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PROS Holdings, Inc. Reports Third Quarter 2015 Financial Results

November 5, 2015 4:15 PM

HOUSTON--(BUSINESS WIRE)-- PROS Holdings, Inc. (NYSE: PRO), a revenue and profit realization company, today announced financial results for the third quarter ended September 30, 2015.

Annual Recurring Revenue ("ARR") was $93.8 million, an increase of 19% over the third quarter of 2014.

Total Contract Value ("TCV") bookings were $30.8 million, an increase of 26% over the third quarter of 2014.

Annual Contract Value ("ACV") bookings were $4.5 million, an increase of 20% over the third quarter of 2014.

Total non-GAAP revenue for the third quarter of 2015 was $41.7 million, a decrease of 14% over the third quarter of 2014.

CEO Andres Reiner stated, “The opportunity for PROS to lead the market with revenue and profit realization solutions continues to crystallize and strengthen. Our long-standing commitment to delivering rapid innovation and helping customers outperform underscored our third quarter performance, with customers continuing to extend and expand their partnerships with PROS at an accelerating rate. We believe we could have done even better as we experienced extended sales cycles on a few deals in the quarter. With our focus on delivering innovation and customer success, and with the operational adjustments we are making to further drive execution, we are well-positioned to capitalize on the long-term growth opportunity.”

For the nine months ended September 30, 2015, free cash flow was $1.7 million, which was up from a free cash flow use of $5.3 million in the corresponding period of 2014.

For the quarter ended September 30, 2015, GAAP revenue was $40.9 million, a 13% decrease from $46.7 million for the third quarter of 2014. GAAP operating loss was $15.9 million, compared with $3.7 million in the third quarter of 2014. GAAP net loss for the third quarter was $18.2 million or $0.61 per share, compared with $3.7 million, or $0.13 per share, in the third quarter of 2014.

For the quarter ended September 30, 2015, non-GAAP operating loss was $6.4 million, compared with operating income of $5.5 million in the third quarter of 2014. Non-GAAP net loss for the third quarter of 2015 was $4.7 million, or $0.16 per share, compared with net income of $3.4 million, or $0.11 per share, in the third quarter of 2014.

Recent Business Highlights

Executive Vice President and Chief Financial Officer Stefan Schulz stated, “We are pleased with the momentum in our subscription business, evidenced by 19% year-over-year growth in ARR, the best predictor of forward growth. At the same time, we were disappointed that our ACV bookings fell short of our expectations. Our long-term strategic view continues to strengthen as we calibrate the business to continue executing on our cloud-first strategy, which is reflected in our increased outlook for ARR for the full year.”

The attached tables provide a summary of PROS results for the period, including a reconciliation of GAAP to non-GAAP revenue, gross profit, income (loss) from operations, and net income (loss), as well as earnings (loss) per share.

Financial Outlook

Based on information as of today, PROS anticipates the following:

Conference Call

In conjunction with this announcement, PROS Holdings, Inc. will host a conference call on November 5, 2015, at 4:45 p.m. (ET) to discuss the company’s financial results and business outlook. To access this call, dial 888-438-5524 (toll-free) or 719-325-2432, and enter passcode 789139. The live webcast of the conference call can be accessed under the “Investor Relations” section of the Company’s website at www.PROS.com.

Following the conference call, an archived webcast will be available in the “Investor Relations” section of the Company’s website at www.PROS.com. A telephone replay will be available until November 12, 2015, at 877-870-5176 (toll-free) or 858-384-5517 using the passcode 789139. 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 revenue and profit realization company that helps B2B and B2C customers realize their potential through the blend of simplicity and data science. PROS offers solutions to help accelerate sales, formulate winning pricing strategies and align product, demand and availability. PROS revenue and profit realization solutions are designed to allow customers to experience meaningful revenue growth, sustained profitability and modernized business processes. To learn more, visit www.PROS.com.

