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.

Q2 2022 financial overview

In the second quarter of 2022, we continued to grow our subscription revenue.
For the three and six months ended June 30, 2022, our subscription revenue
increased 14% as compared to the same periods in 2021. Total revenue increased
10% and 9% for the three and six months ended June 30, 2022, respectively, as
compared to the same periods in 2021. Recurring revenue (which consists of
subscription revenue and maintenance and support revenue) as a percentage of
total revenue accounted for 84% and 85% of total revenue for the three and six
months ended June 30, 2022, respectively, and 85% of total revenue for the three
and six months ended June 30, 2021.

Our gross revenue retention rates have remained consistent above 93% for the last twelve months ended June 30, 2022.

Cash used in operating activities was $12.9 million for the six months ended
June 30, 2022, as compared to $9.4 million for the six months ended June 30,
2021. The increase was primarily attributable to a higher annual incentive
payment in 2022 as compared to prior year, partially offset by strong
collections during the period.

Free cash flow is a key metric to assess the strength of our business. We define
free cash flow, a non-GAAP financial measure, as net cash provided by (used in)
operating activities minus capital expenditures (excluding expenditures for our
new headquarters), purchases of other (non-acquisition-related) intangible
assets and capitalized internal-use software development costs. We believe free
cash flow may be useful to investors and other users of our financial
information in evaluating the amount of cash generated by our business
operations. Free cash flow used during the three months ended June 30, 2022 was
$2.2 million, compared to $5.7 million for the three months ended June 30, 2021.
This decrease was primarily due to strong collections during the period. Free
cash flow used during the six months ended June 30, 2022 was $13.7 million,
compared to $10.4 million for the six months ended June 30, 2021. This increase
was primarily due to a higher annual incentive payment in 2022 as compared to
prior year, partially offset by strong collections during the period. The
following is a reconciliation of free cash flow to the most comparable GAAP
measure, net cash used in operating activities (in thousands):

                                                  Three Months Ended June 30,                Six Months Ended June 30,
                                                    2022                 2021                 2022                  2021
Net cash used in operating activities         $       (1,931)         $ (4,985)         $      (12,945)         $  (9,414)
Purchase of property and equipment (excluding
new headquarters)                                       (308)             (741)                   (769)              (944)

Free Cash Flow                                $       (2,239)         $ (5,726)         $      (13,714)         $ (10,358)


Factors affecting our performance

The key factors and trends that have had and we believe will continue to impact our results of operations include:

•Macroeconomic Environment. We believe that the combination of supply chain
disruptions from the pandemic, tight labor markets, pricing volatility,
inflation, the Russia-Ukraine conflict, rising interest rates, and other
macroeconomic conditions will put pressure on corporate growth initiatives and
increase near term focus on profitability. Despite this challenging macro
environment, we remain confident in our ability to continue to help optimize
shopping and selling experiences for our customers across a wide variety of
industries. For example, pricing volatility and inflation are catalysts for
demand for our price management and optimization solutions, while concurrently
uncertain macroeconomic and industry conditions in countries and regions in
which we operate create a challenging selling environment for large enterprise
technology deployment. COVID-19 impacted and is anticipated to continue
impacting our subscription revenue growth rates adversely due to lower
subscription bookings during the pandemic and the lag
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between subscription bookings and the revenue recognized on those subscription
bookings. Although the pandemic reduced our revenue growth rates compared to
pre-pandemic growth rates and is affecting our 2022 revenue, we continue to grow
our subscription revenue and expect total revenue growth in 2022. However, the
continuing impact of COVID-19 and rate of economic recovery remains uncertain
and varies across industries and geographies. While our revenue and earnings are
relatively predictable as a result of our subscription-based business model, the
broader implications of these macroeconomic events on our business, results of
operations, cash flows and overall financial position, particularly in the long
term, remain uncertain. For a full discussion on the risks and uncertainties to
our business, please see the "Risk Factors" section in our Annual Report on Form
10-K.

