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PROS Holdings, Inc. Reports Second Quarter 2017 Financial Results

August 3, 2017 4:15 PM

HOUSTON--(BUSINESS WIRE)-- 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, 2017.

CEO Andres Reiner stated, “We are excited to see our strategic vision continue to unfold with another solid performance in the second quarter. On the strength of our land and expand strategy and our industry approach, we grew subscription revenue 47% year-over-year, exceeding the high end of guidance. Our rich history in AI and machine learning puts us in a strong position to capitalize on a large market opportunity to power modern commerce.”

Second Quarter 2017 Financial Highlights

Key financial results for the second quarter 2017 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 2017 Q2 2016 % Change Q2 2017 Q2 2016 % Change
Revenue:
Total Revenue $ 40.4 $ 37.0 9% n/a n/a n/a
Subscription Revenue 13.4 9.1 47% n/a n/a n/a
Subscription and Maintenance Revenue 30.6 25.9 18% n/a n/a n/a
Profitability:
Operating Loss (16.7 ) (18.1 ) nm (10.1 ) (11.4 ) nm
Net Loss (19.5 ) (20.5 ) nm (7.0 ) (7.8 ) nm
Net Loss Per Share (0.62 ) (0.68 ) nm (0.22 ) (0.26 ) nm
Adjusted EBITDA n/a n/a n/a (9.5 ) (9.7 ) nm
Cash:
Net Cash Used in Operating Activities (9.1 ) (6.6 ) nm (9.1 ) (6.6 ) nm
Free Cash Flow n/a n/a n/a $ (10.1 ) $ (8.5 ) 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

Financial Outlook

PROS anticipates the following for the third quarter 2017, based on an estimated 31.9 million basic weighted average shares outstanding, and a 36% non-GAAP estimated tax rate for the third quarter and full year 2017:

Q3 2017 Guidance

v. Q3 2016 atMid-Point

Full Year 2017Guidance

v. Prior Year atMid-Point

Total Revenue $40.5 to $41.0 6% $165.5 to $168.5 9%
Subscription Revenue $14.8 to $15.0 51% $57.5 to $58.0 51%
ARR n/a n/a $154.5 to $156.5 27%
Non-GAAP Loss Per Share $(0.24) to $(0.23) n/a n/a n/a
Adjusted EBITDA $(10.0) to $(9.5) n/a $(35.5) to $(34.5) n/a
Free Cash Flow n/a n/a $(29.5) to $(28.0) n/a

Conference Call

In conjunction with this announcement, PROS Holdings, Inc. will host a conference call on Thursday, August 3, 2017, 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.

Following the 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 Thursday, August 17, 2017, at 1-844-512-2921 (toll-free) or 1-412-317-6671 using the pass code 13665107. 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: PROS) 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 omnichannel 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-first strategy, (b) reduced revenue and cash flow resulting from our transition to a cloud-first 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 does 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:

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, plus overage fees incurred above contracted minimum transactions, and excludes perpetual license, term license and service agreements, which are current and contracted with a future start date. 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.

PROS Holdings, Inc.Condensed Consolidated Balance Sheets(In thousands, except share and per share amounts)(Unaudited)

June 30, 2017 December 31, 2016
Assets:
Current assets:
Cash and cash equivalents $ 197,969 $ 118,039
Short-term investments 6,000 15,996
Accounts and unbilled receivables, net of allowance of $760 33,258 33,285
Prepaid and other current assets 7,011 6,337
Total current assets 244,238 173,657
Property and equipment, net 14,614 15,238
Intangibles, net 11,844 12,650
Goodwill 20,908 20,096
Other long-term assets 6,378 6,013
Total assets $ 297,982 $ 227,654
Liabilities and Stockholders’ Equity:
Current liabilities:
Accounts payable and other liabilities $ 5,300 $ 2,744
Accrued liabilities 10,420 7,279
Accrued payroll and other employee benefits 9,740 18,349
Deferred revenue 71,348 68,349
Total current liabilities 96,808 96,721
Long-term deferred revenue 13,514 11,389
Convertible debt, net 207,468 122,299
Other long-term liabilities 655 639
Total liabilities 318,445 231,048
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; 36,123,975 and 35,001,236 shares issued, respectively; 31,706,390 and 30,583,651 shares outstanding, respectively 36 35
Additional paid-in capital 196,962 175,678
Treasury stock, 4,417,585 common shares, at cost (13,938 ) (13,938 )
Accumulated deficit (199,979 ) (160,259 )
Accumulated other comprehensive loss (3,544 ) (4,910 )
Total stockholders’ equity (20,463 ) (3,394 )
Total liabilities and stockholders’ equity $ 297,982 $ 227,654

