PROS Holdings, Inc. Reports Fourth Quarter 2013 Financial Results

  PROS Holdings, Inc. Reports Fourth Quarter 2013 Financial Results    *Record fourth quarter revenue of $38.9 million, meeting the high end of     guidance, an increase of 19% over the fourth quarter of 2012.   *Record 2013 revenue of $144.8 million, an increase of 23% over 2012.   *GAAP operating income of $0.7 million for the fourth quarter.   *Non-GAAP operating income for the fourth quarter was $6.5 million,     exceeding the high end of guidance.   *GAAP earnings per share for the fourth quarter was breakeven, and non-GAAP     earnings per share was $0.16.  Business Wire  HOUSTON -- February 27, 2014  PROS Holdings, Inc. (NYSE: PRO), a big data software company, today announced financial results for the fourth quarter and full year ended December31, 2013.  Total revenue for the fourth quarter of 2013 was $38.9 million and represented an increase of 19% over the fourth quarter of 2012.  CEO Andres Reiner stated, “Our fourth quarter results capped off another great year for PROS. We achieved a number of key milestones across the business in 2013, including introducing several new products, announcing our first two acquisitions, and strengthening our leadership team to position us for long-term growth. We are pleased with the progress we are making against our stated growth strategies, and we enter 2014 a stronger and more diversified company with an expanded value proposition, deeper product portfolio, larger geographic presence, and extended go to market reach.”  For the quarter ended December31, 2013, GAAP operating income was $0.7 million, compared with $2.3 million in the fourth quarter of 2012. GAAP net income for the fourth quarter was $0.1 million, or breakevenper share, compared with $1.4 million, or $0.05per share, in the fourth quarter of 2012. The decrease in fourth quarter earnings per share was principally attributed to $1.5 million of acquisition-related costs incurred in the fourth quarter of 2013.  For the quarter ended December31, 2013, non-GAAP operating income was $6.5 million, compared with $4.9 million in the fourth quarter of 2012, an increase of 32%. Non-GAAP net income for the fourth quarter of 2013 was $5.0 million, or $0.16 per share, compared with $3.3 million, or $0.11 per share, in the fourth quarter of 2012.  For the year ended December 31, 2013, GAAP revenue was $144.8 million, a 23% increase from $117.8 million for the full year 2012. GAAP operating income was $3.5 million for the full year 2013, compared with $8.2 million for the full year 2012. GAAP net income for the full year 2013 was $3.4 million, or $0.11 per share, compared with $5.0 million, or $0.17 per share for the full year 2012.  For the year ended December 31, 2013, non-GAAP operating income was $21.9 million, a 23% increase from $17.8 million for the full year 2012. Non-GAAP net income for the full year 2013 was $17.5 million, or $0.58 per share, compared with $11.9 million, or $0.42 per share for the full year 2012.  Backlog was $181.5 million as of December 31, 2013, based upon non-GAAP revenue, as compared with backlog of $146.5 million as of December 31, 2012. The portion of backlog as of December 31, 2013 reasonably expected to be recognized as revenue within the next twelve months is estimated to be $121.7 million.  2013 and Recent Business Highlights    *Continued to scale across a diverse range of industries with new customers     such as Air Berlin, ABB, Alliance Laundry Systems, BW Rogers, Gates     Corporation, Great Lakes Cheese, Sterling Infosystems, TRW Automotive, and     Virgin Australia among others.   *Continued to strengthen PROS leadership team and position the company for     scale with the recent addition of Blair Crump as Chief Operating Officer     responsible for sales, marketing and professional services.   *Further strengthened PROS position in the market and PROS value     proposition with the acquisitions of Cameleon Software and SignalDemand,     Inc.   *Received Gartner Research’s highest rating of “Strong Positive” in their     report “MarketScope for Price Optimization and Management Software for     B2B: 2013”; PROS received the highest grades overall in ease of use, ease     of deployment, functionality, roadmap, vision and overall satisfaction.   *Continued to set the pace of innovation in the market with a record number     of patents and the introduction of PROS Step, PROS Group Tool, and PROS     Availability Server.   *Won the 2013 Microsoft Application Development Partner of the Year Award     recognizing PROS exceptional innovation for big data solutions delivered     on the Microsoft platform.   *Announced OEM agreement with SAP, enabling PROS to offer SAP HANA® as a     real-time analytics engine embedded in PROS big data applications,     providing customers with additional flexibility, speed and data science     capabilities for optimizing pricing and sales.   *Won the 2013 STAR Award for Innovation in Service by the Technology     Services Industry Association, recognizing PROS ongoing commitment to     customer success through professional services excellence.  