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Press Release

PROS Holdings, Inc. Reports First Quarter 2018 Financial Results

  • Subscription revenue up 72% year-over-year.
  • Total revenue up 19% year-over-year.
  • Free cash flow improvement of $6.4 million year-over-year.

HOUSTON – April 26, 2018 — PROS Holdings, Inc. (NYSE: PRO), a cloud software company powering the shift to modern commerce, today announced financial results for the first quarter ended March 31, 2018.

CEO Andres Reiner stated, “We started the year with strong momentum in 2018, and I’m really excited by the opportunity in front of us. Companies are realizing they need to offer their customers a fast, frictionless and digital buying experience to win, and they are turning to our real-time platform and AI capabilities to power their shift to the digital era. The momentum that we’re seeing in our market contributed to our strong first quarter and gives us confidence to improve our revenue outlook for the year.”

First Quarter 2018 Financial Highlights

Key financial results for the first quarter 2018 are shown below. Throughout this press release, all dollar figures are in millions, except net loss per share. Unless otherwise noted, all results are on a reported basis and are compared with the prior-year period.

GAAPNon-GAAP
Q1 2018Q1 2017% ChangeQ1 2018Q1 2017% Change
Revenue:
  Total Revenue$47.9$40.119%n/an/an/a
  Subscription Revenue21.012.272%n/an/an/a
  Subscription and Maintenance Revenue37.530.324%n/an/an/a
Profitability:
 Gross Profit28.423.521%30.124.623%
  Operating Loss(14.7)(17.7)nm(6.7)(10.8)nm
  Net Loss(18.9)(20.2)nm(6.0)(7.4)nm
  Net Loss Per Share(0.58)(0.65)nm(0.19)(0.24)nm
  Adjusted EBITDAn/an/an/a(6.7)(10.0)nm
Cash:
  Net Cash (Used in) Provided by Operating Activities(4.7)(12.2)nmn/an/an/a
  Free Cash Flown/an/an/a$(6.8)$(13.2)nm

The attached tables provide a summary of PROS results for the period, including a reconciliation of GAAP to non-GAAP metrics.

Recent Business Highlights

  • Unveiled the lineup for PROS Outperform 2018 global customer conference, the premiere conference for companies powering their digital transformation, including keynotes from best-selling author Jim Collins; Founder and Chairman of Constellation Research, “R “Ray” Wang; and Microsoft Corporate Vice President of Industry, Toni Townes-Whitley; as well as customer speakers from Emirates, Land O’Lakes, Lufthansa, and Manitou Group, among others.
  • Deployed real-time dynamic pricing solution for Greyhound that processes millions of quotes daily with real-time sub-second response times across all of Greyhound’s North American sales channels, including e-commerce.
  • Achieved a new milestone for PROS real-time dynamic pricing solution, which now processes 88 billion transactions monthly, a more than eight-times increase year-over-year.
  • Listed in the March 2018 Gartner “Market Guide for B2B Price Optimization and Management Software.” The report notes that “about 750 companies had deployed PO&M software at the end of 2017. This is an increase of 37% from 2016.” In addition, “Gartner1 expects this market to continue to grow rapidly during the next three years.”

Financial Outlook

PROS anticipates the following based on an estimated 32.6 million basic weighted average shares outstanding and a 22% non-GAAP estimated tax rate for the second quarter and full year 2018:

Q2 2018 Guidancev. Q2 2017 at Mid-PointFull Year 2018 Guidancev. Prior Year at Mid-Point
Total Revenue$46.0 to $46.514%$188.0 to $191.012%
Subscription Revenue$21.25 to $21.7560%$90.5 to $91.550%
ARRn/an/a$186.0 to $189.017%
Non-GAAP Loss Per Share$(0.21) to $(0.19)nmn/an/a
Adjusted EBITDA$(7.7) to $(6.7)$2.3$(27.0) to $(25.0)$7.7
Free Cash Flown/an/a$(5.0) to $(2.0)$26.0

Conference Call

In conjunction with this announcement, PROS Holdings, Inc. will host a conference call on Thursday, April 26, 2018, at 4:45 p.m. ET to discuss the Company’s financial results and business outlook. To access this call, dial 1-877-407-9039 (toll-free) or 1-201-689-8470. The live webcast of the conference call can be accessed under the “Investor Relations” section of the Company’s website at www.pros.com.

