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PROS Holdings, Inc. Reports Fourth Quarter and Full Year 2017 Financial Results

February 6, 2018 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 fourth quarter and full year ended December 31, 2017.

“2017 was a major inflection point in our cloud transition as we returned to year-over-year revenue growth,” stated CEO Andres Reiner. “We are pleased with our strong fourth quarter and full year performance, exceeding the high end of guidance across all metrics. We enter 2018 excited by the large market opportunity in front of us as we leverage our AI platform to lead companies in making the shift to modern commerce.”

CFO Stefan Schulz said, “We continue to drive growth and scale in our business, and we achieved two key milestones in our cloud transition in the fourth quarter. We saw subscription revenue overtake maintenance revenue for the first time, and we generated positive free cash flow. We have strong momentum coming into 2018 and remain on track to accomplish our long-term financial goals.”

Fourth Quarter and Full Year 2017 Financial Highlights

Key financial results for the fourth quarter and full year 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
Q4 2017 Q4 2016 % Change Q4 2017 Q4 2016 % Change
Revenue:
Total Revenue $ 46.3 $ 39.9 16 % n/a n/a n/a
Subscription Revenue 19.1 11.0 74 % n/a n/a n/a
Subscription and Maintenance Revenue 36.2 28.4 27 % n/a n/a n/a
Profitability:
Gross Profit 28.2 24.0 18 % 29.9 25.0 20 %
Operating Loss (12.8 ) (16.3 ) nm (5.5 ) (9.6 ) nm
Net Loss (17.0 ) (18.5 ) nm (4.3 ) (6.5 ) nm
Net Loss Per Share (0.53 ) (0.61 ) nm (0.13 ) (0.21 ) nm
Adjusted EBITDA n/a n/a n/a (4.9 ) (8.6 ) nm
Cash:
Net Cash Provided by (Used in) Operating Activities 4.5 (7.2 ) nm n/a n/a n/a
Free Cash Flow n/a n/a n/a $ 3.6 $ (10.0 ) nm
GAAP Non-GAAP
FY 2017 FY 2016 % Change FY 2017 FY 2016 % Change
Revenue:
Total Revenue $ 168.8 $ 153.3 10 % n/a n/a n/a
Subscription Revenue 60.5 38.2 59 % n/a n/a n/a
Subscription and Maintenance Revenue 129.9 106.7 22 % n/a n/a n/a
Annual Recurring Revenue ("ARR") n/a n/a n/a 160.6 122.2 31 %
Profitability:
Gross Profit 100.3 89.9 11 % 105.5 94.1 12 %
Operating Loss (64.9 ) (65.4 ) nm (36.3 ) (40.9 ) nm
Net Loss (77.9 ) (75.2 ) nm (25.5 ) (28.0 ) nm
Net Loss Per Share (2.46 ) (2.47 ) nm (0.81 ) (0.92 ) nm
Adjusted EBITDA n/a n/a n/a (33.7 ) (35.4 ) nm
Cash:
Net Cash Used in Operating Activities (25.3 ) (14.3 ) nm n/a n/a n/a
Free Cash Flow n/a n/a n/a $ (29.5 ) $ (24.3 ) nm

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

2017 and Recent Business Highlights

Financial Outlook

PROS anticipates the following based on an estimated 32.3 million basic weighted average shares outstanding, for the first quarter 2018, and a 22% non-GAAP estimated tax rate for the first quarter and full year 2018:

Q1 2018 Guidance v. Q1 2017 at Mid-Point Full Year 2018 Guidance v. Prior Year at Mid-Point
Total Revenue $45.6 to $46.6 15% $187.0 to $190.0 12%
Subscription Revenue $19.1 to $19.6 58% $90.0 to $91.0 49%
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 $(6.8) to $(5.8) nm $(27.0) to $(25.0) nm
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 Tuesday, February 6, 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.

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 Tuesday, February 20, 2018, at 1-844-512-2921 (toll-free) or 1-412-317-6671 using the pass code 13675221. 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 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 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 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, 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.

