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目錄
美國
證券交易委員會
華盛頓特區20549
___________________________________________________________________________ 
表格 10-Q
_________________________________________________________________________ 
☒根據1934年證券交易法第13或15(d)條款的季度報告。
截至2024年6月30日季度結束 2024年9月30日
或
☐根據1934年證券交易法第13或15(d)條款的過渡報告
                    過渡期從　　至　　。      至。

委員會檔案編號： 001-33554
___________________________________________________________________________ 
PROS_Logo_Dual_2024.jpg
PROS HOLDINGS, INC.
（註冊人的確切姓名，如其章程中指明）
__________________________________________________________________________ 
特拉華州76-0168604
（註冊地）（聯邦稅號）
3200 卡比海運大道，600套房77098
休斯頓德州
（總部地址）（郵政編碼）
(713)335-5151
(註冊公司之電話號碼，包括區號)
(如果與上次報告不同，請提供前地址)

根據法案第12(b)條規定註冊的證券：
每個班級的標題交易符號每個註冊的交易所的名稱
普通股每股面值 0.001 美元專業紐約證券交易所

請以勾選標記指示登記人(1)是否在過去12個月(或登記人需要提交此類報告的較短時期)內已提交由1934年證券交易法第13或15(d)條款要求提交的所有報告，並(2)是否在過去90天內已受到此類提交要求的約束。是  ☒不☐

請勾選該公司是否根據Regulation S-t的第405條規定，在過去12個月內（或該公司要求提交並發帖此類文件的較短期間內）已經電子提交了每個互動數據文件。是  ☒否☐

請以選框表示，公司是否為超快速發展申報者、快速發展申報者、非加快發展申報者、較小型報告公司或新興增長型公司。請參閱《交易所法》第120億2條中對「大型加速認定者」、「加速認定者」、「較小型報告公司」和「新興增長型公司」的定義。
大型加速歸檔人☒快速文件提交者☐
非加速檔案提交者
☐ 
小型報告公司☐
新興成長公司☐
如果一家新興成長公司，請勾選方框，表示登記者已選擇不使用根據《交易所法》第13(a)條規定提供的任何新的或修訂的財務會計準則的延長過渡期。 ☐

請勾選表示，申報人是否為外殼公司（交易所法案第120億2條所定）。是☐否☒

公司普通股，面值$0.001，流通股份數為 47,305,965 截至2024年10月22日。

目錄
PROS Holdings, Inc.
10-Q基本報表
截至2024年9月30日季度結束

目錄
 頁面
项目1。
项目2。
项目3。
项目4。
项目1。
项目1A。
项目2。
项目3。
项目4。
项目5。
第6項。

關於前瞻性聲明的注意事項

本第10-Q表格的季度報告包含根據1995年《私人證券訴訟改革法令》第27A節、1933年修訂版證券法第27A節及1934年修訂版證券交易所法第21E節（「交易所法」）所指的「前瞻性陳述」。本報告中除歷史事實外的所有陳述均屬前瞻性，並基於目前的估計、假設、趨勢和預測。包括「相信」、「尋求」、「期望」、「可能」、「應」、「打算」、「可能」、「目標」、「計劃」、「預期」、「估計」等字眼以及這些字眼的負面版本和相似表達旨在識別前瞻性陳述。許多重要因素、風險和不確定因子影響我們的營運成果，包括但不限於我們在年度第10-K表格中描述的風險，以及本第10-Q季度報告中描述的風險，這些風險可能導致我們的實際結果與我們或代表我們所做的這些或其他前瞻性陳述所暗示的結果有實質差異。您應特別注意我們年度第10-K報告中名為「風險因素」的部分以及本第10-Q季度報告中名為「風險因素」的部分所描述的重要風險因素和警誡性陳述。您還應仔細審查我們向證券交易委員會提交的其他文件中描述的警誡性陳述，具體包括年度第10-K報告、所有季度第10-Q報告和當前第8-K報告。

您不應該將展望性陳述視為未來事件的預測，因為我們無法保證未來的結果、活動水平、表現或成就將符合期望。此處所作的展望性陳述僅截至本日期發出，我們不承諾出於任何原因公開更新此類展望性陳述。
                        3
目錄
第一部分. 財務資訊
項目 1。中期簡明綜合基本報表（未經查核）

PROS Holdings, Inc.
縮短的合併財務報表
(以千為單位，股份和每股數據除外)
(未經查核) 
2024年9月30日2023年12月31日
資產：
流動資產:
現金及現金等價物$140,564 $168,747 
應收貿易及其他賬款，扣除$ 訂立的津貼690 15.1574，分別為
48,225 49,058 
待定成本，流動4,448 4,856 
預付及其他流動資產10,782 12,013 
全部流動資產204,019 234,674 
限制性現金10,000 10,000 
物業及設備，扣除折舊後淨值20,391 23,051 
營運租賃權使用資產13,770 14,801 
待定成本，非流動10,690 10,292 
無形資產淨值7,997 11,678 
商譽107,970 107,860 
其他非流動資產9,332 9,477 
資產總額$384,169 $421,833 
負債及股東（赤字）權益：
流動負債：
應付帳款及其他負債$5,270 $3,034 
應付負債13,603 13,257 
應計的工資和其他員工福利22,831 32,762 
營運租賃負債，流動3,590 5,655 
營業收入待確認收入，當期114,538 120,955 
可換股債務淨額當期部分— 21,668 
流動負債合計159,832 197,331 
递延收入，非流动部分2,675 3,669 
可換股債務淨額271,173 272,324 
營業租賃負債，非流動 24,482 25,118 
其他負債，非流動1,231 1,264 
總負債459,393 499,706 
承諾和潛在損失（詳見註9）
股東（資本）權益：
優先股，面額$0.01，授權股數為5,000,000股，發行且流通股數為截至2024年6月30日和2023年12月31日之184,668,188股和181,364,180股。0.001 每股面額為 5,000,000 授權股份為 無 已發行
— — 
0.010.001 每股面額為 75,000,000 授權股份為 51,953,232
及 51,184,584 發行的股份分別為資產； 47,272,509 和 46,503,861 流通股數，分別
52 51 
資本公積額額外增資625,085 604,084 
庫藏股票：$373,420和$353,470的股票成本分別在2024年6月30日和2023年12月31日。 4,680,723 普通股，成本計量
(29,847)(29,847)
累積虧損(665,760)(647,252)
累積其他全面損失(4,754)(4,909)
股東（赤字）權益總額(75,224)(77,873)
負債合計及股東（赤字）權益總額$384,169 $421,833 
附註是這些未經審計的簡明綜合財務報表的一個組成部分。
4
目錄
PROS Holdings, Inc.
綜合損益簡明合併財務報表
(以千為單位，除每股數據外)
（未經核數） 
 Three Months Ended September 30,Nine Months Ended September 30,
 2024202320242023
Revenue:
Subscription$67,068 $59,987 $197,017 $173,260 
Maintenance and support3,361 4,693 10,341 15,498 
Total subscription, maintenance and support70,429 64,680 207,358 188,758 
Services12,273 12,570 38,045 37,466 
Total revenue82,702 77,250 245,403 226,224 
Cost of revenue:
Subscription14,470 14,510 43,653 42,662 
Maintenance and support1,698 1,769 5,311 5,927 
Total cost of subscription, maintenance and support16,168 16,279 48,964 48,589 
Services12,130 12,185 36,986 37,988 
Total cost of revenue28,298 28,464 85,950 86,577 
Gross profit54,404 48,786 159,453 139,647 
Operating expenses:
Selling and marketing20,074 20,324 66,293 71,214 
Research and development21,081 22,205 67,280 66,343 
General and administrative13,218 14,099 43,335 42,083 
Income (loss) from operations31 (7,842)(17,455)(39,993)
Convertible debt interest and amortization(1,121)(1,497)(3,471)(4,649)
Other income (expense), net1,531 (4,288)3,312 (1,046)
Income (loss) before income tax provision441 (13,627)(17,614)(45,688)
Income tax provision206 241 894 471 
Net income (loss)$235 $(13,868)$(18,508)$(46,159)
Net income (loss) per share:
Basic and diluted$— $(0.30)$(0.39)$(1.00)
Weighted average number of shares:
Basic47,231 46,225 47,038 46,084 
Diluted47,338 46,225 47,038 46,084 
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment$390 $(359)$155 $(174)
Other comprehensive income (loss), net of tax390 (359)155 (174)
Comprehensive income (loss) $625 $(14,227)$(18,353)$(46,333)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
Table of Contents
PROS Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 Nine Months Ended September 30,
 20242023
Operating activities:
Net loss$(18,508)$(46,159)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization6,371 8,301 
Amortization of debt premium and issuance costs(896)1,094 
Share-based compensation30,219 31,589 
Provision for credit losses52 88 
Gain on lease modification(697)— 
Loss on disposal of assets774 51 
Loss on derivatives— 4,343 
Loss on debt extinguishment— 1,779 
Changes in operating assets and liabilities:
Accounts and unbilled receivables788 (1,573)
Deferred costs10 704 
Prepaid expenses and other assets1,158 31 
Operating lease right-of-use assets and liabilities(1,838)(1,686)
Accounts payable and other liabilities2,191 (3,375)
Accrued liabilities1,087 1,489 
Accrued payroll and other employee benefits(9,906)(242)
Deferred revenue(7,435)(401)
Net cash provided by (used in) operating activities3,370 (3,967)
Investing activities:
Purchases of property and equipment(669)(2,168)
Capitalized internal-use software development costs(58)— 
Investment in equity securities(113)(113)
Net cash used in investing activities(840)(2,281)
Financing activities:
Proceeds from employee stock plans2,079 2,170 
Tax withholding related to net share settlement of stock awards(11,296)(6,831)
Debt issuance costs related to Credit Agreement— (837)
Purchase of capped call— (22,771)
Repayment of convertible debt(21,713)— 
Net cash used in financing activities(30,930)(28,269)
Effect of foreign currency rates on cash217 (30)
Net change in cash, cash equivalents and restricted cash(28,183)(34,547)
Cash, cash equivalents and restricted cash:
Beginning of period178,747 203,627 
End of period$150,564 $169,080 
Reconciliation of cash, cash equivalents and restricted cash to the condensed consolidated balance sheets:
Cash and cash equivalents$140,564 $159,080 
Restricted cash10,000 10,000 
Total cash, cash equivalents and restricted cash$150,564 $169,080 
Supplemental disclosure of cash flow information:
Noncash investing activities:
Purchase of property and equipment accrued but not paid$237 $236 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
Table of Contents
PROS Holdings, Inc.
Condensed Consolidated Statements of Stockholders’ (Deficit) Equity
(In thousands, except share data)
(Unaudited) 