Executive Vice President and Chief Financial Officer Charles Murphy stated, “Our strong performance in 2013 is attributable to the investments we’ve made in our diversified growth strategy, resulting in 23% revenue growth for the full year. With our strong global pipeline of opportunities and our continued execution on our go-to-market strategies, we believe we will execute on our goal of achieving long-term sustainable growth of 20% or greater for the next several years while delivering solid profitability.”  The attached table provides a reconciliation of GAAP to non-GAAP income from operations and net income as well as net income per share for the quarter and year ended December31, 2013 and 2012.  Financial Outlook  PROS current guidance for the first quarter and full year 2014 reflects the December 16, 2013 and January 8, 2014 acquisitions of SignalDemand, Inc. and Cameleon Software, respectively. Management currently expects SignalDemand and Cameleon to contribute between $17.0 million and $19.0 million in non-GAAP revenue for full year 2014 and to be dilutive on a non-GAAP basis to operating margins by approximately 400 basis points for full-year 2014 and to become accretive in calendar year 2015.  Based on information as of today, PROS anticipates the following:    *Total non-GAAP revenue for the first quarter of 2014 in the range of $41.5     million to $42.5 million and total non-GAAP revenue for the full year     ending December 31, 2014, in the range of $190.0 million to $194.0     million. This assumes PROS organic revenue growth of approximately 20% for     the full year 2014.   *Non-GAAP loss from operations of $0.7 million to $0.2 million and non-GAAP     loss per share of $0.01 to breakeven for the first quarter of 2014, which     excludes estimated non-cash share-based compensation charges of     approximately $4.5 million and estimated acquisition-related expenses of     approximately $3.5 million. Non-GAAP operating margin for the full year     2014 is expected to be approximately 10%.   *Non-GAAP estimated tax rate of approximately 45% for the first quarter and     full year 2014.   *Estimated weighted average of 28.7 million basic shares outstanding for     the first quarter of 2014 and 31.2 million diluted shares outstanding for     the full year 2014.  Chief Financial Officer to Retire January 2015  PROS today announced that Chief Financial Officer, Charles Murphy, will retire at the end of January 2015. Mr. Murphy will stay on as an advisor through the end of January 2016 to assist with the CFO transition. Mr. Murphy has been CFO of PROS since 1998 and has been instrumental in PROS success, guiding PROS through a successful IPO, creating a track record of strong financial results and providing outstanding leadership. The Company will initiate a comprehensive search process to identify a successor.  “On behalf of our Board of Directors and the entire PROS team, I want to thank Charlie for his significant contributions and dedication to PROS over his 15 years with the Company,” stated Reiner. “Charlie embodies our PROS values and culture of integrity, pride, and commitment to customer success. I have been privileged to work with Charlie for more than a decade, and I look forward to working closely with him throughout the transition process.”  Conference Call  In conjunction  with this announcement, PROS Holdings, Inc. will host a conference call on February 27, 2014, at 4:30 p.m. (ET) to discuss the company’s financial results. To access this call, dial (866) 578-5771 (domestic) or (617) 213-8055 (international). The pass code for the call is 21420577. Additionally, a live webcast of the conference call will be available in the “Investor Relations” section of the Company’s web site at www.pros.com.  Following the conference call, a replay will be available at (888) 286-8010 (domestic) or (617) 801-6888 (international). The replay pass code is 80447303. An archived webcast of this conference call will also be available in the “Investor Relations” section of the Company’s web site at www.pros.com.  About PROS  PROS Holdings, Inc. (NYSE: PRO) is a big data software company that helps customers outperform in their markets by using big data to sell more effectively. We apply over two decades of data science experience to unlock buying patterns and preferences within transaction data to reveal which opportunities are most likely to close, which offers are most likely to sell and which prices are most likely to win. PROS offers big data solutions to optimize sales, pricing, quoting, rebates and revenue management across more than 40 industries. PROS has implemented more than 700 solutions in more than 55 countries. The PROS team comprises more than 800 people around the world. 