10-Q: PROS Holdings Q3 2025: Revenue Growth Amid Thoma Bravo Merger

PROS Holdings reports strong Q3 2025 revenue growth and improved profitability metrics as it moves towards a $23.25 per share acquisition by Thoma Bravo.

Summary

• Total revenue increased 11% to $91.7 million for the three months ended September 30, 2025, and 9% to $266.7 million for the nine months ended September 30, 2025, compared to the same periods in 2024.
• Subscription revenue grew 13% to $76.0 million for the three months ended September 30, 2025, and 12% to $220.2 million for the nine months ended September 30, 2025.
• Recurring revenue (subscription, maintenance, and support) constituted 85% of total revenue for both the three and nine months ended September 30, 2025.
• Gross revenue retention rates remained above 93% during the twelve months ended September 30, 2025.
• Subscription gross margin improved to 80% for the three months ended September 30, 2025, and 79% for the nine months ended September 30, 2025, up from 78% in the prior year periods, due to continued optimization of cloud infrastructure.
• Net loss significantly reduced to $9.7 million for the nine months ended September 30, 2025, from $18.5 million in the prior year period.
• Cash provided by operating activities increased to $15.8 million for the nine months ended September 30, 2025, from $3.4 million in the prior year period.
• On September 22, 2025, PROS Holdings entered into a definitive agreement to be acquired by Thoma Bravo, L.P. for $23.25 per share in cash, with the merger expected to close in the fourth quarter of 2025.
• In connection with the merger, $2.3 million in transaction costs were incurred for the three and nine months ended September 30, 2025.
• Issued $235.0 million in 2.5% Convertible Notes due 2030, and exchanged approximately $186.9 million of 2027 Notes for $185.0 million of 2030 Notes, resulting in a $4.2 million gain on debt extinguishment.
• Purchased Capped Call transactions for $27.9 million to reduce potential dilution from the 2030 Notes, effectively increasing the overall conversion price from $20.48 to $30.34 per share.

Sentiment

Score: 7

Explanation: The company demonstrated strong operational improvements with significant subscription revenue growth, improved gross margins, and a substantial increase in cash from operations, leading to a reduced net loss year-to-date. The pending acquisition by Thoma Bravo at a fixed price of $23.25 per share provides a clear and favorable outcome for shareholders, despite the associated transaction costs and risks of non-completion.

Positives

• Strong subscription revenue growth of 13% for the three months ended September 30, 2025, and 12% for the nine months ended September 30, 2025.
• Overall total revenue growth of 11% for the three months ended September 30, 2025, and 9% for the nine months ended September 30, 2025.
• High recurring revenue percentage (85%) and gross revenue retention rates (above 93%) indicate a stable customer base.
• Improved subscription gross margin (80% in Q3 2025) due to cloud infrastructure optimization, leading to better cost of delivery.
• Significant reduction in net loss for the nine months ended September 30, 2025, to $9.7 million from $18.5 million in the prior year, demonstrating improved financial performance.
• Substantial increase in cash provided by operating activities to $15.8 million for the nine months ended September 30, 2025, from $3.4 million in the prior year, indicating stronger cash generation.
• Strategic acquisition by Thoma Bravo at $23.25 per share provides a clear and favorable exit for shareholders.
• Realized a $4.2 million gain on debt extinguishment from the convertible notes exchange.

Negatives

• Reported a net loss of $4.2 million for the three months ended September 30, 2025, compared to net income of $0.2 million in the same period of 2024.
• Maintenance and support revenue continued to decline, decreasing 37% for the three months ended September 30, 2025, and 28% for the nine months ended September 30, 2025, as customers migrate to cloud solutions.
• Increased operating expenses, particularly General and Administrative (up 55% in Q3 2025), driven by higher noncash share-based compensation for the new CEO, accelerated expense for the former CEO's retirement, and professional fees related to the pending merger.
• Convertible debt interest and amortization expense increased 80% for the three months ended September 30, 2025, and 26% for the nine months ended September 30, 2025.
• Foreign currency translation adjustment resulted in a loss of $1.0 million for the nine months ended September 30, 2025.

Risks

• The proposed merger with Thoma Bravo may not be completed within the anticipated timeframe or at all, which could adversely affect business, financial condition, results of operations, cash flows, and stock price.
• If the merger is not completed, the company may be required to pay a termination fee of $39.6 million under certain circumstances.
• Significant costs, expenses, and fees for professional services related to the merger have been incurred and will continue, with little or no benefit if the merger is not completed.
• The fixed cash consideration of $23.25 per share will not be adjusted for changes in the company's business, assets, liabilities, prospects, or operating results.
• The merger consideration is a taxable event for U.S. federal income tax purposes for U.S. holders.
• Stockholders will forego the opportunity to realize potential long-term value from the company's successful execution as an independent entity.
• Uncertainties associated with the merger could adversely affect relationships with suppliers, customers, and employees, potentially leading to renegotiations, delays, or terminations of business relationships.
• The merger could cause a diversion of significant management time and resources and distract current employees, potentially impacting productivity.
• The company is subject to restrictions on business activities under the merger agreement, which may prevent it from taking actions to respond effectively to competitive pressures or industry developments.
• Lawsuits may arise in connection with the merger, which could delay or prevent its completion and incur substantial defense costs and liabilities.
• Macroeconomic, regulatory, and geopolitical factors (tariffs, trade restrictions, recession risk, inflation, fluctuating interest and foreign exchange rates, supply chain disruptions, AI-specific regulations, geopolitical conflicts) continue to drive measured buying behavior by customers, impacting the company's business.

