PROS Holdings, Inc. (PRO) Q2 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary and Q&A reveal strong financial performance, strategic partnerships, and positive industry trends, particularly in the airline sector. Despite some macroeconomic challenges, management's focus on AI innovation, strategic partnerships, and a new leadership transition contribute to a positive outlook. The lack of raised EBITDA guidance is offset by reinvestment plans for long-term growth. Overall, the sentiment is positive, likely leading to a 2% to 8% stock price increase in the short term.
Key Financial Performance
Subscription Revenue $73.3 million, a 12% year-over-year increase. The growth was attributed to the company's strong value proposition and momentum in the business.
Total Revenue $88.7 million, an 8% year-over-year increase. This was driven by the company's ability to exceed guidance ranges and deliver value to customers.
Recurring Revenue 86% of total revenue, up from 84% in Q2 of the previous year. This increase reflects the company's focus on subscription-based models.
Non-GAAP Subscription Gross Margin 80%, an improvement of over 50 basis points year-over-year. This was due to operational efficiencies and cost management.
Non-GAAP Service Gross Margins 11%, up from 10% in the previous year. The improvement was attributed to better service delivery and cost optimization.
Overall Non-GAAP Gross Margin 69%, up from 67% in the previous year. This was driven by improvements in both subscription and service gross margins.
Adjusted EBITDA $7.4 million, a 42% year-over-year improvement. This was due to increased revenue and operational efficiencies.
Free Cash Flow $3.2 million in Q2, contributing to $4.3 million in the first half of 2025. This was an improvement of over $3 million compared to the first half of the previous year, attributed to better cash management.
Cash and Investments $189 million at the end of Q2. This reflects the company's strong financial position.
Debt Reduction $186.9 million of 2027 notes exchanged for $185 million of new notes due in 2030, reducing debt by approximately $2 million. This was aimed at improving financial flexibility.
Non-GAAP Earnings Per Share $0.13 per share, exceeding guidance. This was driven by strong financial performance and cost management.
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Operating Highlights
AI-powered solutions: PROS is leveraging AI-powered solutions to enable businesses to outperform through intelligent commerce. They introduced PROS AI agents, combining language models with proprietary numerical models, designed to act as experienced team members for commercial strategies.
Smart CPQ and Smart POM: New customers like Lennox, Louis Dreyfus, and RHI Magnesita adopted Smart CPQ, while others like a global life sciences leader and a top U.S. auto parts distributor expanded with Smart POM for superior buying experiences.
Airline industry solutions: PROS is helping airlines like Air Greenland, ValueJet, and Scoot optimize offers and marketing strategies, driving customer loyalty and revenue growth.
Market recognition: PROS was named a leader in the 2025 CPQ Buyers Guide by ISG, marking its fourth consecutive leadership designation in three quarters. This recognition highlights its leadership in the CPQ space.
Partnership with Commerce: Announced a partnership with Commerce (formerly BigCommerce) to integrate enterprise-grade pricing and CPQ capabilities with e-commerce solutions, targeting B2B merchants.
Revenue growth: Subscription revenue grew by 12% year-over-year to $73.3 million, and total revenue increased by 8% to $88.7 million in Q2 2025.
Profitability improvements: Adjusted EBITDA improved by 42% year-over-year, reaching $7.4 million in Q2 2025. Free cash flow for the first half of 2025 was $4.3 million, a $3 million improvement compared to the previous year.
Debt restructuring: Reduced outstanding debt by $2 million through an exchange of 2027 notes for new 2030 notes, improving financial flexibility.
Focus on AI and innovation: PROS is expanding its platform to enhance rebates, incentives, and AI agents, aiming to power end-to-end commercial excellence.
Go-to-market strategy: Strengthened sales and marketing alignment, improved lead quality, and expanded market reach through targeted campaigns and strategic partnerships.
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Risk or Challenges
Macroeconomic Environment: The company operates in a dynamic and complex macroeconomic environment where businesses are selective and strategic with spending. This could impact customer budgets and purchasing decisions, potentially affecting revenue growth.
Sales Cycle and Lead Quality: The need to improve early-stage nurturing and lead quality to enhance conversion rates indicates challenges in the sales pipeline, which could hinder customer acquisition and revenue growth.
