Delaware | ||||
(State or Other Jurisdiction of Incorporation) | ||||
001-33554 | 76-0168604 | |||
(Commission File Number) | (IRS Employer Identification No.) |
3100 Main Street, Suite 900 Houston TX | 77002 | |||||||
(Address of Principal Executive Offices) | (Zip Code) | |||||||
Registrant’s telephone number, including area code | (713) 335-5151 | |||||||
(Former Name or Former Address, if Changed Since Last Report) |
o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 2.02. | Results of Operations and Financial Condition. |
PROS HOLDINGS, INC. | ||
October 26, 2017 | /s/ Stefan Schulz | |
Stefan Schulz | ||
Executive Vice President and Chief Financial Officer |
Exhibit No. | Description | |
99.1 |
• | Subscription revenue up 60% year-over-year. |
• | Recurring revenue comprised 79% of total revenue, compared with 72% in the same period last year. |
GAAP | Non-GAAP | |||||||||||||||||||
Q3 2017 | Q3 2016 | % Change | Q3 2017 | Q3 2016 | % Change | |||||||||||||||
Revenue: | ||||||||||||||||||||
Total Revenue | $ | 41.9 | $ | 38.4 | 9 | % | n/a | n/a | n/a | |||||||||||
Subscription Revenue | 15.8 | 9.9 | 60 | % | n/a | n/a | n/a | |||||||||||||
Subscription and Maintenance Revenue | 32.9 | 27.5 | 20 | % | n/a | n/a | n/a | |||||||||||||
Profitability: | ||||||||||||||||||||
Operating Loss | (17.8 | ) | (13.1 | ) | nm | (9.9 | ) | (8.1 | ) | nm | ||||||||||
Net Loss | (21.2 | ) | (15.7 | ) | nm | (6.9 | ) | (5.7 | ) | nm | ||||||||||
Net Loss Per Share | (0.67 | ) | (0.52 | ) | nm | (0.22 | ) | (0.19 | ) | nm | ||||||||||
Adjusted EBITDA | n/a | n/a | n/a | (9.2 | ) | (6.9 | ) | nm | ||||||||||||
Cash: | ||||||||||||||||||||
Net Cash (Used in) Provided by Operating Activities | (8.5 | ) | 2.2 | nm | n/a | n/a | n/a | |||||||||||||
Free Cash Flow | n/a | n/a | n/a | $ | (9.8 | ) | $ | 0.5 | nm |
• | Named to the Constellation ShortListTM for Pricing Optimization, and the Constellation ShortListTM for Configure, Price, Quote Solutions, in recognition of PROS unique machine learning solutions that deliver personalized and frictionless buying and selling experiences for customers. |
• | Showcased modern commerce innovations at Microsoft Envision and Microsoft Ignite Conferences; featured augmented reality in PROS Smart CPQ for Dynamics 365; co-led a keynote presentation with Microsoft executives Ron Huddleston, Microsoft Corporate Vice President for One Commercial Partner (OCP) and Toni Townes-Whitley, Microsoft Corporate Vice President for Industry. |
• | Extended leadership position in travel industry with keynote presentations and innovation spotlights at ATPCO Elevate 2017 Global Conference, the London Aviation Festival, and the T2RL Flight Global PSS Conference; featured end-to-end travel offer optimization solution with integrated revenue management, dynamic pricing, eCommerce, merchandising, shopping and search capabilities. |
• | Created a charitable organization, PROS Cares, following the events of Hurricane Harvey to provide recovery and housing assistance to employees affected by the storm, and to support PROS ongoing community outreach. |
Q4 2017 Guidance | v. Q4 2016 at Mid-Point | Full Year 2017 Guidance | v. Prior Year at Mid-Point | ||||
Total Revenue | $44.0 to $45.0 | 11% | $166.5 to $167.5 | 9% | |||
Subscription Revenue | $17.5 to $18.0 | 62% | $59.0 to $59.5 | 55% | |||
ARR | n/a | n/a | $156.0 to $158.0 | 28% | |||