Three Months Ended September 30, 2024
Common StockAdditional Paid-In CapitalTreasury StockAccumulated
Deficit		Accumulated other comprehensive lossTotal Stockholders’
(Deficit) Equity
SharesAmountSharesAmount
Balance at June 30, 202447,129,558 $52 $617,894 4,680,723 $(29,847)$(665,995)$(5,144)$(83,040)
Stock awards net settlement99,653 — (1,135)— — — — (1,135)
Proceeds from employee stock plans43,298 — 1,055 — — — — 1,055 
Noncash share-based compensation— — 7,271 — — — — 7,271 
Other comprehensive income (loss)— — — — — — 390 390 
Net income (loss)— — — — — 235 — 235 
Balance at September 30, 202447,272,509 $52 $625,085 4,680,723 $(29,847)$(665,760)$(4,754)$(75,224)

Three Months Ended September 30, 2023
 Common StockAdditional Paid-In CapitalTreasury StockAccumulated
Deficit		Accumulated other comprehensive lossTotal Stockholders’
(Deficit) Equity
 SharesAmountSharesAmount
Balance at June 30, 202346,140,736 $51 $606,599 4,680,723 $(29,847)$(623,189)$(5,068)$(51,454)
Stock awards net settlement58,814 — (1,163)— — — — (1,163)
Proceeds from employee stock plans48,859 — 1,033 — — — — 1,033 
Noncash share-based compensation— — 10,933 — — — — 10,933 
Other comprehensive income (loss)— — — — — — (359)(359)
Net income (loss)— — — — — (13,868)— (13,868)
Balance at September 30, 202346,248,409 $51 $617,402 4,680,723 $(29,847)$(637,057)$(5,427)$(54,878)
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.











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PROS Holdings, Inc.
Condensed Consolidated Statements of Stockholders’ (Deficit) Equity (Continued)
(In thousands, except share data)
(Unaudited) 



Nine Months Ended September 30, 2024
Common StockAdditional Paid-In CapitalTreasury StockAccumulated
Deficit		Accumulated other comprehensive lossTotal Stockholders’
(Deficit) Equity
SharesAmountSharesAmount
Balance at December 31, 202346,503,861 $51 $604,084 4,680,723 $(29,847)$(647,252)$(4,909)$(77,873)
Stock awards net settlement684,942 1 (11,297)— — — — (11,296)
Proceeds from employee stock plans83,706 — 2,079 — — — — 2,079 
Noncash share-based compensation— — 30,219 — — — — 30,219 
Other comprehensive income (loss)— — — — — — 155 155 
Net income (loss)— — — — — (18,508)— (18,508)
Balance at September 30, 202447,272,509 $52 $625,085 4,680,723 $(29,847)$(665,760)$(4,754)$(75,224)

Nine Months Ended September 30, 2023
 Common StockAdditional Paid-In CapitalTreasury StockAccumulated
Deficit		Accumulated other comprehensive lossTotal Stockholders’
(Deficit) Equity
 SharesAmountSharesAmount
Balance at December 31, 202245,638,003 $50 $590,475 4,680,723 $(29,847)$(590,898)$(5,253)$(35,473)
Stock awards net settlement506,398 1 (6,832)— — — — (6,831)
Proceeds from employee stock plans104,008 — 2,170 — — — — 2,170 
Noncash share-based compensation— — 31,589 — — — — 31,589 
Other comprehensive income (loss)— — — — — — (174)(174)
Net income (loss)— — — — — (46,159)— (46,159)
Balance at September 30, 202346,248,409 $51 $617,402 4,680,723 $(29,847)$(637,057)$(5,427)$(54,878)
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.











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PROS Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

1. Organization and Nature of Operations
    
PROS Holdings, Inc., a Delaware corporation, through its operating subsidiaries (collectively, the "Company"), provides solutions that optimize shopping and selling experiences. PROS solutions leverage artificial intelligence ("AI"), self-learning and automation to ensure that every transactional experience is fast, frictionless and distinctive for every shopper, supporting both business-to-business ("B2B") and business-to-consumer ("B2C") companies across industry verticals. Companies can use these selling, pricing, revenue optimization, distribution and retail, and digital offer marketing solutions to assess their market environments in real time to deliver customized prices and offers. The Company's solutions enable their customers to provide the buyers of their products the ability to move fluidly from one sales channel to another, whether direct, partner, online, mobile or other emerging channels, each with a personalized experience regardless of which channel is used. The Company's decades of data science and AI expertise are infused into its solutions and are designed to reduce time and complexity through actionable intelligence.