PROS Holdings, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share amounts)

(Unaudited)

December 31, 2017 December 31, 2016
Assets:
Current assets:
Cash and cash equivalents $ 160,505 $ 118,039
Short-term investments — 15,996
Accounts and unbilled receivables, net of allowance of $760 32,484 33,285
Prepaid and other current assets 9,067 6,337
Total current assets 202,056 173,657
Property and equipment, net 14,007 15,238
Intangibles, net 26,929 12,650
Goodwill 38,458 20,096
Other long-term assets 7,233 6,013
Total assets $ 288,683 $ 227,654
Liabilities and Stockholders’ Equity:
Current liabilities:
Accounts payable and other liabilities $ 2,976 $ 2,744
Accrued liabilities 6,733 7,279
Accrued payroll and other employee benefits 16,712 18,349
Deferred revenue 75,604 68,349
Total current liabilities 102,025 96,721
Long-term deferred revenue 19,591 11,389
Convertible debt, net 213,203 122,299
Other long-term liabilities 843 639
Total liabilities 335,662 231,048
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; 36,356,760 and 35,001,236 shares issued, respectively; 31,939,175 and 30,583,651 shares outstanding, respectively 36 35
Additional paid-in capital 207,924 175,678
Treasury stock, 4,417,585 common shares, at cost (13,938 ) (13,938 )
Accumulated deficit (238,185 ) (160,259 )
Accumulated other comprehensive loss (2,816 ) (4,910 )
Total stockholders’ equity (46,979 ) (3,394 )
Total liabilities and stockholders’ equity $ 288,683 $ 227,654

PROS Holdings, Inc.

Condensed Consolidated Statements of Income (Loss)

(In thousands, except per share data)

(Unaudited)

Three Months Ended December 31, Year Ended December 31,
2017 2016 2017 2016
Revenue:
Subscription $ 19,082 $ 10,962 $ 60,539 $ 38,158
Maintenance and support 17,076 17,462 69,408 68,565
Total subscription, maintenance and support 36,158 28,424 129,947 106,723
License 1,679 3,636 5,562 11,814
Services 8,507 7,866 33,307 34,739
Total revenue 46,344 39,926 168,816 153,276
Cost of revenue:
Subscription 8,253 5,037 27,858 17,379
Maintenance and support 2,807 3,415 11,693 13,681
Total cost of subscription, maintenance and support 11,060 8,452 39,551 31,060
License 72 47 282 246
Services 7,015 7,453 28,733 32,047
Total cost of revenue 18,147 15,952 68,566 63,353
Gross profit 28,197 23,974 100,250 89,923
Operating expenses:
Selling and marketing 17,491 16,255 68,116 63,980
General and administrative 9,822 10,627 40,336 38,537
Research and development 13,592 13,350 56,021 52,804
Acquisition-related 107 — 720 —
Loss from operations (12,815 ) (16,258 ) (64,943 ) (65,398 )
Convertible debt interest and amortization (4,140 ) (2,376 ) (13,218 ) (9,319 )
Other income (expense), net 69 101 384 (38 )
Loss before income tax provision (benefit) (16,886 ) (18,533 ) (77,777 ) (74,755 )
Income tax provision (benefit) 94 (20 ) 149 470
Net loss $ (16,980 ) $ (18,513 ) $ (77,926 ) $ (75,225 )
Net loss per share:
Basic and diluted $ (0.53 ) $ (0.61 ) $ (2.46 ) $ (2.47 )
Weighted average number of shares:
Basic and diluted 31,927 30,557 31,627 30,395