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; the success of our acquisitions of Cameleon Software and SignalDemand; reseller and OEM network growth and reach; big data solutions to optimize sales, pricing, quoting, rebates and revenue management; solutions demand; business predictability, 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 we will face increased competition as part of entering new markets, (b) the risk that the market for PROS’ sales, pricing, quoting, rebate and revenue management optimization software does not grow as anticipated, (c) the challenges associated with selling, installing, and delivering PROS' products and services, (d) 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, (e) the difficulties and risks associated with developing and selling complex new products and enhancements with the technical specifications and functionality desired by customers, (f) the risk that we will be unable to integrate our acquisitions effectively and on the timeline we anticipate, (g) 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, (h) the risk that PROS will not be able to maintain historical maintenance renewal rates, (i) personnel and other risks associated with growing a business generally, (j) the risk that modification or negotiation of contractual arrangements will be necessary during PROS’ implementations of its solutions, (k) the impact of currency fluctuations on PROS’ results of operations, (l) civil and political unrest in regions in which PROS operates and (m) the risk that reseller and other relationships do not increase sales of PROS’ solutions. Additional information relating to the uncertainty affecting the PROS business are 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, 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.  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. 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, 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 write down to fair values the software subscription, maintenance and professional services contracts assumed in our acquisitions of SignalDemand and Cameleon Software. 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 does 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 does 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 (loss) from operations: Non-GAAP income (loss) 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, as well as the tax consequences associated with the stock-based compensation costs arising from our acquisitions of Signal Demand and Cameleon Software. The non-GAAP income (loss) from operations excludes the following items from non-GAAP estimates:    *Acquisition-Related Expenses: Acquisition related expenses include     transaction fees, due diligence 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 of our operating results to prior     periods and to our peer companies because such amounts can vary     significantly based on the frequency of acquisitions and magnitude of     acquisition expenses.   *Stock-Based Compensation: Although stock-based compensation is an     important aspect of compensation for our employees and executives, our     stock-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 stock-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     stock-based compensation in order to better understand the performance of     our business performance and allow investors to compare our operating     results to 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.   *Tax Consequences: In addition, we exclude the tax consequences associated     with stock-based compensation 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 based on the     frequency of acquisitions and the tax rates applicable to stock-based     compensation in certain jurisdictions.  Non-GAAP tax rate: The estimated non-GAAP effective tax rate adjusts the tax effect to quantify the excluded tax consequences of the excluded expense items. These non-GAAP estimates are not measurements of financial performance prepared in accordance with U.S. generally accepted accounting principles.  These non-GAAP estimates are not measurements of financial performance prepared in accordance with U.S. generally accepted accounting principles 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 are 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)                                          December 31, 2013  December 31, 2012 Assets: Current assets: Cash and cash equivalents                $   44,688          $   83,558 Accounts and unbilled receivables, net of allowance of $1,060 and $760,         46,566              38,801 respectively Prepaid and other current assets         5,947               5,067 Restricted cash - current                39,718             —              Total current assets                     136,919             127,426 Restricted cash                          100                 329 Property and equipment, net              15,587              12,788 Intangibles                              8,232               — Goodwill                                 6,828               — Deferred tax assets - noncurrent, net    10,912              4,585 of valuation allowance Other long term assets, net              1,250              1,351          Total assets                             $   179,828        $   146,479    Liabilities and Stockholders’ Equity: Current liabilities: Accounts payable and other liabilities   $   7,839           $   3,775 Accrued