Market Overview

PROS Holdings, Inc. Reports Fourth Quarter and Full Year 2018 Financial Results

Share:
  • Subscription revenue of $95.2 million, up 57% for the full year 2018.
  • Subscription gross margins of 68% and non-GAAP subscription margin of
    71% in the fourth quarter, up more than 850 basis points
    year-over-year.
  • Cash flow provided by operating activities of $15.2 million and free
    cash flow of $14.1 million in the fourth quarter, contributing to a
    full year 2018 free cash flow improvement of $29.0 million
    year-over-year.

PROS
Holdings
, Inc. (NYSE:PRO), a provider of AI-powered solutions that
optimize selling in the digital economy, today announced financial
results for the fourth quarter and full year ended December 31, 2018.

"As the market embraces our AI solutions, we are driving strong growth
and rapid transformation in our business," stated CEO Andres Reiner.
"Subscription revenue accounted for more than half of total revenue for
the first time in our company's history last quarter, and we surpassed
our pre-transition total revenue in less than four years from when we
began our journey to the cloud. We enter 2019 excited by the opportunity
in front of us to accelerate our growth once again."

CFO Stefan Schulz said, "We successfully drove both growth and scale in
our business in 2018. In the fourth quarter, we improved our non-GAAP
subscription gross margins by nine percentage points year-over-year and
our operating margins by seven percentage points year-over-year. We also
achieved our goal of reaching near breakeven free cash flow in 2018. We
have strong momentum coming into 2019 and remain on track to achieve our
long-term financial goals."

Fourth Quarter and Full Year 2018 Financial Highlights

Key financial results for the fourth quarter and full year 2018 are
shown below. Throughout this press release, all dollar figures are in
millions, except net loss per share. Unless otherwise noted, all results
are on a reported basis and are compared with the prior-year period.

       
GAAP Non-GAAP
Q4 2018     Q4 2017     Change Q4 2018     Q4 2017     Change
Revenue:
Total Revenue $52.6 $46.3 14% n/a n/a n/a
Subscription Revenue $28.3 $19.1 48% n/a n/a n/a
Subscription and Maintenance Revenue $44.0 $36.2 22% n/a n/a n/a
Profitability:
Gross Profit $33.2 $28.2 18% $34.7 $29.9 16%
Operating Loss $(9.6) $(12.8) $3.2 $(2.6) $(5.5) $2.8
Net Loss $(12.8) $(17.0) $4.2 $(2.1) $(4.3) $2.2
Net Loss Per Share $(0.34) $(0.53) $0.19 $(0.06) $(0.13) $0.07
Adjusted EBITDA n/a n/a n/a $(2.0) $(4.9) $2.9
Cash:
Net Cash Provided by Operating Activities $15.2 $4.5 $10.7 n/a n/a n/a
Free Cash Flow n/a n/a n/a $14.1 $3.6 $10.4
 
 
GAAP Non-GAAP
FY 2018 FY 2017 Change FY 2018 FY 2017 Change
Revenue:
Total Revenue $197.0 $168.8 17% n/a n/a n/a
Subscription Revenue $95.2 $60.5 57% n/a n/a n/a
Subscription and Maintenance Revenue $160.0 $129.9 23% n/a n/a n/a
Annual Recurring Revenue ("ARR") n/a n/a n/a $189.3 $160.6 18%
Annual Recurring Revenue in constant currency n/a n/a n/a $190.5 $160.6 19%
Profitability:
Gross Profit $119.8 $100.3 20% $126.2 $105.5 20%
Operating Loss $(49.2) $(64.9) $15.7 $(20.1) $(36.3) $16.2
Net Loss $(64.2) $(77.9) $13.7 $(17.9) $(25.5) $7.6
Net Loss Per Share $(1.86) $(2.46) $0.6 $(0.52) $(0.81) $0.29
Adjusted EBITDA n/a n/a n/a $(19.0) $(33.7) $14.7
Cash:
Net Cash Provided by (Used in) Operating Activities $5.7 $(25.3) $31.0 n/a n/a n/a
Free Cash Flow n/a n/a n/a $(0.5) $(29.5) $29.0
 