•Travel Industry Recovery. Early in the pandemic, the travel industry was
materially adversely impacted by unprecedented declines in travel demand,
forcing airlines to focus on their core operations, significantly reduce costs,
de-prioritize new technology investments, and in certain cases, file for
bankruptcy protection. Certain airlines responded by increasing their air cargo
operations as a result of increased global e-commerce during the pandemic which
helped offset losses from traveler demand. In turn, we have seen an increase in
airline interest in our price optimization and CPQ solutions. As travel
restrictions have lifted, airlines have experienced strong pent-up demand from
leisure travelers, which in turn has led airlines to begin to reprioritize
technology investments as their businesses recover, while still addressing
ongoing operational challenges, such as staffing shortages. This pent-up demand
may decline if inflation impacts consumer disposable income. While there remains
significant geographic variation based on ongoing travel restrictions in certain
regions, we expect airlines to increasingly prioritize technology investments as
travel returns to pre-COVID levels. The pandemic also accelerated a long-term
trend towards direct booking channels, in part due to a significant reduction in
business travel, and we anticipate airlines continuing to invest in technology,
including mobile device-enabled solutions, to enhance their ability to capture a
greater percentage of bookings through their own channels such as their
websites.

•Digital Purchasing Driving Technology Adoption. The pandemic accelerated
long-term trends toward digital purchasing by both consumers and corporate
buyers. Buyers often prefer not to interact with sales representatives as their
primary source of research, and increasingly prefer to buy online when they have
already decided what to buy. Across industries and geographies, companies are
increasingly modernizing their sales process to compete in digital commerce by
adopting technologies which provide fast, frictionless and personalized buying
experiences across sales channels. Our AI-powered solutions enable buyers to
move fluidly and with personalized experiences across our customers' direct
sales, partner, online, mobile and emerging channels and our digital offer
marketing solutions to help drive their customers directly into their direct
selling channels.

•Investing in Growth and Scaling our Business. We believe that our market
opportunity is large and underpenetrated, and intend to continue investing in
our business while focusing on cash flow and profitability, to create awareness
for our solutions, acquire new customers, and expand within our existing
customer base globally. We plan to continue investing in product development to
enhance our existing technologies, including initiatives to accelerate customer
time-to-value, improve efficiency, and provide out-of-the-box integration with
third-party commerce solutions, and develop new applications and technologies.
We have also increased our investments in our people to continue to attract,
develop, retain and reward our employees in light of highly competitive labor
markets.

•Cloud Migrations. As we migrate more and more of our historical on premises
customers from our legacy licensed solutions to our current cloud solutions, we
expect our future maintenance and support revenue to continue to decline and
subscription revenue to correspondingly increase. We are encouraging these
migrations and have announced to our customers end of support dates for certain
of our on premises solutions.


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Results of Operations

The following table sets forth certain items from our unaudited condensed consolidated statements of comprehensive loss as a percentage of total revenue for the three and six months ended June 30, 2022 and 2021:

                                                    Three Months Ended June 30,                    Six Months Ended June 30,
                                                    2022                   2021                   2022                   2021
Revenue:
Subscription                                             74  %                  71  %                  74  %                  70  %
Maintenance and support                                  11                     14                     11                     15
Total subscription, maintenance and support              84                     85                     85                     85

Services                                                 16                     15                     15                     15
Total revenue                                           100                    100                    100                    100
Cost of revenue:
Subscription                                             20                     22                     20                     22
Maintenance and support                                   3                      3                      3                      4
Total cost of subscription, maintenance and
support                                                  23                     25                     23                     26

Services                                                 17                     17                     17                     17
Total cost of revenue                                    40                     42                     41                     43
Gross profit                                             60                     58                     59                     57
Operating Expenses:
Selling and marketing                                    35                     34                     37                     35
Research and development                                 34                     33                     35                     33
General and administrative                               20                     17                     21                     19

Impairment of fixed assets                                -                      -                      1                      -
Total operating expenses                                 90                     84                     94                     87
Convertible debt interest and amortization               (2)                    (3)                    (2)                    (3)
Other (expense) income net                                -                      -                      -                      -
Loss before income tax provision                        (32)                   (29)                   (38)                   (32)
Income tax provision                                      -                      -                      -                      -
Net loss                                                (33) %                 (29) %                 (38) %                 (32) %



Revenue:
                                     Three Months Ended June 30,                    Variance                     Six Months Ended June 30,                      Variance
(Dollars in thousands)                 2022                 2021               $                %                 2022                  2021                $                %
Subscription                     $       50,386          $ 44,224          $ 6,162              14  %       $       99,151          $  86,872          $ 12,279              14  %
Maintenance and support                   7,249             8,570           (1,321)            (15) %               15,104             18,244            (3,140)            (17) %
Total subscription, maintenance
and support                              57,635            52,794            4,841               9  %              114,255            105,116             9,139               9  %

Services                                 10,727             9,607            1,120              12  %               20,599             18,663             1,936              10  %
Total revenue                    $       68,362          $ 62,401          $ 5,961              10  %       $      134,854          $ 123,779          $ 11,075               9  %



Subscription revenue. Subscription revenue increased primarily due to revenue
from our acquisition of EveryMundo and 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. Services revenue increased primarily as a result of higher
sales of professional services related to our subscription contracts and
follow-on professional services to existing customers. Services revenue varies
from period to period
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depending on different factors, including the level of professional services
required to implement our solutions, the timing of services revenue recognition
on certain subscription contracts and efficiencies in our solutions
implementations requiring less professional services during a particular period.