A telephone replay will be available until Thursday, May 10, 2018, at 1-844-512-2921 (toll-free) or 1-412-317-6671 using the pass code 13677017. An archived webcast of this conference call will also be available in the “Investor Relations” section of the Company’s website at www.pros.com.

About PROS

PROS Holdings, Inc. (NYSE: PRO) is a cloud software company powering the shift to modern commerce by helping companies create personalized and frictionless buying experiences for their customers. Fueled by dynamic pricing science and machine learning, PROS solutions make it possible for companies to price, configure and sell their products and services in an omni-channel environment with speed, precision and consistency. Our customers, who are leaders in their markets, benefit from decades of data science expertise infused into our industry solutions. To learn more, visit www.pros.com.

Forward-looking Statements

This press release contains forward-looking statements, including statements about our future financial performance; positioning; management’s confidence and optimism; customer successes; demand for enterprise revenue, profit realization and modern commerce software solutions; business expansion; business predictability; ARR; revenue; adjusted EBITDA; free cash flow; shares outstanding and effective tax rate. The forward-looking statements contained in this press release are based upon our historical performance and our current plans, estimates and expectations and are not a representation that such plans, estimates or expectations will be achieved. Factors that could cause actual results to differ materially from those described herein include risks related to: (a) our ability to execute on our cloud strategy, (b) reduced revenue and cash flow resulting from our transition to a cloud strategy, (c) threats to the security of our or our customer’s data, (d) potential business or service disruptions from our third party data centers, cloud platform providers or other unrelated service providers, (e) market acceptance of our new products and product enhancements, (f) the risk that the markets for our software do not grow as anticipated, (g) the length of our sales cycles, (h) the risk that we will not be able to maintain historical maintenance, support and subscription renewal rates, (i) competition from vendors of sales, pricing, revenue management and configure-price-quote solutions as well as from companies internally developing their own solutions, (j) potential unauthorized or improper actions of our personnel, (k) the risk that acquisitions we have and may enter into in the future may be difficult to integrate, fail to achieve our objectives, disrupt our business, dilute stockholder value or divert management attention, (l) any downturn in sales to our target markets, (m) potential delays or other challenges related to the implementation of our solutions, (n) the difficulties of making accurate estimates necessary to complete a project and recognize revenue, (o) personnel risks associated with growing a business generally, (p) the impact that a slowdown in the world or any particular economy has on our business sales cycles, prospects’ and customers’ spending decisions, timing of implementation decisions, payment and renewal decision, (q) our debt repayment obligations, (r) the impact of currency fluctuations on our results of operations, and (s) civil and political unrest in geographic regions in which we operate. Additional information relating to the uncertainty affecting PROS’ business is contained in our filings with the Securities and Exchange Commission. These forward-looking statements represent PROS’ expectations as of the date of this press release. Subsequent events may cause these expectations to change, and PROS disclaims any obligations to update or alter these forward-looking statements in the future, whether as a result of new information, future events or otherwise.

Non-GAAP Financial Measures

PROS has provided in this release certain financial information that has not been prepared in accordance with GAAP. This information includes non-GAAP income (loss) from operations, annual recurring revenue, adjusted EBITDA, free cash flow, tax rate, net income (loss) and diluted earnings (loss) per share. PROS uses these non-GAAP financial measures internally in analyzing its financial results and believes they are useful to investors, as a supplement to GAAP measures, in evaluating PROS’ ongoing operational performance and cloud-first transition.

Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Investors are encouraged to review the reconciliation of these non-GAAP measures to their most directly comparable GAAP financial measure as detailed above. A reconciliation of GAAP to the non-GAAP financial measures has been provided in the tables included as part of this press release, and can be found, along with other financial information, in the investor relations portion of our website. PROS’ use of non-GAAP financial measures may not be consistent with the presentations by similar companies in PROS’ industry. PROS has also provided in this release certain forward-looking non-GAAP financial measures, including non-GAAP income (loss) from operations, annual recurring revenue, adjusted EBITDA, free cash flow and non-GAAP tax rates (collectively the “non-GAAP financial measures”) as follows:

Non-GAAP income (loss) from operations: Non-GAAP income (loss) from operations excludes the impact of stock-based compensation, amortization of acquisition-related intangibles, acquisition-related expenses, amortization of debt discount and issuance costs, and related taxes. Non-GAAP income (loss) from operations excludes the following items from non-GAAP estimates:

  • Share-Based Compensation: Although share-based compensation is an important aspect of compensation for our employees and executives, our share-based compensation expense can vary because of changes in our stock price and market conditions at the time of grant, varying valuation methodologies, and the variety of award types. Since share-based compensation expense can vary for reasons that are generally unrelated to our performance during any particular period, we believe this could make it difficult for investors to compare our current financial results to previous and future periods. Therefore, we believe it is useful to exclude share-based compensation in order to better understand our business performance and allow investors to compare our operating results with peer companies.
  • Amortization of Acquisition-Related Intangibles: We view amortization of acquisition-related intangible assets, such as the amortization of the cost associated with an acquired company’s research and development efforts, trade names, customer lists and customer relationships, as items arising from pre-acquisition activities determined at the time of an acquisition. While these intangible assets are continually evaluated for impairment, amortization of the cost of purchased intangibles is a static expense, one that is not typically affected by operations during any particular period.
  • Acquisition-Related Expenses: Acquisition-related expenses include integration costs and other one-time direct costs associated with our acquisitions. These amounts are unrelated to our core performance during any particular period and are impacted by the timing and size of the acquisitions. We exclude acquisition-related expenses to provide investors a method to compare our operating results to prior periods and to peer companies because such amounts can vary significantly based on the frequency of acquisitions and magnitude of acquisition expenses.
  • Amortization of Debt Discount and Issuance Costs: Amortization of debt discount and issuance costs are related to our convertible notes. These amounts are unrelated to our core performance during any particular period, and therefore, we believe it is useful to exclude these amounts in order to better understand our business performance and allow investors to compare our results with peer companies.
  • Taxes: We exclude the tax consequences associated with non-GAAP items to provide investors with a useful comparison of our operating results to prior periods and to our peer companies because such amounts can vary significantly. In the fourth quarter of 2014, we concluded that it is more likely than not that we will be unable to fully realize our deferred tax assets and accordingly, established a valuation allowance against those assets. The ongoing impact of the valuation allowance on our non-GAAP effective tax rate has been eliminated to allow investors to better understand our business performance and compare our operating results with peer companies.

Annual Recurring Revenue: Annual Recurring Revenue (“ARR”) is used to assess the trajectory of our cloud business. ARR means, as of a specified date, the contracted recurring revenue, including contracts with a future start date, together with annualized overage fees incurred above contracted minimum transactions, and excluding perpetual and term license agreements recognized as license revenue in accordance with GAAP. ARR should be viewed independently of revenue and any other GAAP measure.

Non-GAAP Tax Rate: The estimated non-GAAP effective tax rate adjusts the tax effect to quantify the impact of the excluded non-GAAP items.

Adjusted EBITDA: Adjusted EBITDA is defined as GAAP net income (loss) before interest expense, provision for income taxes, depreciation and amortization, as adjusted to eliminate the effect of stock-based compensation cost, amortization of acquisition-related intangibles, depreciation and amortization, integration costs and other one-time direct costs associated with our acquisitions, and capitalized internal-use software development costs. Adjusted EBITDA should not be considered as an alternative to net income (loss) as an indicator of our operating performance.

Free Cash Flow: Free cash flow is a non-GAAP financial measure which is defined as net cash provided by (used in) operating activities, less additions to property, plant and equipment, purchases of other (non-acquisition-related) intangible assets and capitalized internal-use software development costs.

These non-GAAP estimates are not measurements of financial performance prepared in accordance with GAAP, and we are unable to reconcile these forward-looking non-GAAP financial measures to their directly comparable GAAP financial measures because the information described above which is needed to complete a reconciliation is unavailable at this time without unreasonable effort.

¹Gartner does not endorse any vendor, product or service depicted in its research publications, and does not advise technology users to select only those vendors with the highest ratings or other designation. Gartner research publications consist of the opinions of Gartner’s research organization and should not be construed as statements of fact. Gartner disclaims all warranties, expressed or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose.

