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 25, 2018 | /s/ Stefan Schulz | |
Stefan Schulz | ||
Executive Vice President and Chief Financial Officer |
Exhibit No. | Description | |
99.1 |
• | Subscription revenue up 51% year-over-year. |
• | Total revenue up 17% year-over-year. |
• | Free cash flow improvement of $7.2 million year-over-year. |
GAAP | Non-GAAP | ||||||||||||||||
Q3 2018 | Q3 2017 | % Change | Q3 2018 | Q3 2017 | % Change | ||||||||||||
Revenue: | |||||||||||||||||
Total Revenue | 49.1 | 41.9 | 17 | % | n/a | n/a | n/a | ||||||||||
Subscription Revenue | 23.9 | 15.8 | 51 | % | n/a | n/a | n/a | ||||||||||
Subscription and Maintenance Revenue | 40.1 | 32.9 | 22 | % | n/a | n/a | n/a | ||||||||||
Profitability: | |||||||||||||||||
Gross Profit | 29.6 | 24.2 | 22 | % | 31.2 | 25.7 | 21 | % | |||||||||
Operating Loss | (11.9 | ) | (17.8 | ) | nm | (5.1 | ) | (9.9 | ) | nm | |||||||
Net Loss | (15.8 | ) | (21.2 | ) | nm | (4.6 | ) | (6.9 | ) | nm | |||||||
Net Loss Per Share | (0.44 | ) | (0.67 | ) | nm | (0.13 | ) | (0.22 | ) | nm | |||||||
Adjusted EBITDA | n/a | n/a | n/a | (4.9 | ) | (9.2 | ) | nm | |||||||||
Cash: | |||||||||||||||||
Net Cash Used in Operating Activities | (1.2 | ) | (8.5 | ) | nm | n/a | n/a | n/a | |||||||||
Free Cash Flow | n/a | n/a | n/a | (2.6 | ) | (9.8 | ) | nm |
• | Completed a follow-on public offering of 4,370,000 primary shares of common stock generating $142 million in net proceeds. |
• | Earned third consecutive placement to the prestigious Constellation ShortList™ for Configure, Price, Quote Solutions. |
• | Showcased PROS incredible talent and technical acumen at the Grace Hopper Conference for Women in Computing, with five PROS employees delivering presentations or moderating panels on topics including user experience and product architecture. |
• | Awarded prominent speaking and presentation positions at several prestigious events, including Dreamforce, the London Aviation Festival, the Mega Asia-Pacific Ancillary & Loyalty Conference, Microsoft Envision and Inspire, SAP Customer Experience LIVE, the T2RL New Architectures in Airline Passenger Systems Conference and TIACA’s International Air Cargo Forum and Exhibition. |
• | Released findings of the global study, “The Future is Now: Technologies Shaping Commerce”, conducted by Hanover Research on behalf of PROS, which examines the expectations and digital initiatives of more than 700 B2B decision makers across industries. |
• | Launched a roadshow series held across Microsoft Technology Centers where PROS, Microsoft and Adobe are partnering to bring together regional industry leaders to educate them on how to use AI to drive their business revenue growth. |
Q4 2018 Guidance | v. Q4 2017 at Mid-Point | Full Year 2018 Guidance | v. Prior Year at Mid-Point | ||||
Total Revenue | $50.0 to $51.0 | 9% | $194.4 to $195.4 | 15% | |||
Subscription Revenue | $26.25 to $26.75 | 39% | $93.1 to $93.6 | 54% | |||
ARR | n/a | n/a | $187.0 to $190.0 | 17% | |||
Non-GAAP Loss Per Share | $(0.14) to $(0.12) | nm | n/a | n/a | |||
Adjusted EBITDA | $(5.0) to $(4.0) | $0.4 | $(22.0) to $(21.0) | $12.2 | |||
Free Cash Flow | n/a | n/a | $(5.0) to $(2.0) | $26.0 |
• | 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, 2018 | December 31, 2017 | |||||||