2. Summary of Significant Accounting Policies

Basis of presentation

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States ("GAAP") for interim financial reporting and applicable quarterly reporting regulations of the Securities and Exchange Commission ("SEC"). In management's opinion, the accompanying interim unaudited condensed consolidated financial statements include all adjustments necessary for a fair statement of the financial position of the Company as of September 30, 2024, the results of operations for the three and nine months ended September 30, 2024 and 2023, cash flows for the nine months ended September 30, 2024 and 2023, and stockholders' (deficit) equity for the three and nine months ended September 30, 2024 and 2023.
Certain information and disclosures normally included in the notes to the annual financial statements prepared in accordance with GAAP have been omitted from these interim unaudited condensed consolidated financial statements pursuant to the rules and regulations of the SEC. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2023 ("Annual Report") filed with the SEC. The unaudited condensed consolidated balance sheet as of December 31, 2023 was derived from the Company's audited consolidated financial statements but does not include all disclosures required under GAAP.
Changes in accounting policies
There have been no material changes in the Company’s significant accounting policies and their application as compared to the significant accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
    
Fair value measurement

The Company's financial assets that are included in cash and cash equivalents and that are measured at fair value on a recurring basis consisted of $131.2 million and $153.2 million at September 30, 2024 and December 31, 2023, respectively, and were invested in treasury funds, money market funds, and interest-bearing deposits in banks. The fair value of those investments is determined based on quoted market prices, which represents level 1 in the fair value hierarchy as defined by ASC 820. See Note 8 for the fair value measurement of the convertible notes.

    
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Deferred costs

Sales commissions earned by the Company's sales representatives are considered incremental and recoverable costs of obtaining a customer contract. Sales commissions are deferred and amortized on a straight-line basis over the period of benefit, which the Company has determined to be five to eight years. The Company determined the period of benefit by taking into consideration its customer contracts, expected renewals of those customer contracts (as the Company currently does not pay an incremental sales commission for renewals), the Company's technology and other factors. The Company also defers amounts earned by employees other than sales representatives who earn incentive payments under compensation plans also tied to the value of customer contracts acquired. Deferred costs were $15.1 million as of September 30, 2024 and December 31, 2023. Amortization expense for the deferred costs was $1.1 million and $1.4 million for the three months ended September 30, 2024 and 2023, respectively, and $3.6 million and $4.4 million for the nine months ended September 30, 2024 and 2023, respectively. Amortization of deferred costs is included in selling and marketing expense in the accompanying unaudited condensed consolidated statements of comprehensive income (loss).    
    
Recently issued accounting pronouncements not yet adopted

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses and other segment items on an annual and interim basis. The new standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The ASU is to be applied retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating the impact of this new standard on its consolidated financial statements and related disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures which expands disclosures in an entity’s income tax rate reconciliation table and disclosures regarding income taxes paid by jurisdiction. The new standard is effective for annual periods beginning after December 15, 2024, and early adoption is permitted. The new standard is to be applied on a prospective basis, but retrospective application is permitted. The Company is currently evaluating the impact of this new standard on its consolidated financial statements and related disclosures.

With the exception of the new standards discussed above, there have been no recent accounting pronouncements or changes in accounting pronouncements during the nine months ended September 30, 2024, as compared to the recent accounting pronouncements described in the Company's Annual Report, that are of significance or potential significance to the Company.

3. Deferred Revenue and Performance Obligations

    Deferred revenue

For the three months ended September 30, 2024 and 2023, the Company recognized approximately $54.9 million and $52.5 million, respectively, and for the nine months ended September 30, 2024 and 2023, the Company recognized approximately $110.0 million and $100.7 million, respectively, of revenue that was included in the deferred revenue balances at the beginning of the respective periods and related to subscription, maintenance and support, and services.

    Performance obligations

As of September 30, 2024, the Company expects to recognize approximately $429.3 million of revenue from remaining performance obligations. The Company expects, based on the terms of the related underlying contractual arrangements, to recognize revenue on approximately $231.0 million of these performance obligations over the next 12 months, with the balance recognized thereafter. Remaining performance obligations represent contractually committed revenue yet to be recognized, which includes deferred revenue and unbilled amounts that will be recognized as revenue in future periods.

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4. Disaggregation of Revenue

    Revenue by geography

    The geographic information in the table below is presented for the three and nine months ended September 30, 2024 and 2023. The Company categorizes geographic revenues based on the location of the customer's headquarters.
 Three Months Ended September 30,Nine Months Ended September 30,
 2024202320242023
(in thousands)RevenuePercentRevenuePercentRevenuePercentRevenuePercent
United States of America$29,251 35 %$26,925 35 %$84,174 34 %$80,381 36 %
Europe25,391 31 %25,691 33 %76,897 31 %73,388 32 %
The rest of the world28,060 34 %24,634 32 %84,332 35 %72,455 32 %
      Total revenue$82,702 100 %$77,250 100 %$245,403 100 %$226,224 100 %

5. Leases

    The Company has operating leases for data centers, computer infrastructure, corporate offices and certain equipment. These leases have remaining lease terms ranging from 1 year to 9 years. Some of these leases include options to extend for up to 15 years, and some include options to terminate within 1 year.

    As of September 30, 2024, the Company did not have any finance leases.

Supplemental cash flow information related to leases was as follows (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2024202320242023
Cash paid for operating lease liabilities$1,790 $1,859 $5,805 $5,767 
Right-of-use asset obtained in exchange for operating lease liability$229 $86 $2,369 $365 

In February 2024, an existing operating lease was modified due to a reduction of square footage at one of the Company's offices. The result of this modification was an increase in the related right-of-use asset of $2.1 million, an increase in the corresponding lease liability of $1.4 million, and a noncash gain of $0.7 million recorded as a reduction of the lease cost within cost of revenue and operating expenses. In connection with the lease modification, the Company also recorded a loss on disposal of assets of $0.8 million which is included in other income (expense), net in the accompanying unaudited condensed consolidated statements of comprehensive income (loss).

In January 2023, an existing operating lease was modified due to a change in future payments. The result of the 2023 modification was a decrease in the related right-of-use asset and corresponding lease liability of $1.0 million.

As of September 30, 2024, maturities of lease liabilities were as follows (in thousands):
Year Ending December 31,Amount
Remaining 2024$1,948 
20254,136 
20263,914 
20273,809 
20283,862 
20293,913 
Thereafter14,486 
Total operating lease payments36,068 
Less: Imputed interest(7,996)
Total operating lease liabilities$28,072 

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6. Earnings per Share

    The following table sets forth the computation of basic and diluted earnings per share for the three and nine months ended September 30, 2024 and 2023:
 Three Months Ended September 30,Nine Months Ended September 30,
(in thousands, except per share data)2024202320242023
Numerator:
Net income (loss)$235 $(13,868)$(18,508)$(46,159)
Denominator:
Weighted average shares (basic)47,231 46,225 47,038 46,084 
Dilutive effect of potential common shares107 — — — 
Weighted average shares (diluted)47,338 46,225 47,038 46,084 
Basic income (loss) per share$— $(0.30)$(0.39)$(1.00)
Diluted income (loss) per share$— $(0.30)$(0.39)$(1.00)
    
    Dilutive potential common shares consist of shares issuable upon the vesting of restricted stock units ("RSUs") and market stock units ("MSUs"). Potential common shares determined to be antidilutive and excluded from diluted weighted average shares were approximately 2.5 million and 1.4 million for the three months ended September 30, 2024 and 2023, respectively, and 1.9 million for the nine months ended September 30, 2024 and 2023. In addition, potential common shares related to the convertible notes determined to be antidilutive and excluded from diluted weighted average shares were 6.4 million and 5.8 million for the three months ended September 30, 2024 and 2023, respectively, and 6.5 million and 5.8 million for the nine months ended September 30, 2024 and 2023, respectively.