PROS Holdings, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

Three Months Ended December 31, Year Ended December 31,
2017 2016 2017 2016
Operating activities:
Net loss $ (16,980 ) $ (18,513 ) $ (77,926 ) $ (75,225 )
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 3,484 2,111 10,531 9,507
Amortization of debt discount and issuance costs 2,901 1,653 9,264 6,439
Share-based compensation 5,131 6,021 22,796 20,466
Deferred income tax, net (67 ) (24 ) (520 ) 40
Provision for doubtful accounts — 400 — 174
Loss on disposal of assets 59 19 59 19
Changes in operating assets and liabilities:
Accounts and unbilled receivables 2,163 (7,228 ) 2,022 5,671
Prepaid expenses and other assets 2,586 (169 ) (3,715 ) (915 )
Accounts payable and other liabilities (1,034 ) (359 ) 700 (2,905 )
Accrued liabilities (582 ) 1,914 (1,055 ) 2,801
Accrued payroll and other employee benefits 3,378 4,486 (2,344 ) 5,195
Deferred revenue 3,496 2,503 14,875 14,388
Net cash provided by (used in) operating activities 4,535 (7,186 ) (25,313 ) (14,345 )
Investing activities:
Purchases of property and equipment (51 ) (717 ) (1,286 ) (7,241 )
Purchase of equity securities — (2,000 ) — (2,000 )
Acquisition of Vayant, net of cash acquired — — (34,130 ) —
Capitalized internal-use software development costs (801 ) (479 ) (2,797 ) (1,048 )
Purchase of intangible asset (50 ) (1,625 ) (125 ) (1,625 )
Purchases of short-term investments — (10,056 ) — (154,990 )
Proceeds from maturities of short-term investments — 45,000 15,992 141,500
Net cash (used in) provided by investing activities (902 ) 30,123 (22,346 ) (25,404 )
Financing activities:
Exercise of stock options (16 ) 469 6,331 889
Proceeds from employee stock plans — — 1,535 1,090
Tax withholding related to net share settlement of stock awards (132 ) (223 ) (7,375 ) (5,467 )
Payments of notes payable (54 ) — (209 ) (196 )
Debt issuance costs related to Revolver — — (150 ) —
Debt issuance costs related to convertible debt (305 ) — (2,978 ) —
Proceeds from issuance of convertible debt, net — — 93,500 —
Net cash (used in) provided by financing activities (507 ) 246 90,654 (3,684 )
Effect of foreign currency rates on cash 20 (352 ) (529 ) (298 )
Net change in cash and cash equivalents 3,146 22,831 42,466 (43,731 )
Cash and cash equivalents:
Beginning of period 157,359 95,208 118,039 161,770
End of period $ 160,505 $ 118,039 $ 160,505 $ 118,039

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 11.

Three Months Ended December 31, Quarter over Quarter Year Ended December 31, Year over Year
2017 2016 % change 2017 2016 % change
GAAP gross profit $ 28,197 $ 23,974 18 % $ 100,250 $ 89,923 11 %
Non-GAAP adjustments:
Amortization of acquisition-related intangibles 1,280 481 3,297 1,957
Share-based compensation 402 547 1,971 2,267
Non-GAAP gross profit $ 29,879 $ 25,002 20 % $ 105,518 $ 94,147 12 %
Non-GAAP gross margin 64.5 % 62.6 % 62.5 % 61.4 %
GAAP loss from operations $ (12,815 ) $ (16,258 ) (21 )% $ (64,943 ) $ (65,398 ) (1 )%
Non-GAAP adjustments:
Acquisition-related expenses 107 — 720 —
Amortization of acquisition-related intangibles 2,112 683 5,174 2,971
Severance — — — 1,070
Share-based compensation 5,131 6,021 22,796 20,466
Total Non-GAAP adjustments 7,350 6,704 28,690 24,507
Non-GAAP loss from operations $ (5,465 ) $ (9,554 ) (43 )% $ (36,253 ) $ (40,891 ) (11 )%
Non-GAAP loss from operations % of total revenue (11.8 )% (23.9 )% (21.5 )% (26.7 )%
GAAP net loss $ (16,980 ) $ (18,513 ) (8 )% $ (77,926 ) $ (75,225 ) 4 %
Non-GAAP adjustments:
Total Non-GAAP adjustments affecting loss from operations 7,350 6,704 28,690 24,507
Amortization of debt discount and issuance costs 2,891 1,653 9,228 6,439
Tax impact related to non-GAAP adjustments 2,486 3,643 14,498 16,241
Non-GAAP net loss $ (4,253 ) $ (6,513 ) (35 )% $ (25,510 ) $ (28,038 ) (9 )%
Non-GAAP diluted loss per share $ (0.13 ) $ (0.21 ) $ (0.81 ) $ (0.92 )
Shares used in computing non-GAAP loss per share 31,927 30,557 31,627 30,395

PROS Holdings, Inc.