liabilities                      5,210               3,258 Accrued payroll and other employee       9,679               7,669 benefits Deferred revenue                         42,478             39,774         Total current liabilities                65,206              54,476 Long-term deferred revenue               2,773               2,007 Other long-term liabilities              546                1,327          Total liabilities                        68,525             57,810         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; 32,606,228 and 31,966,432 shares         33                  32 issued, respectively; 28,188,643 and 27,548,847 shares outstanding, respectively Additional paid-in capital               106,880             87,693 Treasury stock, 4,417,585 common         (13,938       )     (13,938       ) shares, at cost Retained earnings                        18,328             14,882         Total stockholders’ equity               111,303            88,669         Total liabilities and stockholders’      $   179,828        $   146,479    equity                                                                               PROS Holdings, Inc. Condensed Consolidated Statements of Comprehensive Income (In thousands, except share and per share data) (Unaudited)                       For the Three Months Ended   For the Year Ended                       December 31,                  December 31,                       2013          2012           2013          2012 Revenue: License and           $  26,902      $  22,190      $  98,749      $  77,656 implementation Maintenance and       11,969        10,533        46,088        40,135      support Total revenue         38,871         32,723         144,837        117,791 Cost of revenue: License and           8,609          7,740          34,896         25,830 implementation Maintenance and       2,160         1,938         8,239         7,955       support Total cost of         10,769        9,678         43,135        33,785      revenue Gross profit          28,102         23,045         101,702        84,006 Operating expenses: Selling, marketing, general and           17,588         13,691         63,524         48,215 administrative Research and          8,345          7,093          32,467         27,611 development Acquisition-related   1,496         —             2,173         —           Income from           673           2,261         3,538         8,180       operations Other income          (115       )   (42        )   (265       )   (163       ) (expense), net Income before income tax            558            2,219          3,273          8,017 provision Income tax            419           795           (173       )   3,051       provision (benefit) Net income            $  139        $  1,424      $  3,446      $  4,966    Net earnings per share: Basic                 $  —           $  0.05        $  0.12        $  0.18 Diluted               $  —           $  0.05        $  0.11        $  0.17 Weighted average number of shares: Basic                 28,155,831     27,494,076     28,004,019     27,365,731 Diluted               30,552,645     28,715,202     30,114,373     28,419,956                                                                                  PROS Holdings, Inc. Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited)                                               For the Year Ended December 31,                                                2013             2012 Operating activities: Net income                                     $   3,446         $  4,966 Adjustments to reconcile net income to net cash provided by  operating activities: Depreciation and amortization                  4,307             2,286 Share-based compensation                       16,272            9,645 Excess tax benefits on share-based             (2,940      )     (1,686     ) compensation Tax (shortfall)/benefit from share-based       2,931             1,573 compensation Deferred income tax, net                       (2,776      )     962 Provision for doubtful accounts                300               (326       ) Changes in operating assets and liabilities: Accounts and unbilled receivables              (6,754      )     (4,609     ) Prepaid expenses and other assets              1,204             2,215 Accounts payable and other liabilities         2,885             (790       ) Accrued liabilities                            1,002             1,700 Accrued payroll and other employee benefits    1,050             2,879 Deferred revenue                               (3,956      )     5,837       Net cash provided by operating activities      16,971            24,652 Investing activities: Purchases of property and equipment            (3,401      )     (7,514     ) Acquisition of SignalDemand, net of cash       (13,102     )     — acquired Capitalized internal-use software              (2,874      )     (2,013     ) development costs Increase in restricted cash                    (39,389     )     —           Net cash used in investing activities          (58,766     )     (9,527     ) Financing