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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
 
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