Supplemental Schedule of Non-GAAP Financial Measures

Increase (Decrease) in GAAP Amounts Reported

(In thousands)

(Unaudited)

Three Months Ended December 31, Year Ended December 31,
2017 2016 2017 2016
Cost of Subscription Items
Amortization of acquisition-related intangibles 1,099 315 2,603 1,277
Share-based compensation 50 64 237 249
Total cost of subscription items $ 1,149 $ 379 $ 2,840 $ 1,526
Cost of Maintenance Items
Amortization of acquisition-related intangibles 170 156 652 639
Share-based compensation 80 82 298 328
Total cost of maintenance items $ 250 $ 238 $ 950 $ 967
Cost of License Items
Amortization of acquisition-related intangibles 11 10 42 41
Total cost of license items $ 11 $ 10 $ 42 $ 41
Cost of Services Items
Share-based compensation 272 401 1,436 1,690
Total cost of services items $ 272 $ 401 $ 1,436 $ 1,690
Sales and Marketing Items
Amortization of acquisition-related intangibles 832 202 1,877 1,008
Severance — — — 1,070
Share-based compensation 1,035 1,265 4,348 3,824
Total sales and marketing items $ 1,867 $ 1,467 $ 6,225 $ 5,902
General and Administrative Items
Amortization of acquisition-related intangibles — — — 6
Share-based compensation 2,617 2,773 11,163 9,040
Total general and administrative items $ 2,617 $ 2,773 $ 11,163 $ 9,046
Research and Development Items
Share-based compensation 1,077 1,436 5,314 5,335
Total research and development items $ 1,077 $ 1,436 $ 5,314 $ 5,335
Acquisition-related expenses $ 107 $ — $ 720 $ —

PROS Holdings, Inc.

Supplemental Reconciliation of GAAP to Non-GAAP Financial Measures

(In thousands)

(Unaudited)

Three Months Ended December 31, Year Ended December 31,
2017 2016 2017 2016
Adjusted EBITDA
GAAP Loss from Operations $ (12,815 ) $ (16,258 ) $ (64,943 ) $ (65,398 )
Acquisition-related expenses 107 — 720 —
Amortization of acquisition-related intangibles 2,112 683 5,174 2,971
Severance — — — 1,070
Share-based compensation 5,131 6,021 22,796 20,466
Depreciation 1,372 1,428 5,357 6,536
Capitalized internal-use software development costs (801 ) (479 ) (2,797 ) (1,048 )
Adjusted EBITDA $ (4,894 ) $ (8,605 ) $ (33,693 ) $ (35,403 )
Free Cash Flow
Net cash provided by (used in) operating activities $ 4,535 $ (7,186 ) $ (25,313 ) $ (14,345 )
Purchase of property and equipment (51 ) (717 ) (1,286 ) (7,241 )
Purchase of intangible asset (50 ) (1,625 ) (125 ) (1,625 )
Capitalized internal-use software development costs (801 ) (479 ) (2,797 ) (1,048 )
Free Cash Flow $ 3,633 $ (10,007 ) $ (29,521 ) $ (24,259 )
Guidance Q1 2018 Guidance Full Year 2018 Guidance
Low High Low High
Adjusted EBITDA
GAAP Loss from Operations $ (16,000 ) $ (15,000 ) $ (61,000 ) $ (59,000 )
Amortization of acquisition-related intangibles 2,100 2,100 7,900 7,900
Share-based compensation 6,100 6,100 22,900 22,900
Depreciation 1,300 1,300 4,400 4,400
Capitalized internal-use software development costs (300 ) (300 ) (1,200 ) (1,200 )
Adjusted EBITDA $ (6,800 ) $ (5,800 ) $ (27,000 ) $ (25,000 )

PROS Holdings, Inc.

Investor Contact:

PROS Investor Relations

Shannon Tatz, 713-335-5932

[email protected]

or

Media Contact:

PROS Public Relations

Yvonne Donaldson, 713-335-5310

[email protected]

Source: PROS Holdings, Inc.

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