Forward-looking Statements

This press release contains forward-looking statements, including statements about PROS’ momentum and future financial performance; positioning; management's confidence and optimism; customer successes; partner ecosystem growth; demand for pricing and sales effectiveness solutions; business predictability; ARR; bookings; free cash flow; shares outstanding and effective tax rate. The forward-looking statements contained in this press release are based upon PROS’ historical performance and its 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) the risk that PROS will face increased competition as part of entering new markets, (b) the risk that the market for PROS’ software does not grow as anticipated, (c) the challenges associated with selling, installing, and delivering PROS' products and services, (d) risks related to our cloud-first strategy, (e) the impact that a slowdown in the world or any particular economy has on PROS’ business sales cycles, prospects’ and customers’ spending decisions and timing of implementation decisions, (f) the difficulties and risks associated with developing and selling complex new products and enhancements with the technical specifications and functionality desired by customers, (g) the risk that PROS will be unable to integrate our acquisitions effectively and on the timeline we anticipate, (h) the difficulties of making accurate estimates necessary to complete a project and recognize revenue and risk that PROS’ revenue model will not continue to provide predictability of the PROS business, (i) the risk that PROS will not be able to maintain historical maintenance renewal rates, (j) personnel and other risks associated with growing a business generally, (k) the risk that modification or negotiation of contractual arrangements will be necessary during PROS’ implementations of its solutions, (l) the impact of currency fluctuations on PROS’ results of operations, (m) civil and political unrest in regions in which PROS operates, (n) the risk that reseller and other relationships do not increase sales of PROS’ solutions and (o) the risk that fluctuations in PROS' earnings by jurisdiction could require changes in our valuation allowance against our deferred tax assets resulting in non-cash charges in future periods to our income tax provision and related effective tax rate. Additional information relating to the uncertainty affecting the PROS business is contained in PROS’ 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, annual contract value bookings, total contract value bookings, adjusted EBITDA margin, amortization of convertible debt discount and debt issue costs, tax rate, net income and diluted earnings 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 revenue, non-GAAP income (loss) from operations, annual recurring revenue, total contract value bookings, annual contract value bookings, and non-GAAP tax rates (collectively the "non-GAAP financial measures") as follows:

Non-GAAP revenue: Business combination accounting principles under GAAP require us to recognize the fair value of software subscription, maintenance and professional services contracts assumed in our acquisitions of SignalDemand, Inc. and PROS France SAS (formerly Cameleon Software SA). A portion of these software subscription and professional services are deferred and typically recognized over the term of the software subscription contract, so our GAAP revenues during the term of the contract after the acquisition do not reflect the full amount of revenues that would have been reported if the acquired deferred software subscription and professional services revenues were not written down to fair value. The revenue for maintenance is deferred and typically recognized over a one-year period, so our GAAP revenues for the one-year period after the acquisition do not reflect the full amount of revenues that would have been reported if the acquired deferred maintenance revenue was not written down to fair value. The non-GAAP revenue adjustments eliminate the effect of the deferred revenue write-down and include the costs associated with the revenue adjustment. We believe these adjustments to the revenue from these contracts and to the associated costs are useful to investors as an additional means to reflect revenue trends of our business.

Non-GAAP income from operations: Non-GAAP income from operations includes the non-GAAP revenue discussed above and also excludes the impact of non-recurring acquisition-related expenses, stock-based compensation, amortization of acquisition-related intangibles, amortization of debt discount and issuance costs, recovery of bankruptcy claims, severance, as well as the tax consequences associated with stock-based compensation costs arising from our acquisitions. Non-GAAP income from operations excludes the following items from non-GAAP estimates:

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 which includes both subscription and maintenance contracts, and excluding perpetual license, term license and service agreements, that are current and contracted with a future start date. ARR should be viewed independently of revenue and any other GAAP measure.

Total Contract Value Bookings: Total Contract Value ("TCV") bookings are comprised of the total value of new customer contracts closed during a specified period, excluding maintenance in excess of one year, and including license, maintenance, services, term license and subscription renewals, that we believe to be firm commitments to provide our software solutions and related services. Bookings by their nature are significantly based on estimates and judgments that we make regarding total contract values, and our bookings growth projections are not meant as a substitute measure for revenue in accordance with GAAP. We believe our annual bookings growth projection is useful to investors as an additional means to reflect our annual business performance.

