PROS Holdings Q1 2025 slides: subscription revenue up 10%, margins expand

PROS Holdings, Inc. (NYSE:PRO), a provider of AI-powered solutions for pricing and revenue optimization, presented its Q1 2025 results on May 1, 2025, highlighting continued revenue growth and significant margin expansion as the company progresses toward its long-term financial goals.

Q1 2025 Financial Performance Highlights

PROS reported total revenue of $86.3 million for Q1 2025, representing a 7% increase compared to the same period last year. Subscription revenue, which forms the core of the company’s business model, grew 10% year-over-year to $70.8 million, continuing the company’s strong track record of subscription growth.

As shown in the following quarterly performance summary:

The company demonstrated substantial improvement in profitability metrics, with Adjusted EBITDA of $8.7 million, a 90% increase from Q1 2024. Free Cash Flow turned positive at $1.1 million, compared to negative $4.9 million in the prior year, representing a 123% improvement. Non-GAAP earnings per share reached $0.13, up from $0.04 in Q1 2024.

PROS has maintained consistent subscription revenue growth over the past decade, with a compound annual growth rate (CAGR) of 28% from 2015 to 2024. The following chart illustrates this growth trajectory:

Margin Expansion and Profitability Improvements

A key highlight of PROS’ Q1 2025 results was the continued expansion of margins across all business segments. The company has shown steady improvement in gross margins, with total non-GAAP gross margin reaching 69% in Q1 2025, up from 66% in Q1 2024.

The following chart demonstrates this consistent margin expansion:

Operating expenses as a percentage of revenue have also declined across all categories, contributing to improved profitability. General and administrative expenses decreased from 13% to 12% of revenue, sales and marketing remained stable at 24%, and research and development declined from 26% to 24%.

These improvements have driven a significant expansion in Adjusted EBITDA margin, which reached 10% in Q1 2025, compared to 4% in Q1 2024 and negative margins in earlier periods:

Free cash flow generation has also improved substantially, with free cash flow margin reaching 10% in Q1 2025, up from 4% in Q1 2024:

AI Platform Capabilities and Market Opportunity (SO:FTCE11B)

PROS’ business is built around its Real-Time AI Platform, which processes 4.8 trillion transactions annually (a 27% increase year-over-year) with sub-300ms response time and 99.97% uptime. The platform combines predictive, prescriptive, and generative AI capabilities to deliver pricing and revenue optimization solutions for B2B commerce and travel industries.

The following image illustrates the core capabilities of PROS’ AI platform:

The company estimates its total addressable market at over $38 billion, with $14+ billion in strategic industries and geographies including travel, automotive and industrial, healthcare, technology, food and consumables, business services, and chemicals and energy.

As shown in the following market opportunity breakdown:

PROS solutions deliver measurable business outcomes for customers, including an average revenue uplift of 8%, efficiency gains of 67%, margin improvements of 200-500 basis points, and a payback period of 9 months:

Forward Guidance and Long-Term Goals

For Q2 2025, PROS expects total revenue between $87.0 million and $88.0 million, representing approximately 7% growth year-over-year. Subscription revenue is projected to be between $72.0 million and $72.5 million, a 10% increase from Q2 2024. Adjusted EBITDA is expected to be between $4.0 million and $5.0 million.

For the full year 2025, the company projects total revenue of $360.0 million to $362.0 million (9% growth), subscription revenue of $294.0 million to $296.0 million (11% growth), and Adjusted EBITDA of $42.0 million to $44.0 million (43% growth). Free cash flow is expected to be between $40.0 million and $44.0 million, representing a 61% improvement over 2024.

PROS has established a long-term goal of becoming a "Rule of 40" company, with the combined total of revenue growth rate and free cash flow margin exceeding 40%. The company expects to reach 21% on this metric in 2025, continuing its progress from 2% in 2022, 14% in 2023, and 17% in 2024.

The following chart illustrates this progression:

Market Context and Investor Reaction

Despite the positive results and outlook presented in the Q1 2025 earnings, PROS stock closed at $17.08 on May 1, 2025, down 1.35% for the day, with after-hours trading showing a price of $16.85. This suggests a somewhat cautious market reaction to the results, potentially reflecting broader market conditions or specific concerns about the company’s growth rate relative to its valuation.

The company’s focus on AI-driven solutions aligns with industry trends, as mentioned in previous earnings calls where management highlighted strong interest in AI-powered offer optimization and digital marketing solutions. The Q1 2025 results continue to show progress in the company’s strategic shift toward subscription-based revenue and improved profitability.

PROS’ ability to maintain double-digit subscription revenue growth while significantly improving profitability metrics demonstrates the effectiveness of its strategy. As the company continues to progress toward its "Rule of 40" goal, investors will likely focus on the sustainability of this growth trajectory and the company’s ability to expand its market share in the competitive AI-powered pricing and revenue optimization space.

Full presentation:

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