Revenue Cost and Gross Margin:

                                      Three Months Ended June 30,                    Variance                    Six Months Ended June 30,                     Variance
(Dollars in thousands)                  2022                 2021               $                %                 2022                2021               $                %
Cost of subscription              $       13,746          $ 13,589          $   157               1  %       $      27,525          $ 27,390          $   135               -  %
Cost of maintenance and support            1,988             2,157             (169)             (8) %               4,155             4,415             (260)             (6) %
Total cost of subscription,
maintenance and support                   15,734            15,746              (12)              -  %              31,680            31,805             (125)              -  %

Cost of services                          11,907            10,658            1,249              12  %              23,322            21,091            2,231              11  %
Total cost of revenue                     27,641            26,404            1,237               5  %              55,002            52,896            2,106               4  %
Gross profit                      $       40,721          $ 35,997          $ 4,724              13  %       $      79,852          $ 70,883          $ 8,969              13  %



Cost of subscription. Cost of subscription overall remained relatively unchanged
year over year. Cost of subscription increased primarily due to an increase in
intangibles amortization and personnel costs associated with the acquisition of
EveryMundo. The increase was offset by lower costs driven by infrastructure cost
efficiencies and lower amortization expense for capitalized internal-use
software. Our subscription gross profit percentages were 73% and 69% for the
three months ended June 30, 2022 and 2021, respectively, and 72% and 68% for the
six months ended June 30, 2022 and 2021, respectively.

Cost of maintenance and support. Cost of maintenance and support decreased
primarily due to a decrease in personnel costs as a result of the need to
support a declining maintenance customer base as we migrate customers to our
subscription solutions. Maintenance and support gross profit percentages were
73% and 75% for the three months ended June 30, 2022 and 2021, respectively, and
72% and 76% for the six months ended June 30, 2022 and 2021, respectively.

Cost of services. Cost of services increased primarily due to higher personnel
costs to support the increase in our services revenue during the periods.
Services gross profit percentages were (11)% for the three months ended June 30,
2022 and 2021, and (13)% for the six months ended June 30, 2022 and 2021.
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 June 30,                    Variance                     Six Months Ended June 30,                       Variance
(Dollars in thousands)                 2022                 2021               $                %                 2022                  2021                $                %
Selling and marketing            $       24,020          $ 21,190          $ 2,830              13  %       $       49,307          $  42,754          $  6,553               15  %
Research and development                 23,401            20,454            2,947              14  %               47,868             41,379             6,489               16  %
General and administrative               13,837            10,659            3,178              30  %               28,166             23,646             4,520               19  %

Impairment of fixed assets                    -                 -                -               -  %                1,551                  -             1,551                -  %
Total operating expenses         $       61,258          $ 52,303          $ 8,955              17  %       $      126,892          $ 107,779          $ 19,113               18  %



Selling and marketing expenses. During the three months ended June 30, 2022,
selling and marketing expenses increased primarily due to higher
employee-related costs and intangibles amortization related to the EveryMundo
acquisition as well as an increase in travel expenses. During the six months
ended June 30, 2022, selling and marketing expenses increased primarily as a
result of an increase in employee-related costs primarily due to higher
headcount related to our EveryMundo acquisition and higher severance cost
primarily related to the separation of our Chief Operations Officer in the first
quarter of 2022. In addition, there was an increase in intangibles amortization
related to the EveryMundo acquisition and higher travel related expenses.

Research and development expenses. Research and development expenses increased
primarily due to an increase in employee-related costs due to higher headcount
associated with the EveryMundo acquisition as well as an increase in noncash
share-based compensation.

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General and administrative expenses. General and administrative expenses
increased primarily due to an increase in employee-related costs and a change in
bad debt expense as we had a expense recovery during 2021 as a result of
improved credit conditions with certain customers. The bad debt expense recovery
was $1.1 million and $1.7 million for the three and six months ended June 30,
2021, respectively. In addition, our acquisition of EveryMundo also contributed
to overall higher general and administrative expenses as compared to the prior
year.