Assets: | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 281,889 | $ | 160,505 | ||||
Trade and other receivables, net of allowance of $981 and $760, respectively | 46,170 | 32,484 | ||||||
Deferred costs | 3,413 | 3,137 | ||||||
Prepaid and other current assets | 7,123 | 5,930 | ||||||
Total current assets | 338,595 | 202,056 | ||||||
Property and equipment, net | 14,855 | 14,007 | ||||||
Long-term deferred costs | 11,481 | 3,194 | ||||||
Intangibles, net | 21,229 | 26,929 | ||||||
Goodwill | 38,373 | 38,458 | ||||||
Other long-term assets | 4,643 | 4,039 | ||||||
Total assets | $ | 429,176 | $ | 288,683 | ||||
Liabilities and Stockholders’ Equity: | ||||||||
Current liabilities: | ||||||||
Accounts payable and other liabilities | $ | 5,542 | $ | 2,976 | ||||
Accrued liabilities | 6,313 | 6,733 | ||||||
Accrued payroll and other employee benefits | 16,375 | 16,712 | ||||||
Deferred revenue | 100,504 | 75,604 | ||||||
Total current liabilities | 128,734 | 102,025 | ||||||
Long-term deferred revenue | 14,492 | 19,591 | ||||||
Convertible debt, net | 222,124 | 213,203 | ||||||
Other long-term liabilities | 815 | 843 | ||||||
Total liabilities | 366,165 | 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; 41,556,620 and 36,356,760 shares issued, respectively; 37,139,035 and 31,939,175 shares outstanding, respectively | 42 | 36 | ||||||
Additional paid-in capital | 360,021 | 207,924 | ||||||
Treasury stock, 4,417,585 common shares, at cost | (13,938 | ) | (13,938 | ) | ||||
Accumulated deficit | (279,948 | ) | (238,185 | ) | ||||
Accumulated other comprehensive loss | (3,166 | ) | (2,816 | ) | ||||
Total stockholders’ equity | 63,011 | (46,979 | ) | |||||
Total liabilities and stockholders’ equity | $ | 429,176 | $ | 288,683 |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Revenue: | ||||||||||||||||
Subscription | $ | 23,888 | $ | 15,809 | $ | 66,876 | $ | 41,457 | ||||||||
Maintenance and support | 16,238 | 17,124 | 49,037 | 52,332 | ||||||||||||
Total subscription, maintenance and support | 40,126 | 32,933 | 115,913 | 93,789 | ||||||||||||
License | 1,093 | 603 | 2,854 | 3,883 | ||||||||||||
Services | 7,856 | 8,401 | 25,644 | 24,800 | ||||||||||||
Total revenue | 49,075 | 41,937 | 144,411 | 122,472 | ||||||||||||
Cost of revenue: | ||||||||||||||||
Subscription | 9,053 | 7,868 | 26,308 | 19,605 | ||||||||||||
Maintenance and support | 2,852 | 2,859 | 8,762 | 8,886 | ||||||||||||
Total cost of subscription, maintenance and support | 11,905 | 10,727 | 35,070 | 28,491 | ||||||||||||
License | 63 | 73 | 200 | 210 | ||||||||||||
Services | 7,508 | 6,924 | 22,451 | 21,718 | ||||||||||||
Total cost of revenue | 19,476 | 17,724 | 57,721 | 50,419 | ||||||||||||
Gross profit | 29,599 | 24,213 | 86,690 | 72,053 | ||||||||||||
Operating expenses: | ||||||||||||||||
Selling and marketing | 17,513 | 16,980 | 53,671 | 50,625 | ||||||||||||
General and administrative | 10,179 | 10,324 | 31,013 | 30,514 | ||||||||||||
Research and development | 13,773 | 14,046 | 41,517 | 42,429 | ||||||||||||
Acquisition-related | — | 613 | 95 | 613 | ||||||||||||
Loss from operations | (11,866 | ) | (17,750 | ) | (39,606 | ) | (52,128 | ) | ||||||||
Convertible debt interest and amortization | (4,266 | ) | (4,094 | ) | (12,671 | ) | (9,078 | ) | ||||||||