Strategic Partnerships: The company sees a huge opportunity in strategic platform partnerships but acknowledges the need to double down on these efforts. Failure to execute effectively could limit market reach and growth potential.
Debt and Capital Structure: Although the company has improved its financial flexibility by reducing debt, it acknowledges prior dissatisfaction with its capital structure. Any mismanagement of debt or financial resources could pose risks to long-term financial stability.
AI and Innovation Execution: The company is heavily investing in AI-driven solutions and innovation. However, the success of these initiatives, such as the PROS AI agents, is still in pilot phases. Delays or failures in execution could impact competitive positioning and growth.
Customer Retention and Expansion: While the company has a strong gross revenue retention rate, maintaining and expanding customer relationships in a competitive market remains a challenge, especially in industries like airlines and B2B sectors.
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Guidance & Outlook
Subscription Revenue Guidance for Q3 2025: Expected to be in the range of $74.8 million to $75.3 million, representing 12% growth year-over-year at the midpoint.
Total Revenue Guidance for Q3 2025: Expected to be in the range of $90.5 million to $91.5 million, representing 10% year-over-year growth at the midpoint.
Adjusted EBITDA Guidance for Q3 2025: Expected to be between $11 million and $12 million, representing 24% growth year-over-year at the midpoint.
Non-GAAP Earnings Per Share for Q3 2025: Anticipated to be in the range of $0.15 to $0.17 per share based on an estimated 48.3 million diluted weighted average shares outstanding.
Full-Year Subscription ARR Guidance for 2025: Raised to a range of $310 million to $313 million, representing 11% growth year-over-year at the midpoint.
Full-Year Subscription Revenue Guidance for 2025: Raised to a range of $295.5 million to $297.5 million, representing 11% growth year-over-year at the midpoint.
Full-Year Total Revenue Guidance for 2025: Expected to be in the range of $360 million to $362 million, representing 9% growth year-over-year at the midpoint.
Full-Year Adjusted EBITDA Guidance for 2025: Expected to be in the range of $42 million to $44 million, representing an improvement of 43% year-over-year at the midpoint.
Full-Year Free Cash Flow Guidance for 2025: Expected to be in the range of $40 million to $44 million, a 61% improvement year-over-year at the midpoint.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:What initiatives are in place to build tighter alignment between marketing and sales, and what is the expected timeline for these changes to benefit subscription revenue?
A:The marketing organization is focusing on campaigns tailored to specific ideal customer profiles, such as manufacturing and its subsegments. Sales activities are being aligned with these campaigns to target specific subsegments. The expected timeline to see bookings momentum is a few quarters out, as these campaigns need to be launched and top-of-funnel activity generated.
Q:How does the management view the opportunity in the travel and airlines segment, and what excites them most about it?
A:Management sees significant demand in the airline industry due to complex changes, such as shifts in buying patterns and increased demand for premium products. They are focusing on offer management as airlines redefine their tech stack to address these complexities. Conversations with airlines indicate strong demand for PROS' offer capabilities, though sales cycles are long.
Q:What needs to happen for subscription growth to further accelerate going into calendar 2026?
A:Management highlighted the need to optimize the top end of the funnel, progress opportunities faster, leverage partnerships, and improve efficiency in the selling process. Initiatives include faster time to value, quicker product deployment, and leveraging agent technology. These efforts are part of ongoing planning processes.
Q:What is Jeffrey B. Cotten's background in go-to-market strategy, and how does he plan to posture PROS strategically?
A:Jeffrey B. Cotten has over 20 years of experience in go-to-market strategies. He focuses on building a 'conveyor belt' for demand flow, analyzing demand channels, and creating detailed plans for leads, opportunities, and conversion rates. He aims to bring rigor to PROS' go-to-market strategy by aligning marketing, sales, and partnerships to drive bookings.
Q:How did travel and B2B segments perform incrementally over the past 90 days?
A:Both segments performed well. The airline business showed strong and steady progress compared to a year ago, while the B2B segment continued to perform well.
Q:What details were provided about the Commerce partnership, and should we expect more announcements like this?
A:The Commerce partnership starts as a referral relationship with co-selling efforts and aims to evolve into a reseller model. The partnership aligns strategically on customer profiles and use cases. Management indicated that more platform partnerships are in the pipeline, aiming to increase demand flow and distribution.