Annual Contract Value Bookings: Annual Contract Value ("ACV") bookings are comprised of the estimated annual value of our TCV bookings. ACV bookings are comprised of annual maintenance and subscriptions, one seventh of the license TCV, and excludes services and subscription renewals. ACV 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 loss (income) before interest expense, provision for income taxes, depreciation and amortization, as adjusted to eliminate the effect of the deferred revenue write-down from our acquisitions of SignalDemand, Inc. and Cameleon Software SA, the impact of non-recurring acquisition-related expenses, tax consequences associated with the stock-based compensation costs arising from our acquisitions, amortization of acquisition-related intangibles, depreciation and amortization, impairment of internal-use software 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 operating activities, less additions to property, plant and equipment 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.

PROS Holdings, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share amounts)

(Unaudited)

September 30, 2015 December 31, 2014
Assets:
Current assets:
Cash and cash equivalents $ 134,948 $ 161,019
Short-term investments 22,497 —
Accounts and unbilled receivables, net of allowance of $1,000 and $868, respectively 50,490 71,095
Prepaid and other current assets 8,916 8,075
Restricted cash - current 100 100
Total current assets 216,951 240,289
Property and equipment, net 16,338 15,788
Intangibles, net 15,420 20,195
Goodwill 20,747 21,563
Other long-term assets 1,699 2,290
Total assets $ 271,155 $ 300,125
Liabilities and Stockholders’ Equity:
Current liabilities:
Accounts payable and other liabilities $ 6,770 $ 10,564
Accrued liabilities 4,132 5,355
Accrued payroll and other employee benefits 10,244 15,154
Deferred revenue 63,113 57,313
Total current liabilities 84,259 88,386
Long-term deferred revenue 3,935 1,121
Convertible debt, net 114,847 110,448
Other long-term liabilities 1,014 1,171
Total liabilities 204,055 201,126
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; 34,098,544 and 33,477,810 shares issued, respectively; 29,680,959 and 29,060,225 shares outstanding, respectively 34 34
Additional paid-in capital 152,078 134,375
Treasury stock, 4,417,585 common shares, at cost (13,938 ) (13,938 )
Accumulated deficit (67,303 ) (19,223 )
Accumulated other comprehensive loss (3,771 ) (2,249 )
Total stockholders’ equity 67,100 98,999
Total liabilities and stockholders’ equity $ 271,155 $ 300,125

PROS Holdings, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(In thousands, except per share data)

(Unaudited)

For the Three Months EndedSeptember 30,

For the Nine Months EndedSeptember 30,

2015 2014 2015 2014
Revenue:
License $ 5,980 $ 11,844 $ 26,564 $ 36,039
Services 12,273 13,764 32,100 38,959
Subscription 6,886 6,775 20,966 16,901
Total license, services and subscription 25,139 32,383 79,630 91,899
Maintenance and support 15,727 14,336 46,604 40,101
Total revenue 40,866 46,719 126,234 132,000
Cost of revenue:
License 51 64 242 191
Services 9,138 10,152 27,064 29,506
Subscription 3,105 1,523 9,330 6,015
Total license, services and subscription 12,294 11,739 36,636 35,712
Maintenance and support 2,972 2,538 9,361 7,864
Total cost of revenue 15,266 14,277 45,997 43,576
Gross profit 25,600 32,442 80,237 88,424
Operating expenses:
Selling and marketing 19,639 15,252 55,810 44,852
General and administrative 9,626 9,170 29,786 26,292
Research and development 12,201 11,115 35,098 32,647
Acquisition-related — 625 — 2,594
Impairment charge — — — 2,130
Loss from operations (15,866 ) (3,720 ) (40,457 ) (20,091 )
Convertible debt interest and amortization (2,234 ) — (6,642 ) —
Other expense, net (152 ) (466 ) (571 ) (2,009 )
Loss before income tax provision (18,252 ) (4,186 ) (47,670 ) (22,100 )
Income tax (benefit) provision (70 ) (257 ) 410 (2,057 )
Net loss $ (18,182 ) $ (3,929 ) $ (48,080 ) $ (20,043 )
Net loss attributable to non-controlling interest — (195 ) — (858 )
Net loss attributable to PROS Holdings, Inc. (18,182 ) (3,734 ) (48,080 ) (19,185 )
Net loss per share attributable to PROS Holdings, Inc.:
Basic $ (0.61 ) $ (0.13 ) $ (1.63 ) $ (0.66 )
Diluted $ (0.61 ) $ (0.13 ) $ (1.63 ) $ (0.66 )
Weighted average number of shares:
Basic 29,649 29,000 29,530 28,875
Diluted 29,649 29,000 29,530 28,875