Other income, net | 521 | 347 | 967 | 315 | ||||||||||||
Loss before income tax provision (benefit) | (15,611 | ) | (21,497 | ) | (51,310 | ) | (60,891 | ) | ||||||||
Income tax provision (benefit) | 175 | (271 | ) | 176 | 55 | |||||||||||
Net loss | $ | (15,786 | ) | $ | (21,226 | ) | $ | (51,486 | ) | $ | (60,946 | ) | ||||
Net loss per share: | ||||||||||||||||
Basic and diluted | $ | (0.44 | ) | $ | (0.67 | ) | $ | (1.53 | ) | $ | (1.93 | ) | ||||
Weighted average number of shares: | ||||||||||||||||
Basic and diluted | 35,676 | 31,867 | 33,568 | 31,527 |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Operating activities: | ||||||||||||||||
Net loss | $ | (15,786 | ) | $ | (21,226 | ) | $ | (51,486 | ) | $ | (60,946 | ) | ||||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||||||
Depreciation and amortization | 3,165 | 3,042 | 9,785 | 7,047 | ||||||||||||
Amortization of debt discount and issuance costs | 3,029 | 2,853 | 8,958 | 6,363 | ||||||||||||
Share-based compensation | 4,957 | 5,571 | 16,355 | 17,665 | ||||||||||||
Deferred income tax, net | — | (486 | ) | (252 | ) | (453 | ) | |||||||||
Provision for doubtful accounts | — | — | 215 | — | ||||||||||||
Loss on disposal of assets | — | — | 37 | — | ||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||
Accounts and unbilled receivables | (6,796 | ) | (278 | ) | (13,898 | ) | (141 | ) | ||||||||
Deferred costs | (875 | ) | — | (1,517 | ) | — | ||||||||||
Prepaid expenses and other assets | (1,822 | ) | (5,320 | ) | (1,884 | ) | (6,301 | ) | ||||||||
Accounts payable and other liabilities | 840 | (1,104 | ) | 2,569 | 1,734 | |||||||||||
Accrued liabilities | (2,647 | ) | (760 | ) | (533 | ) | (473 | ) | ||||||||
Accrued payroll and other employee benefits | 3,985 | 2,879 | (342 | ) | (5,722 | ) | ||||||||||
Deferred revenue | 10,775 | 6,290 | 22,508 | 11,379 | ||||||||||||
Net cash used in operating activities | (1,175 | ) | (8,539 | ) | (9,485 | ) | (29,848 | ) | ||||||||
Investing activities: | ||||||||||||||||
Purchases of property and equipment | (219 | ) | (540 | ) | (1,406 | ) | (1,235 | ) | ||||||||
Acquisition of Vayant, net of cash acquired | — | (34,130 | ) | — | (34,130 | ) | ||||||||||
Capitalized internal-use software development costs | (1,202 | ) | (688 | ) | (3,686 | ) | (1,996 | ) | ||||||||
Purchase of intangible asset | — | (75 | ) | — | (75 | ) | ||||||||||
Proceeds from maturities of short-term investments | — | 6,009 | — | 15,992 | ||||||||||||
Net cash used in investing activities | (1,421 | ) | (29,424 | ) | (5,092 | ) | (21,444 | ) | ||||||||
Financing activities: | ||||||||||||||||
Exercise of stock options | (59 | ) | 1,071 | 1,142 | 6,347 | |||||||||||
Proceeds from employee stock plans | 886 | 759 | 1,720 | 1,535 | ||||||||||||
Tax withholding related to net share settlement of stock awards | (185 | ) | (1,489 | ) | (9,153 | ) | (7,243 | ) | ||||||||
Proceeds from Secondary Offering, net | 141,954 | — | 141,954 | — | ||||||||||||
Payments of notes payable | 1 | — | (54 | ) | (155 | ) | ||||||||||
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 provided by (used in) financing activities | 142,597 | (2,357 | ) | 135,609 | 91,161 | |||||||||||