Depreciation of fixed assets. In the six months ended June 30, 2022we recorded a $1.6 million impairment related to fixed assets. The impairment was due to changes in our intentions with respect to these assets as part of a new agreement with a software company.

Non-operating expenses:
                                      Three Months Ended June 30,                    Variance                     Six Months Ended June 30,                     Variance
(Dollars in thousands)                  2022                 2021               $                %                  2022                2021               $                %
Convertible debt interest and
amortization                      $       (1,576)         $ (1,576)         $     -                -  %       $      (3,152)         $ (3,152)         $     -                -  %
Other (expense) income, net       $           (2)         $      4          $    (6)            (150) %       $        (420)         $    290          $  (710)            (245) %



Convertible debt interest and amortization. Convertible debt expense for the
three and six months ended June 30, 2022 and 2021 related to coupon interest and
amortization of debt issuance costs attributable to our Notes.

Other (expense) income, net. The change in other (expense) income, net for the
three and six months ended June 30, 2022, primarily related to foreign currency
impact during the periods.

Income tax provision:
                                  Three Months Ended June 30,                    Variance                    Six Months Ended June 30,                     Variance
(Dollars in thousands)                2022                2021              $                %                  2022                2021              $                %
Effective tax rate                      (1.3)   %        (0.9) %               n/a              n/a               (0.9)   %        (0.8) %               n/a              n/a
Income tax provision            $        291            $ 168          $    123               73  %       $        434            $ 317          $    117               37  %



Income tax provision. The tax provision for the three and six months ended
June 30, 2022 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 (1.3)% and (0.9)% for the three and six months ended
June 30, 2022, respectively, and (0.9)% and (0.8)% for the three and six months
ended June 30, 2021, 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 is 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.

Cash and capital resources

To June 30, 2022we have had $215.2 million cash and cash equivalents and $110.4 million working capital compared to $227.6 million cash and cash equivalents and $128.7 million from working capital to December 31, 2021.

Our principal sources of liquidity are our cash and cash equivalents. In
addition, we could have access to capital markets to supplement our liquidity
position. Our material drivers or variants of operating cash flow are net income
(loss), noncash expenses (principally share-based compensation, intangible
amortization and amortization of debt issuance costs) 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.

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  We believe our existing cash and cash equivalents will provide adequate
liquidity and capital resources to meet our operational requirements,
anticipated capital expenditures and coupon interest payments for our 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.

  The following table presents key components of our unaudited condensed
consolidated statements of cash flows for the six months ended June 30, 2022 and
2021:

                                                         Six Months Ended June 30,
 (Dollars in thousands)                                     2022                 2021
 Net cash used in operating activities             $      (12,945)          

($9,414)

 Net cash used in investing activities                       (938)          

(2,586)

 Net cash provided by financing activities                  1,231           

1,244

Cash and cash equivalents (beginning of period) 227,553

329 134

Cash and cash equivalents (end of period) (1) $215,178

$318,326


  (1) The decrease in cash and cash equivalents year over year was primarily due
to the acquisition of EveryMundo in November 2021. Refer to note 5 for further
detail.

Operating Activities

  Net cash used in operating activities for the six months ended June 30, 2022
was $12.9 million. The $3.5 million increase over last year was primarily
attributable to a higher annual incentive payment in 2022 as compared to prior
year, partially offset by strong collections during the period.

Investing activities

Net cash used in investing activities for the six months ended June 30, 2022 was
$0.9 million. The decrease from prior year was primarily related to higher
capital expenditures in 2021 mainly attributable to the build out of our new
headquarters which was committed prior to the pandemic.

Fundraising activities

Net cash provided by financing activities for the six months ended June 30, 2022
was $1.2 million and remained consistent with prior year. It was attributable to
proceeds from employee stock plans, partially offset by payment of tax
withholdings on vesting of employee share-based awards.

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.

Contractual obligations and commitments

  Other than changes described in Note 10 above, there have been no material
changes to our contractual obligations and commitments disclosed in our Annual
Report.

Credit facility

Our $50 million secured Credit Agreement ("Revolver") with the lenders party
thereto and Wells Fargo Bank, National Association as agent for the lenders
party thereto expired in March 2022. There were no outstanding borrowings under
the Revolver prior to its expiration.

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Recent Accounting Pronouncements

See “Recently Adopted Accounting Pronouncements” in Note 2 above for a discussion of recent accounting pronouncements, including the respective expected dates of adoption.

Significant Accounting Policies and Estimates

  Our consolidated financial statements are prepared in accordance with GAAP.
The preparation of these 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 doubtful accounts, 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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