Non-GAAP Loss Per Share | $(0.20) to $(0.17) | n/a | n/a | n/a | |||
Adjusted EBITDA | $(6.7) to $(6.2) | n/a | $(35.5) to $(35.0) | n/a | |||
Free Cash Flow | n/a | n/a | $(33.0) to $(30.0) | n/a |
• | 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 |
• | 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. |
September 30, 2017 | December 31, 2016 | |||||||
Assets: | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 157,359 | $ | 118,039 | ||||
Short-term investments | — | 15,996 | ||||||
Accounts and unbilled receivables, net of allowance of $760 | 34,641 | 33,285 | ||||||
Prepaid and other current assets | 12,123 | 6,337 | ||||||
Total current assets | 204,123 | 173,657 | ||||||
Property and equipment, net | 14,471 | 15,238 | ||||||
Intangibles, net | 28,972 | 12,650 | ||||||
Goodwill | 38,309 | 20,096 | ||||||
Other long-term assets | 6,754 | 6,013 | ||||||
Total assets | $ | 292,629 | $ | 227,654 | ||||
Liabilities and Stockholders’ Equity: | ||||||||
Current liabilities: | ||||||||
Accounts payable and other liabilities | $ | 4,203 | $ | 2,744 | ||||
Accrued liabilities | 7,693 | 7,279 | ||||||
Accrued payroll and other employee benefits | 13,312 | 18,349 | ||||||
Deferred revenue | 73,092 | 68,349 | ||||||
Total current liabilities | 98,300 | 96,721 | ||||||
Long-term deferred revenue | 18,672 | 11,389 | ||||||
Convertible debt, net | 210,312 | 122,299 | ||||||
Other long-term liabilities | 756 | 639 | ||||||
Total liabilities | 328,040 | 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; 36,319,135 and 35,001,236 shares issued, respectively; 31,901,550 and 30,583,651 shares outstanding, respectively | 36 | 35 | ||||||
Additional paid-in capital | 202,905 | 175,678 | ||||||
Treasury stock, 4,417,585 common shares, at cost | (13,938 | ) | (13,938 | ) | ||||
Accumulated deficit | (221,205 | ) | (160,259 | ) | ||||
Accumulated other comprehensive loss | (3,209 | ) | (4,910 | ) | ||||
Total stockholders’ equity | (35,411 | ) | (3,394 | ) | ||||
Total liabilities and stockholders’ equity | $ | 292,629 | $ | 227,654 |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Revenue: | ||||||||||||||||
Subscription | $ | 15,809 | $ | 9,852 | $ | 41,457 | $ | 27,196 | ||||||||
Maintenance and support | 17,124 | 17,666 | 52,332 | 51,103 | ||||||||||||
Total subscription, maintenance and support | 32,933 | 27,518 | 93,789 | 78,299 | ||||||||||||
License | 603 | 2,419 | 3,883 | 8,178 | ||||||||||||
Services | 8,401 | 8,447 | 24,800 | 26,873 | ||||||||||||
Total revenue | 41,937 | 38,384 | 122,472 | 113,350 | ||||||||||||
Cost of revenue: | ||||||||||||||||
Subscription | 7,868 | 4,808 | 19,605 | 12,342 | ||||||||||||
Maintenance and support | 2,859 | 3,416 | 8,886 | 10,266 | ||||||||||||
Total cost of subscription, maintenance and support | 10,727 | 8,224 | 28,491 | 22,608 | ||||||||||||
License | 73 | 38 | 210 | 199 | ||||||||||||
Services | 6,924 | 7,380 | 21,718 | 24,594 | ||||||||||||
Total cost of revenue | 17,724 | 15,642 | 50,419 | 47,401 | ||||||||||||
Gross profit | 24,213 | 22,742 | 72,053 | 65,949 | ||||||||||||
Operating expenses: | ||||||||||||||||
Selling and marketing | 16,980 | 13,641 | 50,625 | 47,725 | ||||||||||||
General and administrative | 10,324 | 9,253 | 30,514 | 27,910 | ||||||||||||
Research and development | 14,046 | 12,964 | 42,429 | 39,454 | ||||||||||||
Acquisition-related | 613 | — | 613 | — | ||||||||||||