7. Noncash Share-based Compensation

The Company's 2017 Equity Incentive Plan (as amended and restated, the "2017 Stock Plan") had an aggregate authorized limit of 7,650,000 shares for issuance. In May 2023, the Company's stockholders approved an amendment to the 2017 Stock Plan increasing the aggregate amount of shares available for issuance to 10,550,000. As of September 30, 2024, 3,380,014 shares remain available for issuance under the 2017 Stock Plan.
    
    The following table presents the number of shares or units outstanding for each award type as of September 30, 2024 and December 31, 2023 (in thousands): 
Award typeSeptember 30, 2024December 31, 2023
Restricted stock units (time-based)2,731 2,767 
Market stock units439 358 

During the three months ended September 30, 2024, the Company granted 77,191 RSUs (time-based) with a weighted average grant-date fair value of $19.90 per share.

During the nine months ended September 30, 2024, the Company granted 1,410,809 RSUs (time-based) with a weighted average grant-date fair value of $34.48 per share. The Company also granted 179,681 MSUs with a weighted average grant-date fair value of $39.95 to certain executive employees during the nine months ended September 30, 2024. These MSUs vest on January 31, 2027, and the actual number of MSUs that will be eligible to vest is based on the total stockholder return of the Company relative to the total stockholder return of the Index over the performance period, as defined by each award's plan documents or individual award agreements. The maximum number of shares issuable upon vesting is 200% of the MSUs initially granted.

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The Company estimates the fair value of MSUs on the date of grant using a Monte Carlo simulation model. The weighted average assumptions used to value the MSUs granted during the nine months ended September 30, 2024 were as follows:
Nine Months Ended September 30, 2024
Volatility51.24 %
Risk-free interest rate4.14 %
Expected award life in years2.90
Dividend yield— %

Share-based compensation expense is allocated to expense categories in the unaudited condensed consolidated statements of comprehensive income (loss). The following table summarizes share-based compensation expense included in the Company's unaudited condensed consolidated statements of comprehensive income (loss) for the three and nine months ended September 30, 2024 and 2023 (in thousands):
 Three Months Ended September 30,Nine Months Ended September 30,
 2024202320242023
Share-based compensation:
Cost of revenue$1,177 $1,033 $3,396 $2,850 
Operating expenses:
Selling and marketing (1)
675 2,992 6,740 9,023 
Research and development (1)
898 2,817 6,543 7,840 
General and administrative4,521 4,091 13,540 11,876 
Total included in operating expenses6,094 9,900 26,823 28,739 
Total share-based compensation expense$7,271 $10,933 $30,219 $31,589 
    (1) During the three months ended September 30, 2024, both sales and marketing expense, and research and development expense included a $1.3 million reversal of noncash share-based compensation expense, as certain performance criteria as a condition to vest is not expected to be met.

    At September 30, 2024, the Company had an estimated $78.2 million of total unrecognized compensation costs related to share-based compensation arrangements. These costs will be recognized over a weighted average period of 2.7 years.

    The Company's Employee Stock Purchase Plan (as amended, the "ESPP") permits eligible employees to purchase Company shares on an after-tax basis in an amount between 1% and 10% of their annual pay: (i) on June 30 of each year at a 15% discount of the fair market value of the Company's common stock on January 1 or June 30, whichever is lower, and (ii) on December 31 of each year at a 15% discount of the fair market value of the Company's common stock on July 1 or December 31, whichever is lower. An employee may not purchase more than $5,000 in either of the six-month measurement periods described above or more than $10,000 annually. In May 2021, the Company's stockholders approved an amendment to the ESPP increasing the aggregate amount of shares available for issuance under the ESPP to 1,000,000. During the three and nine months ended September 30, 2024, the Company issued 43,298 and 83,706 shares under the ESPP, respectively. As of September 30, 2024, 199,411 shares remain authorized and available for issuance under the ESPP. As of September 30, 2024, the Company held approximately $0.7 million on behalf of employees for future purchases under the ESPP, and this amount was recorded in accrued payroll and other employee benefits in the Company's unaudited condensed consolidated balance sheet.

8. Convertible Senior Notes

The following is a summary of the Company's convertible senior notes as of September 30, 2024 (in thousands):
Date of IssuanceUnpaid Principal BalanceContractual Interest Rates
1% Convertible Notes due in 2024 ("2024 Notes") May 2019 $— 1%
2.25% Convertible Notes due in 2027 ("2027 Notes")September 2020 and October 2023$266,816 2.25%
Total Notes$266,816 

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The 2027 and 2024 Notes (collectively, the "Notes") are general unsecured obligations and rank senior in right of payment to all of the Company's indebtedness that is expressly subordinated in right of payment to the Notes, rank equally in right of payment with all of the Company's existing and future liabilities that are not so subordinated, are effectively junior to any of the Company's secured indebtedness to the extent of the value of the assets securing such indebtedness and are structurally subordinated to all indebtedness and other liabilities of the Company's subsidiaries (including trade payables but excluding intercompany obligations owed to the Company or its subsidiaries).

The 2027 Notes mature on September 15, 2027, unless redeemed or converted in accordance with their terms prior to such date. The 2024 Notes matured on May 15, 2024 and the Company repaid the outstanding principal balance of $21.7 million during the second quarter of 2024.

Interest related to the 2027 Notes is payable semi-annually in arrears in cash on March 15 and September 15 of each year, beginning on March 15, 2021. Interest related to the 2024 Notes was payable semi-annually in arrears on May 15 and November 15 of each year, beginning on November 15, 2019.

Each $1,000 of principal of the 2027 Notes will initially be convertible into 23.9137 shares of the Company’s common stock, which is equivalent to an initial conversion price of approximately $41.82 per share and is subject to adjustment upon the occurrence of certain specified events. Each $1,000 of principal of the 2024 Notes was initially to be convertible into 15.1394 shares of the Company’s common stock, which was equivalent to an initial conversion price of approximately $66.05 per share and was subject to adjustment upon the occurrence of certain specified events.

On August 23, 2023, the Company entered into legally binding exchange agreements with a limited number of existing holders of the 2024 Notes to exchange approximately $122.0 million aggregate principal amount of the existing 2024 Notes for a principal amount of the 2027 Notes at an exchange ratio to be determined based on the daily volume-weighted average trading price of the Company’s common stock over a thirty-day trading period beginning August 24, 2023 (such exchange transactions, the “Exchange”). On October 10, 2023, the Company settled the exchange agreements for the exchange of $122.0 million aggregate principal amount of its outstanding 2024 Notes for newly issued $116.8 million aggregate principal amount of its outstanding 2027 Notes. Following the settlement of the Exchange, $21.7 million in aggregate principal amount of the 2024 Notes and $266.8 million in aggregate principal amount of the 2027 Notes remained outstanding with terms unchanged. The 2027 Notes issued in the Exchange constitute a further issuance of, and form a single series and will be fungible with, the existing 2027 Notes.

Although the Exchange was not completed as of September 30, 2023, the Company determined that, from an accounting perspective, the Exchange was a legally binding restructuring of the debt that represented a substantial modification of the terms of the 2024 Notes subject to the Exchange, and therefore was required to be accounted for as an extinguishment transaction. This resulted in a $1.8 million loss on debt extinguishment recorded during the three months ended September 30, 2023 which was included in other income (expense), net in the unaudited condensed consolidated statements of comprehensive income (loss). In addition, the Company concluded that the variability in the principal amount of the 2027 Notes to be issued in connection with the Exchange due to changes in stock price was a feature embedded in the restructured debt that was required to be accounted for as an embedded derivative and remeasured to fair value until settlement in October 2023. During the three months ended September 30, 2023, the Company recorded a derivative loss of $3.8 million which was included in other income (expense), net in the unaudited condensed consolidated statements of comprehensive income (loss). The estimated fair value was determined based on inputs that are observable in the market or that could be derived from, or corroborated with, observable market data, including the Company's stock price, interest rates and the value of the 2027 Notes, which represented level 2 in the fair value hierarchy.

