Press Release

PROS Holdings, Inc. Reports Second Quarter 2018 Financial Results

  • Subscription revenue up 64% year-over-year.
  • Total revenue up 17% year-over-year.
  • Free cash flow improvement of $4.9 million year-over-year.

HOUSTON – July 26, 2018 — PROS Holdings, Inc. (NYSE: PRO), a cloud software company powering the shift to modern commerce, today announced financial results for the second quarter ended June 30, 2018.

CEO Andres Reiner stated, “I’m really pleased with the velocity that we are driving in our business. In the first half of the year, we increased our deal volume by 32%. We are in a great position to continue our growth trajectory since our solutions sit squarely at the cross section of two defining business trends of our time: digital transformation and AI. Our strong momentum and large market opportunity contributed to our Q2 beat and gives us confidence to improve our growth outlook for the year.”

Second Quarter 2018 Financial Highlights

Key financial results for the second 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.

GAAP
Non-GAAP
Q2 2018
Q2 2017
% Change
Q2 2018
Q2 2017
% Change
Revenue:
   Total Revenue47.440.417%n/an/an/a
   Subscription Revenue22.013.464%n/an/an/a
   Subscription and Maintenance Revenue38.330.625%n/an/an/a
Profitability:
   Gross Profit28.724.318%30.325.320%
   Operating Loss(13.0)(16.7)nm(5.6)(10.1)nm
   Net Loss(16.8)(19.5)nm(5.2)(7.0)nm
   Net Loss Per Share(0.52)(0.62)nm(0.16)(0.22)nm
   Adjusted EBITDAn/an/an/a(5.4)(9.5)nm
Cash:
   Net Cash (Used in) Provided by Operating Activities(3.6)(9.1)nmn/an/an/a
   Free Cash Flown/an/an/a(5.2)(10.1)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

  • Hosted PROS Outperform 2018 global customer conference, the premiere conference for companies powering their digital transformation, where PROS unveiled plans to extend solution capabilities to fully integrate with leading eCommerce platforms, including Salesforce CloudCraze and SAP Hybris.
  • Announced a partnership with SAP Hybris to integrate PROS shopping and merchandising solutions with SAP’s omnichannel commerce solution to deliver a best-of-breed digital selling solution to the airline industry.
  • Showcased PROS manufacturing solutions in the Microsoft booth at Hannover Messe 2018, the world’s leading exhibition for industrial technology with more than 200,000 professionals in attendance, representing virtually every aspect of manufacturing.
  • Joined forces with YRC Freight at the SMC3 Connections Conference to share best practices related to leveraging predictive analytics in the logistics industry in a panel titled “Strategic Analytics: Maximizing Data and Information Value.”
  • Awarded twelve prominent speaking positions to share PROS science and research thought leadership at prestigious conferences, including the 29th Annual Production and Operations Management Society (POMS) Conference, the 2018 INFORMS Revenue Management and Pricing Conference, and the Professional Pricing Society 29th Annual Spring Pricing Workshops and Conference.
  • Appointed Michael Wu, Ph.D., one of the world’s premier authorities, thought leaders and authors on artificial intelligence, data science and the digital experience, as Chief Artificial Intelligence Strategist.

Financial Outlook

PROS anticipates the following for the third quarter and full year 2018 based on an estimated 32.8 million and 32.6 million, respectively, basic weighted average shares outstanding and a 22% non-GAAP estimated tax rate:

Q3 2018 Guidance
v. Q3 2017 at Mid-Point
Full Year 2018 Guidance
v. Prior Year at Mid-Point
Total Revenue$47.5 to $48.514%$192.0 to $194.014%
Subscription Revenue$23.0 to $23.547%$91.5 to $92.552%
ARRn/an/a$187.0 to $190.017%
Non-GAAP Loss Per Share$(0.20) to $(0.18)nmn/an/a
Adjusted EBITDA$(7.0) to $(6.0)$2.7$(26.0) to $(24.0)$8.7
Free Cash Flown/an/a$(5.0) to $(2.0)$26.0

Conference Call

In conjunction with this announcement, PROS Holdings, Inc. will host a conference call on Thursday, July 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, August 9, 2018, at 1-844-512-2921 (toll-free) or 1-412-317-6671 using the pass code 13680874. 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.

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)

June 30, 2018
December 31, 2017
Assets:
Current assets:
     Cash and cash equivalents$141,867$160,505
     Trade and other receivables, net of allowance of $983 and $760, respectively39,34932,484
     Deferred costs3,0533,137
     Prepaid and other current assets
5,518
5,930
Total current assets189,787202,056
Property and equipment, net14,85614,007
Long-term deferred costs10,9663,194
Intangibles, net22,92126,929
Goodwill38,44338,458
Other long-term assets4,4674,039
Total assets
$ 281,440
$ 288,683
Liabilities and Stockholders’ Equity:
Current liabilities:
     Accounts payable and other liabilities$4,725$2,976
     Accrued liabilities8,8286,733
     Accrued payroll and other employee benefits12,39216,712
     Deferred revenue
89,270
75,604
Total current liabilities115,215102,025
Long-term deferred revenue14,95719,591
Convertible debt, net219,108213,203
Other long-term liabilities819843
Total liabilities
350,099
335,662
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; 37,128,924
and 36,356,760 shares issued, respectively; 32,711,339 and 31,939,175 shares outstanding, respectively
3736
     Additional paid-in capital212,481207,924
     Treasury stock, 4,417,585 common shares, at cost(13,938)(13,938)
     Accumulated deficit(264,161)(238,185)
     Accumulated other comprehensive loss(3,078)(2,816)
Total stockholders’ equity
(68,659)
(46,979)
Total liabilities and stockholders’ equity
$281,440
$288,683