Future Outlook

The company expects maintenance revenue to continue to decline as it migrates customers to cloud solutions. It anticipates continued demand for solutions leveraging Artificial Intelligence (AI) and digital purchasing trends, influencing its category-leading solutions and internal operating efficiency. The proposed merger with Thoma Bravo 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. The company believes it has adequate liquidity and capital resources to meet operational requirements, anticipated capital expenditures, and coupon interest for the next twelve months.

Management Comments

• "In the third quarter of 2025, we continued to grow our subscription revenue, increasing subscription revenue by 13% and 12% for the three and nine months ended September 30, 2025, respectively, as compared to the same periods in 2024."
• "In the third quarter of 2025, we continued to improve on our profitability metrics."
• "The improvement [in cash provided by operating activities] was primarily due to a significant reduction in our net loss."
• "We expect maintenance revenue to continue to decline as we continue to migrate maintenance customers to our cloud solutions."
• "We believe the long-term trends toward digital purchasing drive demand for technology that provides fast, frictionless and distinctive buying experiences aligned across digital and traditional sales channels."
• "We have utilized AI in our solutions for years, and our deep experience in the use of AI at scale continues to influence our category-leading solutions."
• "We are also utilizing and considering new ways to expand AI use in our own business to increase the pace of innovation, improve knowledge management and drive operating efficiency."
• "We believe we will have adequate liquidity and capital resources to meet our operational requirements, anticipated capital expenditures, and coupon interest of our Notes for the next twelve months."

Industry Context

The rapid market interest in generative AI and other AI types is driving businesses globally to invest in and use AI applications, fueling demand for solutions that replace manual processes. PROS, with its decades of data science and AI expertise, is well-positioned in this trend. Long-term trends towards digital purchasing continue to drive demand for technology that provides fast, frictionless, and distinctive buying experiences across digital and traditional sales channels. Companies are increasingly competing on customer experience, necessitating the adoption of technologies like PROS's solutions. However, the macroeconomic, regulatory, and geopolitical environment (including tariffs, trade restrictions, recession risk, inflation, fluctuating interest and foreign exchange rates, supply chain disruptions, AI-specific regulations, and geopolitical conflicts) continues to create uncertainty, leading to measured buying behavior by customers, more complex review cycles, and a focus on smaller, incrementally scaled initial purchases with rapid ROI.

Comparison to Industry Standards

• NA

Management Changes

Corporate Governance

Legal Proceedings

• Not currently involved in any outstanding litigation that is believed to have a material adverse effect on its business, financial condition, results of operations, or cash flows.
• Lawsuits may arise in connection with the merger, which could delay or prevent completion and adversely affect the business, results of operations, cash flows, and financial condition.

Related Party Transactions

• NA

Stakeholder Impact

• Shareholders will receive $23.25 per share in cash upon merger completion, representing a fixed return, but will forego potential long-term value as an independent company. There is a risk of stock price decline and litigation if the merger fails.
• Employees may experience distraction and difficulties in attracting and retaining key personnel due to merger uncertainty. Employment agreements for the CEO and CFO were amended to provide severance eligibility if they resign for 'Good Reason' post-merger.
• Customers and suppliers' relationships could be adversely affected if they attempt to renegotiate, delay decisions, or terminate existing business relationships due to merger uncertainty.

Next Steps

• Closing of the merger with Thoma Bravo, L.P. in the fourth quarter of 2025, subject to shareholder and regulatory approvals.
• Upon closing of the merger, PROS will become a private company and its common stock will be delisted from the New York Stock Exchange.
• Continued migration of maintenance customers to cloud solutions, which is expected to lead to further declines in maintenance revenue.
• Evaluation of the impact of new accounting standards, including ASU No. 2025-05 (Internal-Use Software), ASU No. 2025-05 (Credit Losses), ASU No. 2024-03 (Expense Disaggregation), and ASU 2023-09 (Income Tax Disclosures).
• Evaluation of the impact of the 'One Big Beautiful Bill Act' (OBBBA) on consolidated financial statements.

Key Dates

Recommendation

The company is in the process of being acquired by Thoma Bravo for a fixed cash price of $23.25 per share, with the merger expected to close in Q4 2025. For existing shareholders, holding the stock until the merger closes allows them to realize the agreed-upon cash value, assuming the merger completes successfully. The current stock price likely reflects this acquisition price, making significant upside unlikely unless a superior offer emerges (which is restricted by the no-shop clause). There are risks associated with the merger not closing, but the terms are set. For new investors, buying at or near the current price offers limited upside to the $23.25 per share, with the risk of the deal falling through. Therefore, 'Hold' is the most appropriate recommendation for existing shareholders, while new investors might find better opportunities elsewhere given the limited arbitrage potential and fixed exit price.

Keywords

PROS Holdings, Thoma Bravo, Merger Agreement, SEC 10-Q, Subscription Revenue, Artificial Intelligence (AI), Digital Purchasing, Financial Results, Convertible Notes, Cloud Solutions, Software, B2B, B2C, Financial Technology, Corporate Acquisition