As of September 30, 2024, the 2027 Notes are not yet convertible and their remaining term is approximately 36 months.

As of September 30, 2024 and December 31, 2023, the fair value of the outstanding principal amount of the Notes in the aggregate was $239.4 million and $320.5 million, respectively. The estimated fair value was determined based on inputs that are observable in the market or that could be derived from, or corroborated with, observable market data, including the Company's stock price and interest rates, which represents level 2 in the fair value hierarchy.
    
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The Notes consist of the following (in thousands):
September 30, 2024December 31, 2023
Principal$266,816 $288,529 
Debt premium, net of amortization7,758 9,776 
Debt issuance costs, net of amortization(3,401)(4,313)
Net carrying amount$271,173 $293,992 

The following table sets forth total interest expense recognized related to the Notes (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2024202320242023
Coupon interest$1,501 $1,203 $4,576 $3,609 
Amortization of debt issuance costs289 294 913 1,040 
Amortization of debt premium(669)— (2,018)— 
Total$1,121 $1,497 $3,471 $4,649 

    Capped call transactions

In September 2020 and in May 2019, in connection with the offering of the 2027 and 2024 Notes, respectively, the Company entered into privately negotiated capped call transactions (collectively, the "Capped Call") with certain option counterparties. The Capped Call transactions cover, subject to customary anti-dilution adjustments, the number of shares of the Company’s common stock initially underlying the Notes, at a strike price that corresponds to the initial conversion price of the Notes, also subject to adjustment, and are exercisable upon conversion of the Notes. The Capped Call transactions are intended to reduce potential dilution to the Company’s common stock and/or offset any cash payments the Company will be required to make in excess of the principal amounts upon any conversion of the Notes, and to effectively increase the overall conversion price of the 2027 Notes from $41.82 to $78.90 per share and, for the 2024 Notes, from $66.05 to $101.62 per share. As the Capped Call transactions meet certain accounting criteria, they are recorded in stockholders’ (deficit) equity and are not accounted for as derivatives. The cost of the Capped Call was $25.3 million and $16.4 million for the 2027 and 2024 Notes, respectively, and was recorded as part of additional paid-in capital. On May 15, 2024, the 2024 Notes matured and the Capped Call associated with the 2024 Notes expired unexercised. The expiration of the 2024 Notes Capped Call did not have an impact on the unaudited condensed consolidated financial statements.

In August 2023, in connection with the Exchange, the Company entered into additional capped call transactions (the “Additional Capped Call”) with certain option counterparties. The Company agreed to pay a premium to the option counterparties for the Additional Capped Call for an amount to be determined based on the volume-weighted average trading price of the Company’s common stock over a thirty-day reference period beginning August 24, 2023. The conversion price of the Additional Capped Call is the same as the 2027 Notes Capped Call above. Initial funding of the Additional Capped Call occurred in the third quarter of 2023. The Additional Capped Call had a deferred premium component indexed to the Company's stock price and required to be settled in cash, and therefore the Additional Capped Call was a derivative instrument that, at inception, did not meet the qualifications for equity classification. During the three months ended September 30, 2023, the Company recorded a derivative loss of $0.5 million, which was included in other income (expense), net in the unaudited condensed consolidated statements of comprehensive income (loss). The estimated fair value was determined based on valuation methods using inputs that are observable in the market or that could be derived from, or corroborated with, observable market data, including the Company's stock price and interest rates, and other unobservable inputs such as volatility, which represented level 3 in the fair value hierarchy. On October 10, 2023, the Company settled the deferred premium on the Additional Capped Call resulting in a final value of $22.2 million. Once the deferred premium was settled, the instrument met the requirements for equity classification and the Company reclassified the Additional Capped Call to additional paid-in capital.

9. Commitments and Contingencies

    Litigation

    In the ordinary course of business, the Company regularly becomes involved in contract and other negotiations and, in more limited circumstances, becomes involved in legal proceedings, claims and litigation. The outcomes of these matters are inherently unpredictable. The Company is not currently involved in any outstanding litigation that it believes, individually or in the aggregate, will have a material adverse effect on its business, financial condition, results of operations or cash flows.
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Purchase commitments

The purchase commitments consist of agreements to purchase goods and services entered into the ordinary course of business, mainly related to infrastructure platforms, business technology software and support, and other services. The following table summarizes the non-cancelable unconditional purchase commitments for each of the next five years and thereafter as of September 30, 2024 (in thousands). The table below includes a multi-year contract with an obligation to spend $105.4 million by November 2026. The timing of the related payments presented below is based on management's estimate as to when those contractual commitments will be satisfied.

Year Ending December 31,Amount
Remaining 2024$7,342 
202550,287 
202654,326 
20271,146 
20281,226 
20291,226 
Thereafter— 
Total$115,553 

10. Severance and Other Related Costs

In the first quarter of 2023, the Company made certain organizational changes and incurred approximately zero and $3.6 million of severance, employee benefits, outplacement and related costs during the three and nine months ended September 30, 2023, respectively. These costs were recorded primarily as operating expenses in the unaudited condensed consolidated statements of comprehensive income (loss), mainly research and development, and sales and marketing. During the three and nine months ended September 30, 2023, cash payments of $0.1 million and $3.9 million, respectively, were recorded for the incurred costs. The Company settled the remaining accrued expense within 2023.

11. Other Income (Expense), Net

Other income (expense), net consisted of the following (in thousands):

 Three Months Ended September 30,Nine Months Ended September 30,
 2024202320242023
Interest income, net
1,507 2,086 4,825 5,867 
Foreign currency (loss) gain, net(170)(238)(934)(700)
Loss on derivatives (1)
— (4,343)— (4,343)
Loss on debt extinguishment (1)
— (1,779)— (1,779)
Other (2)
194 (14)(579)(91)
Total other income (expense), net$1,531 $(4,288)$3,312 $(1,046)
(1) Losses were recognized in connection with the Notes Exchange, see Note 8.
(2) Includes loss on disposal of assets of $0.8 million related to a lease modification in the first quarter of 2024, see Note 5.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

    The terms “we,” “us,” “PROS” and “our” refer to PROS Holdings, Inc. and all of its subsidiaries that are consolidated in conformity with generally accepted accounting principles in the United States.

    This management's discussion and analysis of financial condition and results of operations should be read along with the unaudited condensed consolidated financial statements and unaudited notes to unaudited condensed consolidated financial statements included in Part I, Item 1 ("Interim Condensed Consolidated Financial Statements (Unaudited)"), as well as the audited consolidated financial statements and notes to consolidated financial statements and management's discussion and analysis of financial condition and results of operations set forth in our Annual Report.

Q3 2024 Financial Overview

In the third quarter of 2024, we continued to grow our subscription revenue, increasing subscription revenue by 12% and 14% for the three and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023. Total revenue increased by 7% and 8% for the three and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023.

For the three and nine months ended September 30, 2024, recurring revenue (which consists of subscription revenue and maintenance and support revenue) accounted for 85% and 84% of total revenue, respectively. Our gross revenue retention rates remained above 93% during the twelve months ended September 30, 2024.

In the third quarter of 2024, we continued to improve on our profitability metrics. Our subscription gross profit margin was 78% for the three and nine months ended September 30, 2024 as compared to 76% and 75% for the three and nine months ended September 30, 2023, respectively.