Loss from operations | (17,750 | ) | (13,116 | ) | (52,128 | ) | (49,140 | ) | ||||||||
Convertible debt interest and amortization | (4,094 | ) | (2,339 | ) | (9,078 | ) | (6,943 | ) | ||||||||
Other income (expense), net | 347 | (26 | ) | 315 | (139 | ) | ||||||||||
Loss before income tax provision | (21,497 | ) | (15,481 | ) | (60,891 | ) | (56,222 | ) | ||||||||
Income tax (benefit) provision | (271 | ) | 227 | 55 | 490 | |||||||||||
Net loss | $ | (21,226 | ) | $ | (15,708 | ) | $ | (60,946 | ) | $ | (56,712 | ) | ||||
Net loss per share: | ||||||||||||||||
Basic and diluted | $ | (0.67 | ) | $ | (0.52 | ) | $ | (1.93 | ) | $ | (1.87 | ) | ||||
Weighted average number of shares: | ||||||||||||||||
Basic and diluted | 31,867 | 30,469 | 31,527 | 30,341 |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Operating activities: | ||||||||||||||||
Net loss | $ | (21,226 | ) | $ | (15,708 | ) | $ | (60,946 | ) | $ | (56,712 | ) | ||||
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||||||||||
Depreciation and amortization | 3,042 | 2,423 | 7,047 | 7,396 | ||||||||||||
Amortization of debt discount and issuance costs | 2,853 | 1,620 | 6,363 | 4,786 | ||||||||||||
Share-based compensation | 5,571 | 3,192 | 17,665 | 14,445 | ||||||||||||
Deferred income tax, net | (486 | ) | 22 | (453 | ) | 64 | ||||||||||
Provision for doubtful accounts | — | (87 | ) | — | (226 | ) | ||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||
Accounts and unbilled receivables | (278 | ) | 10,419 | (141 | ) | 12,899 | ||||||||||
Prepaid expenses and other assets | (5,320 | ) | 58 | (6,301 | ) | (746 | ) | |||||||||
Accounts payable and other liabilities | (1,104 | ) | (1,092 | ) | 1,734 | (2,546 | ) | |||||||||
Accrued liabilities | (760 | ) | 247 | (473 | ) | 887 | ||||||||||
Accrued payroll and other employee benefits | 2,879 | 2,955 | (5,722 | ) | 709 | |||||||||||
Deferred revenue | 6,290 | (1,836 | ) | 11,379 | 11,885 | |||||||||||
Net cash (used in) provided by operating activities | (8,539 | ) | 2,213 | (29,848 | ) | (7,159 | ) | |||||||||
Investing activities: | ||||||||||||||||
Purchases of property and equipment | (540 | ) | (1,185 | ) | (1,235 | ) | (6,524 | ) | ||||||||
Acquisition of Vayant, net of cash acquired | (34,130 | ) | — | (34,130 | ) | — | ||||||||||
Capitalized internal-use software development costs | (688 | ) | (497 | ) | (1,996 | ) | (569 | ) | ||||||||
Purchase of intangible asset | (75 | ) | — | (75 | ) | — | ||||||||||
Purchases of short-term investments | — | (56,006 | ) | — | (144,934 | ) | ||||||||||
Proceeds from maturities of short-term investments | 6,009 | 47,000 | 15,992 | 96,500 | ||||||||||||
Net cash used in investing activities | (29,424 | ) | (10,688 | ) | (21,444 | ) | (55,527 | ) | ||||||||
Financing activities: | ||||||||||||||||
Exercise of stock options | 1,071 | 406 | 6,347 | 420 | ||||||||||||
Proceeds from employee stock plans | 759 | 620 | 1,535 | 1,090 | ||||||||||||
Tax withholding related to net share settlement of stock awards | (1,489 | ) | (405 | ) | (7,243 | ) | (5,244 | ) | ||||||||
Payments of notes payable | — | (105 | ) | (155 | ) | (196 | ) | |||||||||
Debt issuance costs related to Revolver | (25 | ) | — | (150 | ) | — | ||||||||||
Debt issuance costs related to convertible debt | (2,673 | ) | — | (2,673 | ) | — | ||||||||||
Proceeds from issuance of convertible debt, net | — | — | 93,500 | — | ||||||||||||