Investor Contact:
PROS Investor Relations
Shannon Tatz
713-335-5932
ir@pros.com

Media Contact:
PROS Public Relations
James Garber
617-960-9875
pros@marchcomms.com

PROS Holdings, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share amounts)

(Unaudited)

March 31, 2018December 31, 2017
Assets:
Current assets:
  Cash and cash equivalents$148,146$160,505
  Trade and other receivables, net of allowance of $760 and $760, respectively29,03132,484
  Deferred costs2,7043,137
  Prepaid and other current assets7,2945,930
Total current assets187,175202,056
Property and equipment, net14,79914,007
Long-term deferred costs10,4353,194
Intangibles, net25,05726,929
Goodwill38,76438,458
Other long-term assets4,2394,039
Total assets$280,469$288,683
Liabilities and Stockholders’ Equity:
Current liabilities:
  Accounts payable and other liabilities$3,606$2,976
  Accrued liabilities5,3296,733
  Accrued payroll and other employee benefits8,53016,712
  Deferred revenue83,68275,604
Total current liabilities101,147102,025
Long-term deferred revenue17,47719,591
Convertible debt, net216,131213,203
Other long-term liabilities853843
Total liabilities335,608335,662
Stockholders’ equity:
  Preferred stock, $0.001 par value, 5,000,000 shares authorized; none issued
  Common stock, $0.001 par value, 75,000,000 shares authorized; 37,006,509 and 36,356,760 shares issued, respectively; 32,588,924 and 31,939,175 shares outstanding, respectively$37$36
  Additional paid-in capital208,368207,924
  Treasury stock, 4,417,585 common shares, at cost(13,938)(13,938)
  Accumulated deficit(247,317)(238,185)
  Accumulated other comprehensive loss(2,289)(2,816)
Total stockholders’ equity(55,139)(46,979)
Total liabilities and stockholders’ equity$280,469$288,683

PROS Holdings, Inc.

Condensed Consolidated Statements of Income (Loss)

(In thousands, except per share data)

(Unaudited)

 

Three Months Ended March 31,
20182017
Revenue:
    Subscription$20,950$12,214
    Maintenance and support16,57418,076
  Total subscription, maintenance and support37,52430,290
    License1,0662,190
    Services9,3207,649
  Total revenue47,91040,129
Cost of revenue:
    Subscription8,7645,937
    Maintenance and support2,9573,146
  Total cost of subscription, maintenance and support11,7219,083
    License7365
    Services7,7277,461
  Total cost of revenue19,52116,609
  Gross profit28,38923,520
Operating expenses:
    Selling and marketing17,56816,473
    General and administrative10,68910,408
    Research and development14,78414,307
    Acquisition-related95
  Loss from operations(14,747)(17,668)
  Convertible debt interest and amortization(4,179)(2,394)
  Other income (expense), net20232
  Loss before income tax provision (benefit)(18,724)(20,030)
  Income tax provision (benefit)132177
Net loss$(18,856)$(20,207)
Net loss per share:
  Basic and diluted$(0.58)$(0.65)
Weighted average number of shares:
  Basic and diluted32,37831,099

PROS Holdings, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

Three Months Ended March 31,
20182017
Operating activities:
  Net loss$(18,856)$(20,207)
  Adjustments to reconcile net loss to net cash provided by operating activities:
    Depreciation and amortization3,3642,033
    Amortization of debt discount and issuance costs2,9411,675
    Share-based compensation5,9366,162
    Deferred income tax, net33
    Loss on disposal of assets35
  Changes in operating assets and liabilities:
    Accounts and unbilled receivables3,454543
    Deferred costs238
    Prepaid expenses and other assets(1,575)(666)
    Accounts payable and other liabilities6903,631
    Accrued liabilities(1,415)434
Accrued payroll and other employee benefits(8,181)(10,957)
    Deferred revenue8,6375,126
  Net cash used in operating activities(4,732)(12,193)
Investing activities:
    Purchases of property and equipment(778)(484)
    Capitalized internal-use software development costs(1,316)(572)
    Proceeds from maturities of short-term investments9,983
  Net cash (used in) provided by investing activities(2,094)8,927
Financing activities:
    Exercise of stock options8752,198
    Proceeds from employee stock plans834776
    Tax withholding related to net share settlement of stock awards(7,255)(5,665)
    Payments of notes payable(58)(50)
    Debt issuance costs related to Revolver(125)
  Net cash used in provided by financing activities(5,604)(2,866)
  Effect of foreign currency rates on cash7139
Net change in cash and cash equivalents(12,359)(6,171)
Cash and cash equivalents:
  Beginning of period160,505118,039
  End of period$148,146$111,868

PROS Holdings, Inc.