Cash provided by operating activities was $3.4 million for the nine months ended September 30, 2024 as compared to cash used in operating activities of $4.0 million for the nine months ended September 30, 2023. The improvement was primarily due to a significant reduction in our net loss.

Factors Affecting Our Performance

    Key factors and trends that have affected, and we believe will continue to affect, our operating results include:

•Geopolitical and Macroeconomic Environment. The companies we serve continue to navigate a challenging geopolitical, macroeconomic and regulatory environment impacted by geopolitical conflicts, including the Russia-Ukraine and Middle East conflicts, continued inflation, changing interest rates, supply chain disruptions, tight labor markets, pricing volatility, rapid new regulations, and other local and regional macroeconomic conditions. Uncertain macroeconomic, regulatory and industry conditions in the geographies where we operate create a continued challenging selling environment for enterprise technology deployments, including in some cases more complex customer review and approval cycles. For example, AI regulation, such as the EU AI Act, creates uncertainty and increases scrutiny by companies adopting AI, even where the AI utilized is compliant with applicable regulations. Despite this environment, we remain confident in our ability to help our customers drive profitable growth by optimizing their shopping and selling experiences. For example, pricing volatility and inflation can be meaningful catalysts for demand for our AI-driven price optimization and management solutions. We believe in the near term that new customers will continue to emphasize smaller scope initial purchases and fast return on their investments. We believe this emphasis will require solid execution by our teams to capitalize on these demand drivers.

•Profitable Growth as a Priority. We continue to focus on our multi-year profitability progress by investing in a disciplined manner to drive revenue growth, increase operating margins and cash from operations and support our long-term initiatives. This includes investments designed to accelerate our customer time-to-value, improve efficiency and operations, further leveraging AI in our business operations, provide out-of-the-box integration with third-party commerce solutions and develop new applications and technologies. We expect our product development, sales and
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marketing, and general and administrative expenses as a percentage of total revenues will decrease long-term as we increase our revenues and continue to improve our profitability.

•Artificial Intelligence. The rapidly evolving market interest in generative AI and associated interest in all aspects of AI continues to drive businesses around the world and across industries to consider, invest in and use applications leveraging AI. For example, companies use AI to extract insights from their data, improve and customize their offerings, and drive process and operating efficiencies. Our AI-powered solutions enable buyers to move fluidly and with personalized experiences across our customers’ sales channels, and our digital offer marketing solutions help our customers drive their buyers directly into their direct selling channels. The pace of change across industries helps fuel demand for our solutions as businesses look to replace manual processes with AI. We have utilized AI in our solutions for years and our deep experience in AI continues to influence our category-leading solutions. For example, our current AI uses a neural network to improve prediction accuracy. We are also utilizing and considering new ways to expand AI use in our own business operations to drive efficiencies, improve knowledge management, gain insights and increase productivity.

•Travel Industry Dynamics. The travel industry continues to recover from the unprecedented disruption caused by the pandemic with global air passenger traffic exceeding pre-pandemic levels during 2024. Demand for air travel remains strong, and the airline industry is working to reestablish equilibrium in light of aircraft delivery issues and operational, cost and supply chain challenges. Airlines are increasingly recognizing the importance of competing for customers based on the total travel experience, while also improving financial performance. In some cases, this includes a renewed focus on revenue management systems. We believe our other solutions are also well-positioned, particularly as airlines look to enhance their digital marketing, booking capabilities, and ancillary offerings. However, operational challenges within the airline industry continue to impact sales cycles and approval processes.

•Digital Purchasing Driving Technology Adoption. We believe the long-term trends toward digital purchasing by both consumers and corporate buyers drives demand for technology that provides fast, frictionless and distinctive buying experiences across direct sales, partner, online, mobile and emerging channels. Buyers often prefer to conduct their own research rather than rely primarily on sales representatives, and tend to make purchases online once they have decided what to buy. For example, in the airline industry, the pandemic accelerated a long-term trend towards direct booking channels, and we anticipate airlines continuing to invest in technology to enhance their ability to capture a greater percentage of bookings and provide direct offers through their own channels such as their websites. We believe companies increasingly compete based on customer experience and must adopt technologies which power consistent offers and experiences across sales channels.

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Results of Operations

The following table sets forth certain items in our unaudited condensed consolidated statements of comprehensive income (loss) as a percentage of total revenues for the three and nine months ended September 30, 2024 and 2023:
 Three Months Ended September 30,Nine Months Ended September 30,
2024202320242023
Revenue:
Subscription
81 %78 %80 %77 %
Maintenance and support
4 6 4 7 
Total subscription, maintenance and support85 84 84 83 
Services
15 16 16 17 
Total revenue100 100 100 100 
Cost of revenue:
Subscription
17 19 18 19 
Maintenance and support
2 2 2 3 
Total cost of subscription, maintenance and support20 21 20 21 
Services
15 16 15 17 
Total cost of revenue34 37 35 38 
Gross profit66 63 65 62 
Operating Expenses:
Selling and marketing
24 26 27 31 
Research and development
25 29 27 29 
General and administrative
16 18 18 19 
Total operating expenses66 73 72 79 
Convertible debt interest and amortization
(1)(2)(1)(2)
Other income (expense), net2 (6)1 — 
Income (loss) before income tax provision1 (18)(7)(20)
Income tax provision
— — — — 
Net income (loss)— %(18)%(8)%(20)%

Revenue:
 Three Months Ended September 30,VarianceNine Months Ended September 30,Variance
(Dollars in thousands)20242023$%20242023$%
Subscription
$67,068 $59,987 $7,081 12 %$197,017 $173,260 $23,757 14 %
Maintenance and support
3,361 4,693 (1,332)(28)%10,341 15,498 (5,157)(33)%
Total subscription, maintenance and support70,429 64,680 5,749 9 %207,358 188,758 18,600 10 %
Services
12,273 12,570 (297)(2)%38,045 37,466 579 2 %
Total revenue$82,702 $77,250 $5,452 7 %$245,403 $226,224 $19,179 8 %
    
Subscription revenue. Subscription revenue increased primarily due to an increase in new and existing customer subscription contracts.

Maintenance and support revenue. Maintenance and support revenue decreased primarily as a result of existing maintenance customers migrating to our cloud solutions and, to a lesser extent, customer maintenance churn. We expect maintenance revenue to continue to decline as we continue to migrate maintenance customers to our cloud solutions.

Services revenue. During the three months ended September 30, 2024, services revenue decreased mainly due to the completion of several large implementations during the third quarter of 2023. During the nine months ended September 30, 2024, services revenue increased primarily as a result of higher sales of professional services to our existing customers.
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Services revenue varies from period to period depending on different factors, including the level of professional services required to implement our solutions, which in turn can vary depending on the mix of new versus existing customer software solution sales. Services revenue is also impacted by the timing of services revenue recognition on certain subscription contracts and efficiencies in our solutions implementations requiring less professional services during a particular period.

Cost of revenue and gross profit:
 Three Months Ended September 30,VarianceNine Months Ended September 30,Variance
(Dollars in thousands)20242023$%20242023$%
Cost of subscription
$14,470 $14,510 $(40)— %$43,653 $42,662 $991 2 %
Cost of maintenance and support
1,698 1,769 (71)(4)%5,311 5,927 (616)(10)%
Total cost of subscription, maintenance and support16,168 16,279 (111)(1)%48,964 48,589 375 1 %
Cost of services
12,130 12,185 (55)— %36,986 37,988 (1,002)(3)%
Total cost of revenue28,298 28,464 (166)(1)%85,950 86,577 (627)(1)%
Gross profit$54,404 $48,786 $5,618 12 %$159,453 $139,647 $19,806 14 %
    
Cost of subscription. Cost of subscription remained relatively unchanged for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023. During the nine months ended September 30, 2024, cost of subscription increased primarily due to higher infrastructure costs to support the growth in our current subscription customer base and higher employee-related costs primarily due to an increase in headcount. These increases were partially offset by decreases in amortization expense for intangible assets and internal-use software expense. Our subscription gross profit percentages were 78% for the three and nine months ended September 30, 2024, and 76% and 75% for the three and nine months ended September 30, 2023, respectively.