Q:How will leaning into partnerships impact services revenue?
A:Services revenue is expected to moderate as partners perform more services. The focus is on driving subscription revenue, with efforts to make products easier to deploy and simplify implementation. This shift is seen as a trade-off to yield more subscription revenue.
Q:What is the current macro environment, and how does it impact PROS' business?
A:The macro environment remains challenging, with some international customers delaying or pausing projects. However, PROS' products are in demand for handling complex environments, such as tariff-related challenges. The impact varies by region, with more challenges outside the U.S.
Q:What trends are observed in the airline industry's shift to Offer and Order management, and how does PROS fit into this?
A:Airlines are in planning and strategy mode, focusing on offer management as a key area for differentiation. While some airlines prefer all-encompassing platforms, many are comfortable with a best-of-breed approach, which aligns with PROS' strengths in revenue and offer management.
Q:How is PROS balancing AI innovation adoption and monetization, and how does it maintain a competitive advantage?
A:PROS is currently focused on driving usage and adoption of its AI agents, collaborating with early adopters to determine the right pricing model. The goal is to build a ubiquitous agent for various industries. Monetization is expected to be outcome-based, tied to agent usage.
Q:Why hasn't PROS raised its full-year adjusted EBITDA guidance despite exceeding expectations in the first half of the year?
A:Management plans to reinvest savings from efficiencies in R&D and G&A into sales and marketing initiatives. This approach aims to drive long-term growth rather than short-term profitability.
Q:Review of Unclear Management Responses
A:Management avoided directly answering whether subscription growth can accelerate in calendar 2026, providing general initiatives without specific details or commitments. Additionally, the macroeconomic impact on sales cycles was discussed in broad terms without clear data or regional breakdowns.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI advantage
AI agent
AI future
Advantage RTDP
Agentic
CPQ
Commerce
Director
ISG
Incorporated Research
Overdeput Senior
Research Division
airline
analyst
buying experience
campaign
capability
carrier
decade
enterprise
focus area
foundation
future work
incentive
leader
life
model
momentum
optimization
partnership
platform business
quarter
rebate
rigor
stage
strategy
term value
value PROS
PRO Transcript
PROS Holdings, Inc. (PRO) Q2 2025 Earnings Call Transcript
Positive8-1
The earnings call summary and Q&A reveal strong financial performance, strategic partnerships, and positive industry trends, particularly in the airline sector. Despite some macroeconomic challenges, management's focus on AI innovation, strategic partnerships, and a new leadership transition contribute to a positive outlook. The lack of raised EBITDA guidance is offset by reinvestment plans for long-term growth. Overall, the sentiment is positive, likely leading to a 2% to 8% stock price increase in the short term.
PROS Holdings, Inc. (PRO) Q1 2025 Earnings Call Transcript
Positive5-1
The earnings call presents a positive outlook with strong financial performance, exceeding guidance in several metrics, and optimistic guidance for the year. Despite macroeconomic uncertainties and competitive pressures, the company reports increased demand and successful customer engagement, particularly in the travel sector. The Q&A section reveals no significant demand pattern changes, and management focuses on efficiency improvements. The only concern is the unclear response on guidance reiteration, but overall, the positive financial results and optimistic guidance outweigh this, leading to a positive stock price prediction.
PROS Holdings, Inc. (PRO) Q3 2024 Earnings Call Transcript
Positive10-29
The earnings call summary shows strong financial performance with significant improvements in revenue, EBITDA, and cash flow. The guidance is optimistic, especially with raised subscription revenue and EBITDA projections. Although there are risks like geopolitical uncertainties and competitive pressures, the company's strategic initiatives and AI-driven efficiencies are promising. The Q&A section reflects confidence in the business outlook, despite some management evasiveness. Overall, the strong financial metrics and optimistic guidance suggest a positive stock price movement.
PROS Holdings, Inc. (PRO) Q2 2024 Earnings Call Transcript
Positive7-31
The earnings call highlights strong financial performance, including record revenue, improved margins, and positive cash flow. The partnership with Microsoft and strategic customer expansions are promising. However, cautiousness in the travel sector and unclear future growth expectations introduce some uncertainty. Overall, the positive financial metrics and raised guidance outweigh these concerns, suggesting a positive stock price movement in the short term.
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Frequently Asked Questions
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