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--()--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.

       
GAAP Non-GAAP
Q1 2018     Q1 2017     % Change Q1 2018     Q1 2017     % Change
Revenue:
Total Revenue $ 47.9 $ 40.1 19 % n/a n/a n/a
Subscription Revenue 21.0 12.2 72 % n/a n/a n/a
Subscription and Maintenance Revenue 37.5 30.3 24 % n/a n/a n/a
Profitability:
Gross Profit 28.4 23.5 21 % 30.1 24.6 23 %
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 EBITDA n/a n/a n/a (6.7 ) (10.0 ) nm
Cash:
Net Cash Used in Operating Activities (4.7 ) (12.2 ) nm n/a n/a n/a
Free Cash Flow n/a n/a n/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 Guidance

v. Q2 2017 at
Mid-Point

Full Year 2018
Guidance

v. Prior Year at
Mid-Point

Total Revenue $46.0 to $46.5 14% $188.0 to $191.0 12%
Subscription Revenue $21.25 to $21.75 60% $90.5 to $91.5 50%
ARR n/a n/a $186.0 to $189.0 17%
Non-GAAP Loss Per Share $(0.21) to $(0.19) nm n/a n/a
Adjusted EBITDA $(7.7) to $(6.7) $2.3 $(27.0) to $(25.0) $7.7
Free Cash Flow n/a n/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.

       

PROS Holdings, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share amounts)

(Unaudited)

 
March 31, 2018 December 31, 2017
Assets:
Current assets:
Cash and cash equivalents $ 148,146 $ 160,505
Trade and other receivables, net of allowance of $760 and $760, respectively 29,031 32,484
Deferred costs 2,704 3,137
Prepaid and other current assets 7,294   5,930  
Total current assets 187,175 202,056
Property and equipment, net 14,799 14,007
Long-term deferred costs 10,435 3,194
Intangibles, net 25,057 26,929
Goodwill 38,764 38,458
Other long-term assets 4,239   4,039  
Total assets $ 280,469   $ 288,683  
Liabilities and Stockholders’ Equity:
Current liabilities:
Accounts payable and other liabilities $ 3,606 $ 2,976
Accrued liabilities 5,329 6,733
Accrued payroll and other employee benefits 8,530 16,712
Deferred revenue 83,682   75,604  
Total current liabilities 101,147 102,025
Long-term deferred revenue 17,477 19,591
Convertible debt, net 216,131 213,203
Other long-term liabilities 853   843  
Total liabilities 335,608   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; 37,006,509 and 36,356,760 shares issued, respectively; 32,588,924 and 31,939,175 shares outstanding, respectively 37 36
Additional paid-in capital 208,368 207,924
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,
2018     2017
Revenue:
Subscription $ 20,950 $ 12,214
Maintenance and support 16,574   18,076  
Total subscription, maintenance and support 37,524 30,290
License 1,066 2,190
Services 9,320   7,649  
Total revenue 47,910 40,129
Cost of revenue:
Subscription 8,764 5,937
Maintenance and support 2,957   3,146  
Total cost of subscription, maintenance and support 11,721 9,083
License 73 65
Services 7,727   7,461  
Total cost of revenue 19,521   16,609  
Gross profit 28,389 23,520
Operating expenses:
Selling and marketing 17,568 16,473
General and administrative 10,689 10,408
Research and development 14,784 14,307
Acquisition-related 95    
Loss from operations (14,747 ) (17,668 )
Convertible debt interest and amortization (4,179 ) (2,394 )
Other income (expense), net 202   32  
Loss before income tax provision (18,724 ) (20,030 )
Income tax provision 132   177  
Net loss $ (18,856 ) $ (20,207 )
 
Net loss per share:
Basic and diluted $ (0.58 ) $ (0.65 )
Weighted average number of shares:
Basic and diluted 32,378 31,099
   

PROS Holdings, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 
Three Months Ended March 31,
2018     2017
Operating activities:
Net loss $ (18,856 ) $ (20,207 )
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 3,364 2,033
Amortization of debt discount and issuance costs 2,941 1,675
Share-based compensation 5,936 6,162
Deferred income tax, net 33
Loss on disposal of assets 35
Changes in operating assets and liabilities:
Accounts and unbilled receivables 3,454 543
Deferred costs 238
Prepaid expenses and other assets (1,575 ) (666 )
Accounts payable and other liabilities 690 3,631
Accrued liabilities (1,415 ) 434
Accrued payroll and other employee benefits (8,181 ) (10,957 )
Deferred revenue 8,637   5,126  
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 investments   9,983  
Net cash (used in) provided by investing activities (2,094 ) 8,927
Financing activities:
Exercise of stock options 875 2,198
Proceeds from employee stock plans 834 776
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 financing activities (5,604 ) (2,866 )
Effect of foreign currency rates on cash 71   (39 )
Net change in cash and cash equivalents (12,359 ) (6,171 )
Cash and cash equivalents:
Beginning of period 160,505   118,039  
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
2018     2017 % change
GAAP gross profit $ 28,389 $ 23,520 21 %
Non-GAAP adjustments:
Amortization of acquisition-related intangibles 1,241 477
Share-based compensation 482   575  
Non-GAAP gross profit $ 30,112   $ 24,572   23 %
 