Cost of maintenance and support. Cost of maintenance and support decreased mainly due to lower personnel costs as our maintenance customer base has decreased primarily due to migrations to our subscription solutions. Maintenance and support gross profit percentages were 49% for the three and nine months ended September 30, 2024, and 62% for the three and nine months ended September 30, 2023. Gross profit percentages decreased in 2024 as compared to prior year primarily due to lower maintenance and support revenue and the cost of maintenance and support being partially fixed.
    
Cost of services. Cost of services remained relatively unchanged for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023. During the nine months ended September 30, 2024, cost of services decreased primarily due to a decrease in contract labor and other non-employee related costs. Services gross profit percentages were 1% and 3% for the three months ended September 30, 2024 and 2023, respectively, and 3% and (1)% for the nine months ended September 30, 2024 and 2023, respectively. Services gross profit percentages vary period to period depending on different factors, including the level of professional services required to implement our solutions, the utilization of our employees and our effective man-day rates.

Operating expenses:
 Three Months Ended September 30,VarianceNine Months Ended September 30,Variance
(Dollars in thousands)20242023$%20242023$%
Selling and marketing$20,074 $20,324 $(250)(1)%$66,293 $71,214 $(4,921)(7)%
Research and development21,081 22,205 (1,124)(5)%67,280 66,343 937 1 %
General and administrative13,218 14,099 (881)(6)%43,335 42,083 1,252 3 %
Total operating expenses
$54,373 $56,628 $(2,255)(4)%$176,908 $179,640 $(2,732)(2)%
    
Selling and marketing expenses. During the three months ended September 30, 2024, selling and marketing expenses decreased primarily due to a decrease in employee-related costs and was partially offset by increases in travel expenses, consulting and other non-employee related costs. Employee-related costs declined primarily due to a $1.3 million reversal of noncash share-based compensation expense, as certain performance criteria as a condition to vest is not expected to be met.

During the nine months ended September 30, 2024, selling and marketing expenses decreased primarily due to a decrease in employee-related costs. Employee-related costs declined primarily due to noncash share-based compensation expense, as the EveryMundo equity consideration vested in November 2023, and severance expenses incurred during the prior year. The decrease was partially offset by an increase in travel expenses.
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Research and development expenses. During the three months ended September 30, 2024, research and development expenses decreased primarily due to a decrease in employee-related costs. Employee-related costs declined primarily due to a $1.3 million reversal of noncash share-based compensation expense, as certain performance criteria as a condition to vest is not expected to be met.

During the nine months ended September 30, 2024, research and development expenses increased primarily due to higher headcount and an increase in contract labor, partially offset by a decrease in noncash share-based compensation expense as the EveryMundo equity consideration vested in November 2023.

General and administrative expenses. General and administrative expenses decreased primarily due to a one-time recoupment of professional fees of $0.8 million for the three months ended September 30, 2024 as compared to the same period in 2023. During the nine months ended September 30, 2024, general and administrative expenses increased primarily due to higher employee-related expenses, mainly noncash share-based compensation expense, and was partially offset by a one-time recoupment of professional fees.

Non-operating expenses:
 Three Months Ended September 30,VarianceNine Months Ended September 30,Variance
(Dollars in thousands)20242023$%20242023$%
Convertible debt interest and amortization$(1,121)$(1,497)$376 (25)%$(3,471)$(4,649)$1,178 (25)%
Other income (expense), net$1,531 $(4,288)$5,819 (136)%$3,312 $(1,046)$4,358 (417)%
    
Convertible debt interest and amortization. Our convertible debt expense consists of coupon interest and amortization of debt premium and debt issuance costs attributable to our Notes. The decrease in expense was attributed to the exchange of approximately 85% of outstanding convertible notes due in May 2024 for newly issued convertible notes now due in September 2027. See Note 8 for more information.

Other income (expense), net. The change in other income (expense), net was primarily related to a $4.3 million derivative loss and a $1.8 million loss on debt extinguishment related to the convertible notes exchange recorded in the third quarter of 2023. See Note 8 for more information. The change also included a decrease due to lower interest income during the periods as well as the impact of foreign currency fluctuations.

Income tax provision:
 Three Months Ended September 30,VarianceNine Months Ended September 30, Variance
(Dollars in thousands)20242023$%20242023$%
Effective tax rate47 %(2)%n/an/a(5)%(1)%n/an/a
Income tax provision$206 $241 $(35)(15)%$894 $471 $423 90 %
    
Income tax provision. The tax provision for the three and nine months ended September 30, 2024 included both foreign income and withholding taxes. No tax benefit was recognized on jurisdictions with a projected loss for the year due to the valuation allowances on our deferred tax assets.

Our effective tax rate was 47% and (2)% for the three months ended September 30, 2024 and 2023, respectively, and (5)% and (1)% for the nine months ended September 30, 2024 and 2023, respectively. The income tax rate varies from the 21% federal statutory rate primarily due to the valuation allowances on our deferred tax assets. While our expected tax rate would be 0% due to the full valuation allowance on our deferred tax assets, the income tax provision and related effective tax rates was due to foreign income and withholding taxes.

Jurisdictions with a projected loss for the year where no tax benefit can be recognized due to the valuation allowances on our deferred tax assets are excluded from the estimated annual federal effective tax rate. The impact of such an exclusion could result in a higher or lower effective tax rate during a particular quarter depending on the mix and timing of actual earnings versus annual projections.

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Liquidity and Capital Resources

At September 30, 2024, we had $140.6 million of cash and cash equivalents and $44.2 million of working capital as compared to $168.7 million of cash and cash equivalents and $37.3 million of working capital at December 31, 2023. The decrease in cash and cash equivalents was primarily related to the repayment of the outstanding principal of our 2024 Notes of $21.7 million, which matured in May 2024.

Our principal sources of liquidity are our cash and cash equivalents, cash flows generated from operations and potential borrowings under our $50 million credit agreement (the "Credit Agreement"). In addition, we could access capital markets to supplement our liquidity position. Our material drivers or variants of operating cash flow are net income (loss) and the timing of invoicing and cash collections from our customers. Our operating cash flows are also impacted by the timing of payments to our vendors and the payments of other liabilities.

    We believe we will have adequate liquidity and capital resources to meet our operational requirements, anticipated capital expenditures, and coupon interest of our 2027 Notes for the next twelve months. Our future working capital requirements depend on many factors, including the operations of our existing business, growth of our customer subscription services, future acquisitions we might undertake, expansion into complementary businesses, timing of adoption and implementation of our solutions and customer churn. Capital markets have tightened in response to the macroeconomic environment making new financing more difficult and/or expensive and we may not be able to obtain such financing on terms acceptable to us or at all.

    The following table presents key components of our unaudited condensed consolidated statements of cash flows for the nine months ended September 30, 2024 and 2023: 
 Nine Months Ended September 30,
(Dollars in thousands)20242023
Net cash provided by (used in) operating activities$3,370 $(3,967)
Net cash used in investing activities(840)(2,281)
Net cash used in financing activities(30,930)(28,269)
Effect of foreign currency rates on cash217 (30)
Net change in cash, cash equivalents and restricted cash$(28,183)$(34,547)
    
Operating activities

Net cash provided by operating activities for the nine months ended September 30, 2024 was $3.4 million. The improvement was primarily due to a significant reduction in our net loss.