PROS Holdings, Inc.

Condensed Consolidated Statements of Income (Loss)

(In thousands)

(Unaudited)

Three Months Ended June 30,
Six Months Ended June 30,
2018
2017
2018
2017
Revenue:
     Subscription$22,038$13,434$42,988$25,648
     Maintenance and support16,22517,13232,79935,208
Total subscription, maintenance and support
38,263
30,566
75,787
60,856
     License6951,0901,7613,280
     Services8,4688,75017,78816,399
Total revenue
47,426
40,406
95,336
80,535
Cost of revenue:
     Subscription8,4915,80017,25511,737
     Maintenance and support2,9532,8815,9106,027
Total cost of subscription, maintenance and support
11,444
8,681
23,165
17,764
     License6472137137
     Services7,2167,33314,94314,794
Total cost of revenue
18,724
16,086
38,245
32,695
Gross profit28,70224,32057,09147,840
Operating expenses:
     Selling and marketing18,59017,17236,15833,645
     General and administrative10,1459,78220,83420,190
     Research and development12,96014,07627,74428,383
     Acquisition-related
95
Loss from operations(12,993)(16,710)(27,740)(34,378)
Convertible debt interest and amortization(4,226)(2,590)(8,405)(4,984)
Other income (expense), net
244
(64)
446
(32)
Loss before income tax (benefit) provision(16,975)(19,364)(35,699)(39,394)
Income tax (benefit) provision(131)1491326
Net loss
$ (16,844)
$ (19,513)
$ (35,700)
$ (39,720)
Net loss per share:
     Basic and diluted$ (0.52)$ (0.62)$ (1.10)$ (1.27)
Weighted average number of shares:
     Basic and diluted32,65131,61532,51431,357

PROS Holdings, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

Three Months Ended June 30,
Six Months Ended June 30,
2018
2017
2018
2017
Operating activities:
Net loss$(16,844)$(19,513)$(35,700)$(39,720)
Adjustments to reconcile net loss to net cash provided by operating activities:
     Depreciation and amortization3,2561,9726,6204,005
     Amortization of debt discount and issuance costs2,9881,8355,9293,510
     Share-based compensation5,4625,93211,39812,094
     Deferred income tax, net(252)(252)33
     Provision for doubtful accounts215215
     Loss on disposal of assets237
Changes in operating assets and liabilities:
     Accounts and unbilled receivables(10,556)(406)(7,102)137
     Deferred costs(880)(642)
     Prepaid expenses and other assets1,513(315)(62)(981)
     Accounts payable and other liabilities1,039(793)1,7292,838
     Accrued liabilities3,529(147)2,114287
     Accrued payroll and other employee benefits3,8542,356(4,327)(8,601)
     Deferred revenue3,096(37)11,7335,089
Net cash used in operating activities
(3,578)
(9,116)
(8,310)
(21,309)
Investing activities:
     Purchases of property and equipment(409)(211)(1,187)(695)
     Capitalized internal-use software development costs(1,168)(736)(2,484)(1,308)
     Proceeds from maturities of short-term investments
9,983
Net cash (used in) provided by investing activities(1,577)(947)(3,671)7,980
Financing activities:
     Exercise of stock options3263,0781,2015,276
     Proceeds from employee stock plans834776
     Tax withholding related to net share settlement of stock awards(1,713)(89)(8,968)(5,754)
     Payments of notes payable3(105)(55)(155)
     Debt issuance costs related to Revolver(125)
     Proceeds from issuance of convertible debt, net93,50093,500
  Net cash (used in) provided by financing activities
(1,384)
96,384
(6,988)
93,518
  Effect of foreign currency rates on cash
260
(220)
331
(259)
Net change in cash and cash equivalents(6,279)86,101(18,638)79,930
Cash and cash equivalents:
  Beginning of period148,146111,868160,505118,039
  End of period
141,867
197,969
141,867
197,969

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 9.