Effect of foreign currency rates on cash | 21 | (290 | ) | 352 | (549 | ) | ||||||||||
Net change in cash and cash equivalents | 140,022 | (40,610 | ) | 121,384 | 39,320 | |||||||||||
Cash and cash equivalents: | ||||||||||||||||
Beginning of period | 141,867 | 197,969 | 160,505 | 118,039 | ||||||||||||
End of period | $ | 281,889 | $ | 157,359 | $ | 281,889 | $ | 157,359 |
Three Months Ended September 30, | Quarter over Quarter | Nine Months Ended September 30, | Year over Year | |||||||||||||||||||||
2018 | 2017 | % change | 2018 | 2017 | % change | |||||||||||||||||||
GAAP gross profit | $ | 29,599 | $ | 24,213 | 22 | % | $ | 86,690 | $ | 72,053 | 20 | % | ||||||||||||
Non-GAAP adjustments: | ||||||||||||||||||||||||
Amortization of acquisition-related intangibles | 1,125 | 1,055 | 3,547 | 2,017 | ||||||||||||||||||||
Share-based compensation | 445 | 479 | 1,325 | 1,569 | ||||||||||||||||||||
Non-GAAP gross profit | $ | 31,169 | $ | 25,747 | 21 | % | $ | 91,562 | $ | 75,639 | 21 | % | ||||||||||||
Non-GAAP gross margin | 63.5 | % | 61.4 | % | 63.4 | % | 61.8 | % | ||||||||||||||||
GAAP loss from operations | $ | (11,866 | ) | $ | (17,750 | ) | (33 | )% | $ | (39,606 | ) | $ | (52,128 | ) | (24 | )% | ||||||||
Non-GAAP adjustments: | ||||||||||||||||||||||||
Acquisition-related expenses | — | 613 | 95 | 613 | ||||||||||||||||||||
Amortization of acquisition-related intangibles | 1,790 | 1,713 | 5,702 | 3,062 | ||||||||||||||||||||
Share-based compensation | 4,957 | 5,571 | 16,355 | 17,665 | ||||||||||||||||||||
Total Non-GAAP adjustments | 6,747 | 7,897 | 22,152 | 21,340 | ||||||||||||||||||||
Non-GAAP loss from operations | $ | (5,119 | ) | $ | (9,853 | ) | (48 | )% | $ | (17,454 | ) | $ | (30,788 | ) | (43 | )% | ||||||||
Non-GAAP loss from operations % of total revenue | (10.4 | )% | (23.5 | )% | (12.1 | )% | (25.1 | )% | ||||||||||||||||
GAAP net loss | $ | (15,786 | ) | $ | (21,226 | ) | (26 | )% | $ | (51,486 | ) | $ | (60,946 | ) | (16 | )% | ||||||||
Non-GAAP adjustments: | ||||||||||||||||||||||||
Total Non-GAAP adjustments affecting loss from operations | 6,747 | 7,897 | 22,152 | 21,340 | ||||||||||||||||||||
Amortization of debt discount and issuance costs | 3,016 | 2,844 | 8,921 | 6,337 | ||||||||||||||||||||
Tax impact related to non-GAAP adjustments | 1,461 | 3,602 | 4,628 | 12,012 | ||||||||||||||||||||
Non-GAAP net loss | $ | (4,562 | ) | $ | (6,883 | ) | (34 | )% | $ | (15,785 | ) | $ | (21,257 | ) | (26 | )% | ||||||||
Non-GAAP diluted loss per share | $ | (0.13 | ) | $ | (0.22 | ) | $ | (0.47 | ) | $ | (0.67 | ) | ||||||||||||
Shares used in computing non-GAAP loss per share | 35,676 | 31,867 | 33,568 | 31,527 |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||||||
Cost of Subscription Items | ||||||||||||||||||||
Amortization of acquisition-related intangibles | 947 | 874 | 2,997 | 1,504 | ||||||||||||||||
Share-based compensation | 77 | 58 | 165 | 187 | ||||||||||||||||
Total cost of subscription items | $ | 1,024 | $ | 932 | $ | 3,162 | $ | 1,691 | ||||||||||||
Cost of Maintenance Items | ||||||||||||||||||||
Amortization of acquisition-related intangibles | 168 | 170 | 517 | 482 | ||||||||||||||||
Share-based compensation | 53 | 45 | 185 | 218 | ||||||||||||||||
Total cost of maintenance items | $ | 221 | $ | 215 | $ | 702 | $ | 700 | ||||||||||||