Investing activities

Net cash used in investing activities for the nine months ended September 30, 2024 was $0.8 million. The decrease was mainly due to higher capital expenditures in 2023, primarily related to a third-party software license renewal.

Financing activities

Net cash used in financing activities for the nine months ended September 30, 2024 was $30.9 million. The increase of $2.7 million year-over-year was primarily due to the $21.7 million repayment of our 2024 Notes as they matured in May 2024 and higher tax withholding payments of $4.5 million related to the vesting of employee share-based awards. The increase was partially offset by decreases attributable to a $22.8 million purchase of capped call in 2023 in connection with the convertible notes exchange, and $0.8 million of debt issuance costs associated with the execution of our Credit Agreement in 2023.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material. We do not have any relationships with unconsolidated entities or financial partnerships, such as variable interest entities, that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

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Contractual Obligations and Commitments

See Note 9 above for information on our contractual obligations and commitments.

Credit facility

As of September 30, 2024, there were no outstanding borrowings under our Credit Agreement. As of September 30, 2024, $0.5 million of unamortized debt issuance costs related to the Credit Agreement is included in prepaid and other current assets and other assets, noncurrent in the unaudited condensed consolidated balance sheets. For the three and nine months ended September 30, 2024, we recorded an insignificant amount of amortization of debt issuance costs which is included in other income (expense), net in the unaudited condensed consolidated statements of comprehensive income (loss).

The Credit Agreement also has a depository condition which requires us to maintain a cash balance of at least $10.0 million with the administrative agent throughout the term of the Credit Agreement. This amount has been included in restricted cash in the unaudited condensed consolidated balance sheets.

Recent Accounting Pronouncements

    See "Recently issued accounting pronouncements not yet adopted" in Note 2 above for discussion of recent accounting pronouncements including the respective expected dates of adoption, if any.
Critical accounting policies and estimates

    Our unaudited condensed consolidated financial statements are prepared in accordance with GAAP. The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and related disclosures. Actual results could differ from those estimates. The complexity and judgment required in our estimation process, as well as issues related to the assumptions, risks and uncertainties inherent in determining the nature and timing of satisfaction of performance obligations and determining the standalone selling price of performance obligations, affect the amounts of revenue, expenses, unbilled receivables and deferred revenue. Estimates are also used for, but not limited to, receivables, allowance for credit losses, operating lease right-of-use assets and operating lease liabilities, useful lives of assets, depreciation, income taxes and deferred tax asset valuation, valuation of stock awards, other current liabilities and accrued liabilities. Numerous internal and external factors can affect estimates. Our critical accounting policies related to the estimates and judgments are discussed in our Annual Report under management's discussion and analysis of financial condition and results of operations.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    There have been no material changes in our exposure to market risks from those disclosed in Part II, Item 7A, of our Annual Report.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

    Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act) as of September 30, 2024. Based on our evaluation of our disclosure controls and procedures as of September 30, 2024, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

    There have been no changes in our internal control over financial reporting during the three months ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS

From time to time, we are a party to legal proceedings and claims arising in the ordinary course of business. We are not currently aware of any such proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition, results of operations or cash flows.

ITEM 1A. RISK FACTORS

    Except as set forth below, there have been no material changes in the Company's risk factors from those disclosed in Part I, Item 1A, of our Annual Report.

We depend on third-party data centers, software, data and other unrelated service providers and any disruption from such third-party providers could impair the delivery of our service and negatively affect our business.

Our cloud products are dependent upon third-party hardware, software and cloud hosting vendors, including Microsoft Azure, IBM Softlayer and AWS, all of which must interoperate for end users to achieve their computing goals. We utilize third-party data center hosting facilities, cloud platform providers and other service providers to host and deliver our subscription services as well as for our own business operations. We host our cloud products from data centers in a variety of countries. While we control and generally have exclusive access to our servers and all of the components of our network that are located in our external data centers, we do not control the operation of these facilities and they are vulnerable to damage or interruption from hurricanes, earthquakes, floods, fires, power loss, telecommunications and human failures and similar events. They may also be subject to Security Incidents, break-ins, sabotage, intentional acts of vandalism and similar misconduct. Despite our failover capabilities, standard protocols and other precautions, the occurrence of a natural disaster or an act of terrorism, a decision to close the facilities without adequate notice or other unanticipated problems at these facilities could result in lengthy interruptions in our service. In addition, disruptions to the supply chain necessary to maintain these third-party systems or to run our business could impact our service availability and performance. These providers have no obligation to renew their agreements with us on commercially reasonable terms, or at all. If we are unable to renew these agreements on commercially reasonable terms or at all, or if one of our data center operators is acquired, we may be required to transfer our servers and other infrastructure to new data center facilities, and we may incur significant costs and possible service interruption in connection with doing so.

Certain of our applications are essential to our customers’ ability to quote, price, and/or sell their products and services. Interruption in our service may affect the availability, accuracy or timeliness of quotes, pricing or other information and could require us to issue service credits to our customers, damage our reputation, cause our customers to terminate their use of our solutions, require us to indemnify our customers against certain losses, and prevent us from gaining additional business from current or future customers. In addition, certain of our applications require access to our customers' data which may be held by third parties, some of whom are, or may become, our competitors. For example, many of our travel industry products rely upon access to airline data held by large airline IT providers which compete against certain of our airline products. Certain of these competitors have in the past, and may again in the future, make it difficult for our airline customers to access their data in a timely and/or cost-effective manner.

We have experienced, and may experience in the future, system disruptions, outages and other performance problems due to third-party data centers, software, data and other service providers, many of which are shared by other SaaS providers. These disruptions could impair the delivery of our service and negatively affect our business, damage our reputation, negatively impact our future sales and/or cash flows and lead to legal liability and other costs, and the full impact of which may not be immediately known.


ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

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ITEM 4. MINE SAFETY DISCLOSURE

None.

ITEM 5. OTHER INFORMATION

Securities Trading Plans of Directors and Executive Officers
During the three months ended September 30, 2024, the following directors and officers, as defined in Rule 16a-1(f), adopted a "Rule 10b5-1 trading arrangement" as defined in Regulation S-K Item 408(a):

On September 11, 2024, Scott Cook, our Chief Accounting Officer, adopted a Rule 10b5-1 trading plan intended to satisfy the affirmative defense conditions of Rule 10b5-1(c). The plan provides for the sale of up to 15,000 shares of our common stock. The plan will terminate on December 31, 2025, subject to early termination for certain specified events set forth in the plan, including if all transactions under the trading plan are completed.

No other director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K during the three months ended September 30, 2024.

ITEM 6. EXHIBITS
Index to Exhibits
ProvidedIncorporated by Reference
Exhibit No.DescriptionHerewithFormFiling Date
31.1X
31.2X
32.1*X
Exhibit No.Description
101.INSXBRL Instance Document.
101.SCHXBRL Taxonomy Extension Schema Document.
101.CALXBRL Taxonomy Extension Calculation Linkbase Document.
101.DEFXBRL Taxonomy Extension Definition Linkbase Document.
101.LABXBRL Taxonomy Extension Label Linkbase Document.
101.PREXBRL Taxonomy Extension Presentation Linkbase Document.
*This certification shall not be deemed “filed” for purposes of Section 18 of the Securities Act of 1934, or otherwise subject to the liability of that Section, nor shall it be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.
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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 PROS HOLDINGS, INC.
October 29, 2024By: /s/ Andres Reiner
 Andres Reiner
 President and Chief Executive Officer
(Principal Executive Officer)
October 29, 2024By: /s/ Stefan Schulz
 Stefan Schulz
 Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
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