's latest TTM Gross Profit Margin is 67.86%, Operating Profit Margin is -4.51%, and Net Profit Margin is -3.32%. While direct comparable margins for its larger competitors are not detailed, their established market positions and diversified revenue streams generally afford them stronger profitability and cash flow generation. PROS's strategy to "increase its wallet share within its accounts" through add-on SKUs like Smart Rebate Management, which embeds AI for optimal business outcomes, is a key competitive response.

Financial Performance and Operational Excellence

PROS demonstrated significant financial and operational improvements leading up to the announcement of its acquisition. For the three months ended September 30, 2025, subscription revenue grew 13% year-over-year to $76.01 million, and total revenue increased 11% to $91.68 million. For the nine months ended September 30, 2025, subscription revenue rose 12% to $220.17 million, and total revenue increased 9% to $266.71 million. Recurring revenue, comprising subscription and maintenance and support, consistently accounted for 85% of total revenue during these periods, highlighting the company's stable revenue base. The gross revenue retention rate remained above 93% for the twelve months ended September 30, 2025.

Profitability metrics showed notable expansion. Subscription gross margin improved to 80% for the three months and 79% for the nine months ended September 30, 2025, up from 78% in the prior year periods. This improvement was primarily driven by the "continued optimization of our cloud infrastructure resulting in improved cost of delivery." Total gross margin also increased to 69% for the three months and 68% for the nine months ended September 30, 2025, compared to 66% and 65% respectively in 2024.

Operational efficiencies were a key driver of improved cash flow. Net cash provided by operating activities for the nine months ended September 30, 2025, was $15.80 million, a substantial improvement from $3.40 million in the prior year, primarily due to a significant reduction in net loss.

The company reported $188.40 million in cash and cash equivalents and $99.30 million in working capital as of September 30, 2025. In Q2 2025, PROS strategically exchanged $186.9 million of its 2027 convertible notes for $185 million of new 2030 notes, reducing debt by approximately $2 million and enhancing financial flexibility.

Despite a challenging macroeconomic environment characterized by tariffs, trade restrictions, and geopolitical conflicts, PROS's solutions proved mission-critical for customers seeking to adapt to volatility. The company's go-to-market efforts, including improved sales cycle times and bookings linearity, contributed to a healthy mix of new customer acquisition and existing customer expansion, with 50% of Q3 2024 bookings coming from new logos.

Outlook and the Thoma Bravo Acquisition

The most significant development impacting PROS's future outlook is its definitive agreement to be acquired by Thoma Bravo, L.P., in an all-cash transaction valued at approximately $1.4 billion. Under the terms, PROS shareholders will receive $23.25 per share. This merger, unanimously approved by PROS's Board of Directors, is expected to close in the fourth quarter of 2025, after which PROS will become a private company and its common stock will be delisted from the New York Stock Exchange.

Following the acquisition, Thoma Bravo intends to operate PROS's travel business as a standalone platform investment, while combining PROS's B2B business with Conga, an existing Thoma Bravo portfolio company. This strategic split aims to accelerate growth in both segments under specialized management.

Prior to the acquisition announcement, PROS had provided strong guidance for 2025, reflecting its operational momentum. For the full year 2025, the company raised its guidance for subscription ARR to a range of $310 million to $313 million, representing 11% growth year-over-year at the midpoint. Subscription revenue was projected to be between $295.5 million and $297.5 million, also an 11% year-over-year growth at the midpoint. Total revenue was guided to be in the range of $360 million to $362 million, representing 9% growth at the midpoint. Adjusted EBITDA was expected to be between $42 million and $44 million, a 43% improvement year-over-year at the midpoint, with free cash flow projected at $40 million to $44 million, a 61% improvement. Management indicated plans to reinvest efficiency gains into sales and marketing to further fuel growth.

As of September 30, 2025, PROS had approximately $487.50 million of revenue from remaining performance obligations, with $257.20 million expected to be recognized over the next 12 months. This backlog provides a solid foundation for future revenue recognition.

Risks and Challenges

The primary risk currently facing PROS is the pending merger with Thoma Bravo. The completion of this transaction is subject to shareholder and regulatory approvals, and there is no guarantee it will close within the anticipated timeframe or at all. Failure to complete the merger could lead to a decrease in PROS's stock price, a decline in investor confidence, and potential stockholder litigation. The company has already incurred $2.30 million in transaction costs for the nine months ended September 30, 2025, which would yield little benefit if the merger is terminated.

Furthermore, the pendency of the merger introduces business disruption and operational restrictions. Relationships with suppliers, customers, and employees could be adversely affected, potentially leading to renegotiations, deferrals, or terminations of business relationships. Management's time and resources are also diverted towards the merger process. Under the merger agreement, PROS is subject to restrictions on various business activities, including acquisitions, asset disposals, contract modifications, and capital expenditures, which could hinder its ability to respond effectively to competitive pressures.

Beyond the merger, PROS continues to operate in a challenging and uncertain macroeconomic, regulatory, and geopolitical environment. Factors such as tariffs, trade restrictions, inflation, fluctuating interest rates, supply chain disruptions, and global conflicts contribute to measured buying behavior by customers. This often results in more complex customer review cycles and a preference for smaller, incrementally scaled initial purchases focused on rapid return on investment. Emerging AI-specific regulations also increase scrutiny for companies utilizing AI solutions. While PROS's AI-powered solutions are designed to help customers navigate this volatility, these external factors can still impact sales cycles and overall demand.

Conclusion

PROS Holdings, Inc. stands as a testament to the power of specialized AI in transforming commercial operations. Its decades-long commitment to data science and AI has culminated in a robust platform that delivers tangible, quantifiable benefits to both B2B and travel industry clients, driving significant margin uplift and operational efficiencies. The company's consistent innovation, particularly in Agentic AI and digital offer management, has solidified its position as a market leader, as evidenced by top-tier analyst recognition and strong financial performance leading into late 2025.

The impending acquisition by Thoma Bravo marks a pivotal moment, transitioning PROS into a private entity with a clear strategic path for its distinct B2B and travel segments. This move, while introducing short-term merger-related risks, is poised to unlock further specialized growth and investment. For investors, the $23.25 per share cash offer provides a definitive return, reflecting the value created by PROS's technological leadership and market penetration. The company's journey underscores the enduring investment thesis in AI-native solutions that empower businesses to thrive amidst complexity, a narrative that will continue to unfold under new ownership.