PROS Holdings, Inc.Condensed Consolidated Statements of Comprehensive Income (Loss)(In thousands, except per share data)(Unaudited)

Three Months Ended June 30, Six Months Ended June 30,
2017 2016 2017 2016
Revenue:
Subscription $ 13,434 $ 9,143 $ 25,648 $ 17,344
Maintenance and support 17,132 16,775 35,208 33,437
Total subscription, maintenance and support 30,566 25,918 60,856 50,781
License 1,090 2,457 3,280 5,759
Services 8,750 8,663 16,399 18,426
Total revenue 40,406 37,038 80,535 74,966
Cost of revenue:
Subscription 5,800 4,088 11,737 7,534
Maintenance and support 2,881 3,578 6,027 6,850
Total cost of subscription, maintenance and support 8,681 7,666 17,764 14,384
License 72 99 137 161
Services 7,333 8,283 14,794 17,214
Total cost of revenue 16,086 16,048 32,695 31,759
Gross profit 24,320 20,990 47,840 43,207
Operating expenses:
Selling and marketing 17,172 16,066 33,645 34,084
General and administrative 9,782 9,616 20,190 18,657
Research and development 14,076 13,358 28,383 26,490
Loss from operations (16,710 ) (18,050 ) (34,378 ) (36,024 )
Convertible debt interest and amortization (2,590 ) (2,317 ) (4,984 ) (4,604 )
Other expense, net (64 ) (55 ) (32 ) (113 )
Loss before income tax provision (19,364 ) (20,422 ) (39,394 ) (40,741 )
Income tax provision 149 105 326 263
Net loss $ (19,513 ) $ (20,527 ) $ (39,720 ) $ (41,004 )
Net loss per share:
Basic and diluted $ (0.62 ) $ (0.68 ) $ (1.27 ) $ (1.35 )
Weighted average number of shares:
Basic and diluted 31,615 30,330 31,357 30,278

PROS Holdings, Inc.Condensed Consolidated Statements of Cash Flows(In thousands)(Unaudited)

Three Months Ended June 30, Six Months Ended June 30,
2017 2016 2017 2016
Operating activities:
Net loss $ (19,513 ) $ (20,527 ) $ (39,720 ) $ (41,004 )
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 1,972 2,508 4,005 4,973
Amortization of debt discount and issuance costs 1,835 1,598 3,510 3,166
Share-based compensation 5,932 5,869 12,094 11,253
Deferred income tax, net 15 33 42
Provision for doubtful accounts (43 ) (139 )
Changes in operating assets and liabilities:
Accounts and unbilled receivables (406 ) 1,223 137 2,480
Prepaid expenses and other assets (315 ) (1,262 ) (981 ) (804 )
Accounts payable and other liabilities (793 ) (2,255 ) 2,838 (1,454 )
Accrued liabilities (147 ) (394 ) 287 640
Accrued payroll and other employee benefits 2,356 957 (8,601 ) (2,246 )
Deferred revenue (37 ) 5,703 5,089 13,721
Net cash used in operating activities (9,116 ) (6,608 ) (21,309 ) (9,372 )
Investing activities:
Purchases of property and equipment (211 ) (1,817 ) (695 ) (5,339 )
Capitalized internal-use software development costs (736 ) (72 ) (1,308 ) (72 )
Purchases of short-term investments (53,982 ) (88,928 )
Proceeds from maturities of short-term investments 47,000 9,983 49,500
Net cash (used in) provided by investing activities (947 ) (8,871 ) 7,980 (44,839 )
Financing activities:
Exercise of stock options 3,078 14 5,276 14
Proceeds from employee stock plans 776 470
Tax withholding related to net share settlement of stock awards (89 ) (42 ) (5,754 ) (4,839 )
Payments of notes payable (105 ) (53 ) (155 ) (91 )
Debt issuance costs related to Revolver (125 )
Proceeds from issuance of convertible debt, net 93,500 93,500
Net cash provided by (used in) financing activities 96,384 (81 ) 93,518 (4,446 )
Effect of foreign currency rates on cash (220 ) 11 (259 ) 38
Net change in cash and cash equivalents 86,101 (15,549 ) 79,930 (58,619 )
Cash and cash equivalents:
Beginning of period 111,868 118,700 118,039 161,770
End of period $ 197,969 $ 103,151 $ 197,969 $ 103,151