Reconciliation of GAAP to Non-GAAP Financial Measures

(In thousands, except per share data)

(Unaudited)

We use these non-GAAP financial measures to assist in the management of the Company because we believe that this information provides a more consistent and complete understanding of the underlying results and trends of the ongoing business due to the uniqueness of these charges.
See breakdown of the reconciling line items on page 10.

Three Months Ended March 31,Year over Year
20182017% change
GAAP gross profit$28,389$23,52021%
  Non-GAAP adjustments:
    Amortization of acquisition-related intangibles1,241477
    Share-based compensation482575
Non-GAAP gross profit$30,112$24,57223%
Non-GAAP gross margin62.9%61.2%
GAAP loss from operations$(14,747)$(17,668)(17)%
  Non-GAAP adjustments:
    Acquisition-related expenses95
    Amortization of acquisition-related intangibles2,015669
    Share-based compensation5,9366,162
  Total Non-GAAP adjustments8,0466,831
Non-GAAP loss from operations$(6,701)$(10,837)(38)%
Non-GAAP loss from operations % of total revenue(14)%(27)%
GAAP net loss$(18,856)$(20,207)(7)%
  Non-GAAP adjustments:
    Total Non-GAAP adjustments affecting loss from operations8,0466,831
    Amortization of debt discount and issuance costs2,9291,675
    Tax impact related to non-GAAP adjustments1,8374,326
Non-GAAP net loss$(6,044)$(7,375)(18)%
Non-GAAP diluted loss per share$(0.19)$(0.24)
Shares used in computing non-GAAP loss per share32,37831,099

PROS Holdings, Inc.

Supplemental Schedule of Non-GAAP Financial Measures

Increase (Decrease) in GAAP Amounts Reported

(In thousands)

(Unaudited)

Three Months Ended December 31,
20182017
Cost of Subscription Items
  Amortization of acquisition-related intangibles1,053313
Share-based compensation5378
  Total cost of subscription items$1,106$391
Cost of Maintenance Items
  Amortization of acquisition-related intangibles177154
  Share-based compensation7889
    Total cost of maintenance items255243
Cost of License Items
  Amortization of acquisition-related intangibles1110
    Total cost of license items1110
Cost of Services Items
  Share-based compensation351408
    Total cost of services items351408
Sales and Marketing Items
  Amortization of acquisition-related intangibles774192
  Share-based compensation1,2841,273
    Total sales and marketing items$2,058$1,465
General and Administrative Items
  Share-based compensation2,8792,802
  Total general and administrative items2,8792,802
Research and Development Items
  Share-based compensation1,2911,512
    Total research and development items1,2911,512
Acquisition-related expenses$95

PROS Holdings, Inc.

Supplemental Reconciliation of GAAP to Non-GAAP Financial Measures

(In thousands)

(Unaudited)

Three Months Ended March 31,
20182017
Adjusted EBITDA
  GAAP Loss from Operations$(14,747)$(17,668)
    Acquisition-related expenses95
    Amortization of acquisition-related intangibles2,015669
    Share-based compensation5,9366,162
    Depreciation1,3491,364
    Capitalized internal-use software development costs(1,316)(572)
      Adjusted EBITDA$(6,668)$(10,045)
Free Cash Flow
  Net cash used in operating activities$(4,732)$(12,193)
    Purchase of property and equipment(778)(484)
    Capitalized internal-use software development costs(1,316)(572)
      Free Cash Flow$(6,826)$(13,249)
GuidanceQ2 2018 Guidance
LowHigh
Adjusted EBITDA
  GAAP Loss from Operations$(15,200)$(14,500)
    Amortization of acquisition-related intangibles2,0002,000
    Share-based compensation5,6005,600
    Depreciation1,2001,400
    Capitalized internal-use software development costs(1,300)(1,200)
    Adjusted EBITDA$(7,700)$(6,700)
Full Year 2018 Guidance
LowHigh
Adjusted EBITDA
  GAAP Loss from Operations$(60,300)$(59,100)
    Amortization of acquisition-related intangibles8,1008,100
    Share-based compensation22,50022,500
    Depreciation5,4005,500
    Capitalized internal-use software development costs(2,700)(2,000)
    Adjusted EBITDA$(27,000)$(25,000)

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