Three Months Ended June 30,
Quarter over Quarter
Six Months Ended June 30,
Year over Year
2018
2017
% change
2018
2017
% change
GAAP gross profit$28,702$24,32018%$57,091$47,84019%
  Non-GAAP adjustments:
     Amortization of acquisition-related intangibles1,1814852,422962
     Share-based compensation3985158801,090
Non-GAAP gross profit
$30,281
$25,320
20%
$60,393
$49,892
21%
Non-GAAP gross margin63.8%62.7%63.3%62.0%
GAAP loss from operations$(12,993)$(16,710)(22)%$(27,740)$(34,378)(19)%
  Non-GAAP adjustments:
     Acquisition-related expenses95
     Amortization of acquisition-related intangibles1,8976803,9121,349
     Share-based compensation5,4625,93211,39812,094
  Total Non-GAAP adjustments
7,359
6,612
15,405
13,443
Non-GAAP loss from operations
$(5,634)
$(10,098)
(44)%
$(12,335)
$(20,935)
(41)%
Non-GAAP loss from operations % of total revenue(11.9)%(25.0)%(12.9)%(26.0)%
GAAP net loss$(16,844)$(19,513)(14)%$(35,700)$(39,720)(10)%
  Non-GAAP adjustments:
     Total Non-GAAP adjustments affecting loss from operations7,3596,61215,40513,443
     Amortization of debt discount and issuance costs2,9761,8185,9053,493
     Tax impact related to non-GAAP adjustments1,3304,0843,1678,410
Non-GAAP net loss
$(5,179)
$(6,999)
(26)%
$(11,223)
$(14,374)
(22)%
Non-GAAP diluted loss per share$(0.16)$(0.22)$(0.35)$(0.46)
Shares used in computing non-GAAP loss per share32,65131,61532,51431,357

PROS Holdings, Inc.

Supplemental Schedule of Non-GAAP Financial Measures

Increase (Decrease) in GAAP Amounts Reported

(In thousands)

(Unaudited)

Three Months Ended June 30,
Six Months Ended June 30,
2018
2017
2018
2017
Cost of Subscription Items:
  Amortization of acquisition-related intangibles9973172,050630
  Share-based compensation355188129
     Total cost of subscription items
$1,032
$368
$2,138
$759
Cost of Maintenance Items
  Amortization of acquisition-related intangibles172158349312
  Share-based compensation5484132173
     Total cost of maintenance items
$226
$242
$481
$485
Cost of License Items
  Amortization of acquisition-related intangibles12102320
     Total cost of license items
$12
$10
$23
$20
Cost of Services Items
  Share-based compensation309380660788
     Total cost of services items
$309
$380
$660
$788
Sales and Marketing Items
  Amortization of acquisition-related intangibles7161951,490387
  Share-based compensation1,2841,1312,5682,404
     Total sales and marketing items
$2,000
$1,326
$4,058
$2,791
General and Administrative Items
  Share-based compensation2,6882,8805,5675,682
     Total general and administrative items
$2,688
$2,880
$5,567
$5,682
Research and Development Items
  Share-based compensation1,0921,4062,3832,918
     Total research and development items
$1,092
$1,406
$2,383
$2,918
Acquisition-related expenses
$—
$—
$95
$—

PROS Holdings, Inc.

Supplemental Reconciliation of GAAP to Non-GAAP Financial Measures

(In thousands)

(Unaudited)

Three Months Ended June 30,
Six Months Ended June 30,
2018
2017
2018
2017
Adjusted EBITDA
  GAAP Loss from Operations$(12,993)$(16,710)$(27,740)$(34,378)
     Acquisition-related expenses95
     Amortization of acquisition-related intangibles1,8976803,9121,349
     Share-based compensation5,4625,93211,39812,094
     Depreciation1,3591,2922,7082,656
     Capitalized internal-use software development costs(1,168)(736)(2,484)(1,308)
        Adjusted EBITDA
$(5,443)
$(9,542)
$(12,111)
$(19,587)
Free Cash Flow
  Net cash used in operating activities$(3,578)$(9,116)$(8,310)$(21,309)
     Purchase of property and equipment(409)(211)(1,187)(695)
     Capitalized internal-use software development costs(1,168)(736)(2,484)(1,308)
     Free Cash Flow
$(5,155)
$(10,063)
$(11,981)
$(23,312)
Guidance
Q3 2018 Guidance
Full Year 2018 Guidance
Low
High
Low
High
Adjusted EBITDA
  GAAP Loss from Operations$(14,600)$(13,600)$(56,300)$(54,300)
     Amortization of acquisition-related intangibles1,9001,9007,5007,500
     Share-based compensation5,5005,50022,10022,100
     Depreciation1,3001,3005,3005,300
     Capitalized internal-use software development costs(1,100)(1,100)(4,600)(4,600)
        Adjusted EBITDA
$(7,000)
$(6,000)
$(26,000)
$(24,000)

###

Media Contact:
Amanda Parrish
aparrish@pros.com
832-924-4731

Previous

PROS Holdings, Inc. Announces Date of Second Quarter 2018 Financial Results Release, Conference Call and Webcast

Next

PROS Announces Launch of Proposed Follow-on Offering of Common Stock

PROS Pricing: Summer's Hottest
Pricing Software

G2 Crowd ranks PROS as this summer’s #1 pricing software.

Learn more about PROS Price Optimization & Management