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 EndedJune 30,

QuarteroverQuarter

Six Months EndedJune 30,

YearoverYear

2017 2016 % change 2017 2016 % change
GAAP gross profit $ 24,320 $ 20,990 16 % $ 47,840 $ 43,207 11 %
Non-GAAP adjustments:
Amortization of intangible assets 485 495 962 986
Share-based compensation 515 577 1,090 1,176
Non-GAAP gross profit $ 25,320 $ 22,062 15 % $ 49,892 $ 45,369 10 %
Non-GAAP gross margin 62.7 % 59.6 % 62.0 % 60.5 %
GAAP loss from operations $ (16,710 ) $ (18,050 ) (7 )% $ (34,378 ) $ (36,024 ) (5 )%
Non-GAAP adjustments:
Amortization of intangible assets 680 766 1,349 1,551
Share-based compensation 5,932 5,869 12,094 11,253
Total Non-GAAP adjustments 6,612 6,635 13,443 12,804
Non-GAAP loss from operations $ (10,098 ) $ (11,415 ) (12 )% $ (20,935 ) $ (23,220 ) (10 )%
Non-GAAP loss from operations % of total revenue (25.0 )% (30.8 )% (26.0 )% (31.0 )%
GAAP net loss $ (19,513 ) $ (20,527 ) (5 )% $ (39,720 ) $ (41,004 ) (3 )%
Non-GAAP adjustments:
Total Non-GAAP adjustments affecting loss from operations 6,612 6,635 13,443 12,804
Amortization of debt discount and issuance costs 1,818 1,598 3,493 3,166
Tax impact related to non-GAAP adjustments 4,084 4,492 8,410 9,180
Non-GAAP net loss $ (6,999 ) $ (7,802 ) (10 )% $ (14,374 ) $ (15,854 ) (9 )%
Non-GAAP diluted loss per share $ (0.22 ) $ (0.26 ) $ (0.46 ) $ (0.52 )
Shares used in computing non-GAAP loss per share 31,615 30,330 31,357 30,278

PROS Holdings, Inc.Supplemental Schedule of Non-GAAP Financial MeasuresIncrease (Decrease) in GAAP Amounts Reported(In thousands)(Unaudited)

Three Months Ended June 30, Six Months Ended June 30,
2017 2016 2017 2016
Cost of Subscription Items
Amortization of intangible assets 317 321 630 643
Share-based compensation 51 103 129 154
Total cost of subscription items $ 368 $ 424 $ 759 $ 797
Cost of Maintenance Items
Amortization of intangible assets 158 163 312 322
Share-based compensation 84 80 173 157
Total cost of maintenance items $ 242 $ 243 $ 485 $ 479
Cost of License Items
Amortization of intangible assets 10 11 20 21
Total cost of license items $ 10 $ 11 $ 20 $ 21
Cost of Services Items
Share-based compensation 380 394 788 865
Total cost of services items $ 380 $ 394 $ 788 $

865

Sales and Marketing Items
Amortization of intangible assets 195 271 387 559
Share-based compensation 1,131 1,697 2,404 3,477
Total sales and marketing items $ 1,326 $ 1,968 $ 2,791 $ 4,036
General and Administrative Items
Amortization of intangible assets 6
Share-based compensation 2,880 2,302 5,682 4,032
Total general and administrative items $ 2,880 $ 2,302 $ 5,682 $ 4,038
Research and Development Items
Share-based compensation 1,406 1,293 2,918 2,568
Total research and development items $ 1,406 $ 1,293 $ 2,918 $ 2,568

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,
2017 2016 2017 2016
Adjusted EBITDA
GAAP Loss from Operations $ (16,710 ) $ (18,050 ) $ (34,378 ) $ (36,024 )
Amortization of intangible assets 680 766 1,349 1,551
Share-based compensation 5,932 5,869 12,094 11,253
Depreciation 1,292 1,742 2,656 3,422
Capitalized internal-use software development costs (736 ) (72 ) (1,308 ) (72 )
Adjusted EBITDA $ (9,542 ) $ (9,745 ) $ (19,587 ) $ (19,870 )
Free Cash Flow
Net cash used in operating activities $ (9,116 ) $ (6,608 ) $ (21,309 ) $ (9,372 )
Purchase of property and equipment (211 ) (1,817 ) (695 ) (5,339 )
Capitalized internal-use software development costs (736 ) (72 ) (1,308 ) (72 )
Free Cash Flow $ (10,063 ) $ (8,497 ) $ (23,312 ) $ (14,783 )
Guidance Q3 2017 Guidance Full Year 2017 Guidance
Low High Low High
Adjusted EBITDA
GAAP Loss from Operations $ (17,600 ) $ (17,100 ) $ (65,000 ) $ (64,000 )
Amortization of intangible assets 700 700 2,700 2,700
Share-based compensation 6,200 6,200 24,100 24,100
Depreciation 1,300 1,300 5,200 5,200
Capitalized internal-use software development costs (600 ) (600 ) (2,500 ) (2,500 )
Adjusted EBITDA $ (10,000 ) $ (9,500 ) $ (35,500 ) $ (34,500 )

Investor Contact:

PROS Investor Relations

Tim Girgenti, 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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