Cost of License Items | ||||||||||||||||||||
Amortization of acquisition-related intangibles | 10 | 11 | 33 | 31 | ||||||||||||||||
Total cost of license items | $ | 10 | $ | 11 | $ | 33 | $ | 31 | ||||||||||||
Cost of Services Items | ||||||||||||||||||||
Share-based compensation | 315 | 376 | 975 | 1,164 | ||||||||||||||||
Total cost of services items | $ | 315 | $ | 376 | $ | 975 | $ | 1,164 | ||||||||||||
Sales and Marketing Items | ||||||||||||||||||||
Amortization of acquisition-related intangibles | 665 | 658 | 2,155 | 1,045 | ||||||||||||||||
Share-based compensation | 779 | 909 | 3,347 | 3,313 | ||||||||||||||||
Total sales and marketing items | $ | 1,444 | $ | 1,567 | $ | 5,502 | $ | 4,358 | ||||||||||||
General and Administrative Items | ||||||||||||||||||||
Share-based compensation | 2,635 | 2,864 | 8,202 | 8,546 | ||||||||||||||||
Total general and administrative items | $ | 2,635 | $ | 2,864 | $ | 8,202 | $ | 8,546 | ||||||||||||
Research and Development Items | ||||||||||||||||||||
Share-based compensation | 1,098 | 1,319 | 3,481 | 4,237 | ||||||||||||||||
Total research and development items | $ | 1,098 | $ | 1,319 | $ | 3,481 | $ | 4,237 | ||||||||||||
Acquisition-related expenses | $ | — | $ | 613 | $ | 95 | $ | 613 |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||||||
Adjusted EBITDA | ||||||||||||||||||||
GAAP Loss from Operations | $ | (11,866 | ) | $ | (17,750 | ) | $ | (39,606 | ) | $ | (52,128 | ) | ||||||||
Acquisition-related expenses | — | 613 | 95 | 613 | ||||||||||||||||
Amortization of acquisition-related intangibles | 1,790 | 1,713 | 5,702 | 3,062 | ||||||||||||||||
Share-based compensation | 4,957 | 5,571 | 16,355 | 17,665 | ||||||||||||||||
Depreciation | 1,375 | 1,329 | 4,083 | 3,985 | ||||||||||||||||
Capitalized internal-use software development costs | (1,202 | ) | (688 | ) | (3,686 | ) | (1,996 | ) | ||||||||||||
Adjusted EBITDA | $ | (4,946 | ) | $ | (9,212 | ) | $ | (17,057 | ) | $ | (28,799 | ) | ||||||||
Free Cash Flow | ||||||||||||||||||||
Net cash used in operating activities | $ | (1,175 | ) | $ | (8,539 | ) | $ | (9,485 | ) | $ | (29,848 | ) | ||||||||
Purchase of property and equipment | (219 | ) | (540 | ) | (1,406 | ) | (1,235 | ) | ||||||||||||
Purchase of intangible asset | — | (75 | ) | — | (75 | ) | ||||||||||||||
Capitalized internal-use software development costs | (1,202 | ) | (688 | ) | (3,686 | ) | (1,996 | ) | ||||||||||||
Free Cash Flow | $ | (2,596 | ) | $ | (9,842 | ) | $ | (14,577 | ) | $ | (33,154 | ) | ||||||||
Guidance | Q4 2018 Guidance | Full Year 2018 Guidance | ||||||||||||||||||
Low | High | Low | High | |||||||||||||||||
Adjusted EBITDA | ||||||||||||||||||||
GAAP Loss from Operations | $ | (12,300 | ) | $ | (11,300 | ) | $ | (51,800 | ) | $ | (50,800 | ) | ||||||||
Amortization of acquisition-related intangibles | 1,700 | 1,700 | 7,400 | 7,400 | ||||||||||||||||
Share-based compensation | 5,300 | 5,300 | 21,700 | 21,700 | ||||||||||||||||
Depreciation | 1,500 | 1,500 | 5,600 | 5,600 | ||||||||||||||||
Capitalized internal-use software development costs | (1,200 | ) | (1,200 | ) | (4,900 | ) | (4,900 | ) | ||||||||||||
Adjusted EBITDA | $ | (5,000 | ) | $ | (4,000 | ) | $ | (22,000 | ) | $ | (21,000 | ) |