Non-GAAP gross margin 62.9 % 61.2 %
 
GAAP loss from operations $ (14,747 ) $ (17,668 ) (17 )%
Non-GAAP adjustments:
Acquisition-related expenses 95
Amortization of acquisition-related intangibles 2,015 669
Share-based compensation 5,936   6,162  
Total Non-GAAP adjustments 8,046   6,831  
Non-GAAP loss from operations $ (6,701 ) $ (10,837 ) (38 )%
 
Non-GAAP loss from operations % of total revenue (14.0 )% (27.0 )%
 
GAAP net loss $ (18,856 ) $ (20,207 ) (7 )%
Non-GAAP adjustments:
Total Non-GAAP adjustments affecting loss from operations 8,046 6,831
Amortization of debt discount and issuance costs 2,929 1,675
Tax impact related to non-GAAP adjustments 1,837   4,326  
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 share 32,378 31,099
   

PROS Holdings, Inc.

Supplemental Schedule of Non-GAAP Financial Measures

Increase (Decrease) in GAAP Amounts Reported

(In thousands)

(Unaudited)

 
Three Months Ended March 31,
2018     2017
Cost of Subscription Items
Amortization of acquisition-related intangibles 1,053 313
Share-based compensation 53   78
Total cost of subscription items $ 1,106   $ 391
 
Cost of Maintenance Items
Amortization of acquisition-related intangibles 177 154
Share-based compensation 78   89
Total cost of maintenance items $ 255   $ 243
 
Cost of License Items
Amortization of acquisition-related intangibles 11   10
Total cost of license items $ 11   $ 10
 
Cost of Services Items
Share-based compensation 351   408
Total cost of services items $ 351   $ 408
 
Sales and Marketing Items
Amortization of acquisition-related intangibles 774 192
Share-based compensation 1,284   1,273
Total sales and marketing items $ 2,058   $ 1,465
 
General and Administrative Items
Share-based compensation 2,879   2,802
Total general and administrative items $ 2,879   $ 2,802
 
Research and Development Items
Share-based compensation 1,291   1,512
Total research and development items $ 1,291   $ 1,512
   
Acquisition-related expenses $ 95   $
   

PROS Holdings, Inc.

Supplemental Reconciliation of GAAP to Non-GAAP Financial Measures

(In thousands)

(Unaudited)

 
Three Months Ended March 31,
2018     2017
Adjusted EBITDA
GAAP Loss from Operations $ (14,747 ) $ (17,668 )
Acquisition-related expenses 95
Amortization of acquisition-related intangibles 2,015 669
Share-based compensation 5,936 6,162
Depreciation 1,349 1,364
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 )
 
 
Guidance Q2 2018 Guidance
Low High
Adjusted EBITDA
GAAP Loss from Operations $ (15,200 ) $ (14,500 )
Amortization of acquisition-related intangibles 2,000 2,000
Share-based compensation 5,600 5,600
Depreciation 1,200 1,400
Capitalized internal-use software development costs (1,300 ) (1,200 )
Adjusted EBITDA $ (7,700 ) $ (6,700 )
 
Full Year 2018 Guidance
Low High
Adjusted EBITDA
GAAP Loss from Operations $ (60,300 ) $ (59,100 )
Amortization of acquisition-related intangibles 8,100 8,100
Share-based compensation 22,500 22,500
Depreciation 5,400 5,500
Capitalized internal-use software development costs (2,700 ) (2,000 )
Adjusted EBITDA $ (27,000 ) $ (25,000 )

Contacts

Investor Contact:
PROS Investor Relations
Shannon Tatz, 713-335-5932
ir@pros.com
or
Media Contact:
PROS Public Relations
Yvonne Donaldson, 713-335-5310
ydonaldson@pros.com

Contacts

Investor Contact:
PROS Investor Relations
Shannon Tatz, 713-335-5932
ir@pros.com
or
Media Contact:
PROS Public Relations
Yvonne Donaldson, 713-335-5310
ydonaldson@pros.com