PROS Holdings, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

For the Nine Months Ended September 30,

2015 2014
Operating activities:
Net loss $ (48,080 ) $ (20,043 )

Adjustments to reconcile net loss to net cash provided by operating activities:

Depreciation and amortization 7,923 7,967
Amortization of debt discount and issuance costs 4,485 —
Share-based compensation 21,381 16,530
Deferred income tax, net 138 (238 )
Provision for doubtful accounts 132 (290 )
Impairment charge — 2,130
Changes in operating assets and liabilities:
Accounts and unbilled receivables 20,474 5,024
Prepaid expenses and other assets (383 ) (6,375 )
Accounts payable and other liabilities (3,330 ) (3,222 )
Accrued liabilities 364 448
Accrued payroll and other employee benefits (4,909 ) (932 )
Deferred revenue 8,609 2,108
Net cash provided by operating activities 6,804 3,107
Investing activities:
Purchase of property and equipment (4,856 ) (6,290 )
Acquisition of PROS France, net of cash acquired — (22,048 )
Capitalized internal-use software development costs (233 ) (2,166 )
Change in restricted cash — 37,396
Purchases of short-term investments (55,176 ) —
Proceeds from maturities of short-term investments 32,700 —
Net cash (used in) provided by investing activities (27,565 ) 6,892
Financing activities:
Exercise of stock options 433 1,055
Proceeds from employee stock plans 839 335
Tax withholding related to net share settlement of restricted stock units (4,966 ) (12,462 )
Payment of contingent consideration for PROS France (1,304 ) —
Payments of notes payable (212 ) —
Debt issuance costs related to convertible debt (408 ) —
Increase in PROS' ownership in PROS France — (3,621 )
Net cash used in financing activities (5,618 ) (14,693 )
Effect of foreign currency rates on cash 308 419
Net change in cash and cash equivalents (26,071 ) (4,275 )
Cash and cash equivalents:
Beginning of period 161,019 44,688
End of period $ 134,948 $ 40,413

PROS Holdings, Inc.

Reconciliation of GAAP to Non-GAAP Financial Measures

(Dollars 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.

For the Three Months EndedSeptember 30,

QuarteroverQuarter

For the Nine Months EndedSeptember 30,

YearoverYear

2015 2014 % change 2015 2014 % change
GAAP revenue $40,866 $46,719 (13)% $126,234 $132,000 (4)%
Non-GAAP adjustment:
Acquisition-related deferred revenue write-down 868 $1,994 3,065 $6,067
Non-GAAP revenue $41,734 $48,713 (14)% $129,299 $138,067 (6)%
GAAP gross profit $25,600 $32,442 (21)% $80,237 $88,424 (9)%
Non-GAAP adjustments:
Acquisition-related deferred revenue write-down, net of cost of revenue 328 1,177 1,167 3,641
Acquisition-related foreign taxes on equity grants — — — 68
Amortization of intangible assets 553 623 1,659 1,863
Share-based compensation 852 864 2,896 2,546
Non-GAAP gross profit $27,333 $35,106 (22)% $85,959 $96,542 (11)%
Non-GAAP gross margin 65.5% 72.1% 66.5% 69.9%
GAAP loss from operations $(15,866) $(3,720) 327% $(40,457) $(20,091) 101%
Non-GAAP adjustments:
Acquisition-related deferred revenue write-down, net of cost of revenue 328 1,177 1,167 3,641
Acquisition-related expenses — 625 — 2,594
Acquisition-related foreign taxes on equity grants — — — 942
Amortization of intangible assets 1,703 1,293 3,866 4,018
Accretion expense for acquisition-related contingent consideration — 57 22 182
Impairment of internal-use software due to acquisition — — — 2,130
Recovery of bankruptcy claim — — (626) —
Severance 756 — 756 —
Share-based compensation 6,631 6,075 21,381 16,379
Total Non-GAAP adjustments $9,418 $9,227 $26,566 $29,886
Non-GAAP (loss) income from operations $(6,448) $5,507 (217)% $(13,891) $9,795 (242)%
Non-GAAP (loss) income from operations % of total revenue (15.5)% 11.3% (10.7)% 7.1%
GAAP net loss (18,182) (3,929) 363% $(48,080) $(20,043) 140%
Non-GAAP adjustments:
Total Non-GAAP adjustments affecting (loss) income from operations 9,418 9,227 26,566 29,886
Amortization of debt discount and issuance costs 1,514 — 4,485 —
Acquisition-related foreign currency loss — — — 593
Tax impact related to non-GAAP adjustments 2,566 (1,961) 6,376 (5,157)
Non-GAAP net (loss) income $(4,684) $3,337 (240)% $(10,653) $5,279 (302)%
Non-GAAP loss attributable to non-controlling interest — (38) — (106)
Non-GAAP (loss) income attributable to PROS Holdings, Inc. $(4,684) 3,375 $(10,653) $5,385
Non-GAAP diluted (loss) earnings per share attributable to PROS Holdings, Inc. $(0.16) $0.11 $(0.36) $0.18
Shares used in computing non-GAAP earnings per share 29,649 30,349 29,530 30,319