activities: Exercise of stock options                      3,327             1,354 Excess tax benefits on share-based             2,940             1,686 compensation Tax withholding related to net share           (3,342      )     (2,814     ) settlement of restricted stock units Debt issuance costs related to credit          —                (250       ) facility Net cash provided by (used in) financing       2,925            (24        ) activities Net (decrease) increase in cash and cash       (38,870     )     15,101 equivalents Cash and cash equivalents: Beginning of period                            83,558           68,457      End of period                                  $   44,688       $  83,558                                                                                  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.                                              Quarter                           Year                       For the Three Months      over      For the Year Ended         over                       Ended December 31,        Quarter   December 31,               Year                       2013         2012         %         2013          2012         %                                                 change                               change GAAP gross profit     $ 28,102     $ 23,045     22%       $ 101,702     $ 84,006     21% Non-GAAP adjustment: GAAP share-based      540         486                   2,071        1,451     compensation Non-GAAP gross        $ 28,642    $ 23,531    22%       $ 103,773    $ 85,457    21% profit                                                                                       Non-GAAP gross        73.7     %   71.9     %             71.6      %   72.5     % margin                                                                                       GAAP selling, marketing, general    $ 17,588     $ 13,691     28%       $ 63,524      $ 48,215     32% and administrative Non-GAAP adjustment: GAAP share-based      2,889       1,707                 10,889       6,273     compensation Non-GAAP selling, marketing, general    $ 14,699    $ 11,984    23%       $ 52,635     $ 41,942    25% and administrative                                                                                       GAAP research and     $ 8,345      $ 7,093      18%       $ 32,467      $ 27,611     18% development Non-GAAP adjustment: GAAP share-based      848         490                   3,139        1,921     compensation Non-GAAP research     $ 7,497     $ 6,603     14%       $ 29,328     $ 25,690    14% and development                                                                                       Income from           $ 673        $ 2,261      (70)%     $ 3,538       $ 8,180      (57)% operations Non-GAAP adjustment: GAAP share-based      4,277        2,683                  16,099        9,645 compensation GAAP acquisition-related   1,496        —                      2,173         — expenses GAAP intangible       $ 68        $ —                   $ 68         $ —       amortization Non-GAAP income       $ 6,514     $ 4,944     32%       $ 21,878     $ 17,825    23% from operations                                                                                       Non-GAAP income from operations %     16.8     %   15.1     %             15.1      %   15.1     % of total revenue                                                                                       GAAP net income       139          1,424        (90)%     3,446         4,966        (31)% Non-GAAP adjustment: GAAP share-based      4,277        2,683                  16,099        9,645 compensation GAAP acquisition-related   1,496        —                      2,173         — expenses GAAP intangible       68                                  68 amortization Tax impact related to non-GAAP           (953     )   (857     )             (4,293    )   (2,696   ) adjustments Non-GAAP net income   $ 5,027     3,250       55%       17,493       11,915      47%                                                                                       Non-GAAP diluted      $ 0.16       $ 0.11                 $ 0.58        $ 0.42 earnings per share                                                                                       Shares used in computing non-GAAP    30,553       28,715                 30,114        28,420 earnings per share                                                                                       Detail of non-GAAP share-based compensation expense: Cost of revenue       $ 540        $ 486                  $ 2,071       $ 1,451 Selling, marketing, general and           2,889        1,707                  10,889        6,273 administrative Research and          848         490                   3,139        1,921     development Total share-based compensation          $ 4,277     $ 2,683               $ 16,099     $ 9,645   expense  Contact:  Investor Contact: PROS Investor Relations Staci Strauss Mortenson, 646-277-1200 Staci.Mortenson@icrinc.com or Media Contact: PROS Public Relations Yvonne Donaldson, 713-335-5310 ydonaldson@pros.com