Net cash (used in) provided by financing activities | (2,357 | ) | 516 | 91,161 | (3,930 | ) | ||||||||||
Effect of foreign currency rates on cash | (290 | ) | 16 | (549 | ) | 54 | ||||||||||
Net change in cash and cash equivalents | (40,610 | ) | (7,943 | ) | 39,320 | (66,562 | ) | |||||||||
Cash and cash equivalents: | ||||||||||||||||
Beginning of period | 197,969 | 103,151 | 118,039 | 161,770 | ||||||||||||
End of period | $ | 157,359 | $ | 95,208 | $ | 157,359 | $ | 95,208 |
Three Months Ended September 30, | Quarter over Quarter | Nine Months Ended September 30, | Year over Year | |||||||||||||||||||||
2017 | 2016 | % change | 2017 | 2016 | % change | |||||||||||||||||||
GAAP gross profit | $ | 24,213 | $ | 22,742 | 6 | % | $ | 72,053 | $ | 65,949 | 9 | % | ||||||||||||
Non-GAAP adjustments: | ||||||||||||||||||||||||
Amortization of intangible assets | 1,055 | 490 | 2,017 | 1,476 | ||||||||||||||||||||
Share-based compensation | 479 | 544 | 1,569 | 1,720 | ||||||||||||||||||||
Non-GAAP gross profit | $ | 25,747 | $ | 23,776 | 8 | % | $ | 75,639 | $ | 69,145 | 9 | % | ||||||||||||
Non-GAAP gross margin | 61.4 | % | 61.9 | % | 61.8 | % | 61.0 | % | ||||||||||||||||
GAAP loss from operations | $ | (17,750 | ) | $ | (13,116 | ) | 35 | % | $ | (52,128 | ) | $ | (49,140 | ) | 6 | % | ||||||||
Non-GAAP adjustments: | ||||||||||||||||||||||||
Acquisition-related expenses | 613 | — | 613 | — | ||||||||||||||||||||
Amortization of intangible assets | 1,713 | 737 | 3,062 | 2,288 | ||||||||||||||||||||
Severance | — | 1,070 | — | 1,070 | ||||||||||||||||||||
Share-based compensation | 5,571 | 3,192 | 17,665 | 14,445 | ||||||||||||||||||||
Total Non-GAAP adjustments | 7,897 | 4,999 | 21,340 | 17,803 | ||||||||||||||||||||
Non-GAAP loss from operations | $ | (9,853 | ) | $ | (8,117 | ) | 21 | % | $ | (30,788 | ) | $ | (31,337 | ) | (2 | )% | ||||||||
Non-GAAP loss from operations % of total revenue | (23.5 | )% | (21.1 | )% | (25.1 | )% | (27.6 | )% | ||||||||||||||||
GAAP net loss | $ | (21,226 | ) | $ | (15,708 | ) | 35 | % | $ | (60,946 | ) | $ | (56,712 | ) | 7 | % | ||||||||
Non-GAAP adjustments: | ||||||||||||||||||||||||
Total Non-GAAP adjustments affecting loss from operations | 7,897 | 4,999 | 21,340 | 17,803 | ||||||||||||||||||||
Amortization of debt discount and issuance costs | 2,844 | 1,620 | 6,337 | 4,786 | ||||||||||||||||||||
Tax impact related to non-GAAP adjustments | 3,602 | 3,418 | 12,012 | 12,598 | ||||||||||||||||||||
Non-GAAP net loss | $ | (6,883 | ) | $ | (5,671 | ) | 21 | % | $ | (21,257 | ) | $ | (21,525 | ) | (1 | )% | ||||||||
Non-GAAP diluted loss per share | $ | (0.22 | ) | $ | (0.19 | ) | $ | (0.67 | ) | $ | (0.71 | ) | ||||||||||||
Shares used in computing non-GAAP loss per share | 31,867 | 30,469 | 31,527 | 30,341 |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||||||
Cost of Subscription Items | ||||||||||||||||||||
Amortization of intangible assets | 874 | 319 | 1,504 | 962 | ||||||||||||||||
Share-based compensation | 58 | 31 | 187 | 185 | ||||||||||||||||
Total cost of subscription items | $ | 932 | $ | 350 | $ | 1,691 | $ | 1,147 | ||||||||||||
Cost of Maintenance Items | ||||||||||||||||||||
Amortization of intangible assets | 170 | 161 | 482 | 483 | ||||||||||||||||
Share-based compensation | 45 | 89 | 218 | 246 | ||||||||||||||||