PROS Holdings, Inc.

Supplemental Schedule of Non-GAAP Financial Measures

Increase (Decrease) in GAAP Amounts Reported

(In thousands)

(Unaudited)

For the Three Months EndedSeptember 30,

For the Nine Months EndedSeptember 30,

2015 2014 2015 2014
Revenue Items
Acquisition-related deferred revenue write-down - license revenue — 44 — 44
Acquisition-related deferred revenue write-down - service revenue 823 1,125 2,766 3,276
Acquisition-related deferred revenue write-down - subscription revenue 20 593 224 1,941
Acquisition-related deferred revenue write-down - maintenance revenue 25 232 75 806
Total revenue items $ 868 $ 1,994 $ 3,065 $ 6,067
Cost of License Items
Amortization of intangible assets 10 12 31 37
Total cost of license items $ 10 $ 12 $ 31 $ 37
Cost of Services Items
Acquisition-related deferred cost write-down (540 ) (817 ) (1,898 ) (2,426 )
Acquisition-related foreign taxes on equity grants — — — 50
Amortization of intangible assets — 20 — 60
Share-based compensation 754 758 2,505 2,209
Total cost of services items $ 214 $ (39 ) $ 607 $ (107 )
Cost of Subscription Items
Acquisition-related foreign taxes on equity grants — — — 18
Amortization of intangible assets 382 397 1,145 1,191
Share-based compensation 35 47 200 174
Total cost of subscription items $ 417 $ 444 $ 1,345 $ 1,383
Cost of Maintenance Items
Amortization of intangible assets 161 194 483 575
Share-based compensation 63 59 191 163
Total cost of maintenance items $ 224 $ 253 $ 674 $ 738
Sales and Marketing Items
Acquisition-related foreign taxes on equity grants — — — 196
Amortization of intangible assets 1,067 571 1,956 1,858
Severance 342 — 342 —
Share-based compensation 2,229 1,769 6,541 4,693
Total sales and marketing items $ 3,638 $ 2,340 $ 8,839 $ 6,747
General and Administrative Items
Acquisition-related foreign taxes on equity grants — — — 416
Accretion expense for acquisition-related contingent consideration — 57 22 182
Amortization of intangible assets 83 99 251 297
Recovery of bankruptcy claim — — (626 ) —
Share-based compensation 2,280 2,198 8,000 5,715
Total general and administrative items $ 2,363 $ 2,354 $ 7,647 $ 6,610
Research and Development Items
Acquisition-related foreign taxes on equity grants — — — 262
Severance 414 — 414 —
Share-based compensation 1,270 1,244 3,944 3,425
Total research and development items $ 1,684 $ 1,244 $ 4,358 $ 3,687
Acquisition-related expenses $ — $ 625 $ — $ 2,594

Investor Contact:

PROS Investor Relations

713-335-5879

[email protected]

or

Media Contact:

PROS Public Relations

Yvonne Donaldson, 713-335-5310

[email protected]

Source: PROS Holdings, Inc.

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