Total cost of maintenance items | $ | 215 | $ | 250 | $ | 700 | $ | 729 | ||||||||||||
Cost of License Items | ||||||||||||||||||||
Amortization of intangible assets | 11 | 10 | 31 | 31 | ||||||||||||||||
Total cost of license items | $ | 11 | $ | 10 | $ | 31 | $ | 31 | ||||||||||||
Cost of Services Items | ||||||||||||||||||||
Share-based compensation | 376 | 424 | 1,164 | 1,289 | ||||||||||||||||
Total cost of services items | $ | 376 | $ | 424 | $ | 1,164 | $ | 1,289 | ||||||||||||
Sales and Marketing Items | ||||||||||||||||||||
Amortization of intangible assets | 658 | 247 | 1,045 | 806 | ||||||||||||||||
Severance | — | 1,070 | — | 1,070 | ||||||||||||||||
Share-based compensation | 909 | (918 | ) | 3,313 | 2,559 | |||||||||||||||
Total sales and marketing items | $ | 1,567 | $ | 399 | $ | 4,358 | $ | 4,435 | ||||||||||||
General and Administrative Items | ||||||||||||||||||||
Amortization of intangible assets | — | — | — | 6 | ||||||||||||||||
Share-based compensation | 2,864 | 2,235 | 8,546 | 6,267 | ||||||||||||||||
Total general and administrative items | $ | 2,864 | $ | 2,235 | $ | 8,546 | $ | 6,273 | ||||||||||||
Research and Development Items | ||||||||||||||||||||
Share-based compensation | 1,319 | 1,331 | 4,237 | 3,899 | ||||||||||||||||
Total research and development items | $ | 1,319 | $ | 1,331 | $ | 4,237 | $ | 3,899 | ||||||||||||
Acquisition-related expenses | $ | 613 | $ | — | $ | 613 | $ | — |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||||||
Adjusted EBITDA | ||||||||||||||||||||
GAAP Loss from Operations | $ | (17,750 | ) | $ | (13,116 | ) | $ | (52,128 | ) | $ | (49,140 | ) | ||||||||
Acquisition-related expenses | 613 | — | 613 | — | ||||||||||||||||
Amortization of intangible assets | 1,713 | 737 | 3,062 | 2,288 | ||||||||||||||||
Severance | — | 1,070 | — | 1,070 | ||||||||||||||||
Share-based compensation | 5,571 | 3,192 | 17,665 | 14,445 | ||||||||||||||||
Depreciation | 1,329 | 1,686 | 3,985 | 5,108 | ||||||||||||||||
Capitalized internal-use software development costs | (688 | ) | (497 | ) | (1,996 | ) | (569 | ) | ||||||||||||
Adjusted EBITDA | $ | (9,212 | ) | $ | (6,928 | ) | $ | (28,799 | ) | $ | (26,798 | ) | ||||||||
Free Cash Flow | ||||||||||||||||||||
Net cash (used in) provided by operating activities | $ | (8,539 | ) | $ | 2,213 | $ | (29,848 | ) | $ | (7,159 | ) | |||||||||
Purchase of property and equipment | (540 | ) | (1,185 | ) | (1,235 | ) | (6,524 | ) | ||||||||||||
Purchase of intangible asset | (75 | ) | — | (75 | ) | — | ||||||||||||||
Capitalized internal-use software development costs | (688 | ) | (497 | ) | (1,996 | ) | (569 | ) | ||||||||||||
Free Cash Flow | $ | (9,842 | ) | $ | 531 | $ | (33,154 | ) | $ | (14,252 | ) | |||||||||
Guidance | Q4 2017 Guidance | Full Year 2017 Guidance | ||||||||||||||||||
Low | High | Low | High | |||||||||||||||||
Adjusted EBITDA | ||||||||||||||||||||
GAAP Loss from Operations | $ | (15,500 | ) | $ | (15,000 | ) | $ | (67,200 | ) | $ | (66,700 | ) | ||||||||
Amortization of intangible assets | 2,300 | 2,300 | 5,500 | 5,500 | ||||||||||||||||
Share-based compensation | 5,800 | 5,800 | 23,500 | 23,500 | ||||||||||||||||
Depreciation | 1,300 | 1,300 | 5,300 | 5,300 | ||||||||||||||||
Capitalized internal-use software development costs | (600 | ) | (600 | ) | (2,600 | ) | (2,600 | ) | ||||||||||||
Adjusted EBITDA | $ | (6,700 | ) | $ | (6,200 | ) | $ | (35,500 | ) | $ | (35,000 | ) |