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

Recent Business Highlights

Financial Outlook

PROS anticipates the following based on an estimated 37.6 million basic
weighted average shares outstanding for the first quarter of 2019 and a
22% non-GAAP estimated tax rate for the first quarter and full year 2019:

               
Q1 2019 Guidance

v. Q1 2018 at Mid-
Point

Full Year 2019
Guidance

v. Prior Year at Mid-
Point

Total Revenue $54.0 to $55.0 14% $231.0 to $233.0 18%
Subscription Revenue $29.0 to $29.5 40% $130.0 to $131.0 37%
ARR n/a n/a $219.0 to $221.0 16%
Non-GAAP Loss Per Share $(0.15) to $(0.13) $0.05 n/a n/a
Adjusted EBITDA $(5.1) to $(4.1) $2.1 $(13.0) to $(11.0) $7.0
Free Cash Flow n/a n/a $0.0 to $2.0 $1.5
 

Conference Call

In conjunction with this announcement, PROS Holdings, Inc. will host a
conference call on Thursday, February 7, 2019, at 4:45 p.m. ET to
discuss the Company's financial results and business outlook. To access
this call, dial 1-877-407-9039 (toll-free) or 1-201-689-8470. The live
webcast of the conference call can be accessed under the "Investor
Relations" section of the Company's website at www.pros.com.

A telephone replay will be available until Thursday, February 21, 2019,
at 1-844-512-2921 (toll-free) or 1-412-317-6671 using the pass
code 13685957. An archived webcast of this conference call will also be
available in the "Investor Relations" section of the Company's website
at www.pros.com.

About PROS

PROS Holdings, Inc. (NYSE:PRO) provides AI solutions that power
commerce in the digital economy. PROS solutions bring intelligence to
commerce by providing companies with predictive and prescriptive
guidance that enables them to dynamically price, configure and sell
their products and services across all channels with speed, precision
and consistency. To learn more, visit www.pros.com.

Forward-looking Statements

This press release contains forward-looking statements, including
statements about our future financial performance; positioning;
management's confidence and optimism; customer successes; demand for
enterprise revenue, profit realization and modern commerce software
solutions; business expansion; business predictability; ARR; revenue;
adjusted EBITDA; free cash flow; shares outstanding and effective tax
rate. The forward-looking statements contained in this press release are
based upon our historical performance and our current plans, estimates
and expectations and are not a representation that such plans, estimates
or expectations will be achieved. Factors that could cause actual
results to differ materially from those described herein include risks
related to: (a) our ability to execute on our cloud strategy, (b)
reduced revenue and cash flow resulting from our transition to a cloud
strategy, (c) threats to the security of our or our customer's data, (d)
potential business or service disruptions from our third party data
centers, cloud platform providers or other unrelated service providers,
(e) market acceptance of our new products and product enhancements, (f)
the risk that the markets for our software do not grow as anticipated,
(g) the length of our sales cycles, (h) the risk that we will not be
able to maintain historical maintenance, support and subscription
renewal rates, (i) competition from vendors of sales, pricing, revenue
management and configure-price-quote solutions as well as from companies
internally developing their own solutions, (j) potential unauthorized or
improper actions of our personnel, (k) the risk that acquisitions we
have and may enter into in the future may be difficult to integrate,
fail to achieve our objectives, disrupt our business, dilute stockholder
value or divert management attention, (l) any downturn in sales to our
target markets, (m) potential delays or other challenges related to the
implementation of our solutions, (n) the difficulties of making accurate
estimates necessary to complete a project and recognize revenue, (o)
personnel risks associated with growing a business generally, (p) the
impact that a slowdown in the world or any particular economy has on our
business sales cycles, prospects' and customers' spending decisions,
timing of implementation decisions, payment and renewal decision, (q)
our debt repayment obligations, (r) the impact of currency fluctuations
on our results of operations, and (s) civil and political unrest in
geographic regions in which we operate. Additional information relating
to the uncertainty affecting PROS' business is contained in our filings
with the Securities and Exchange Commission. These forward-looking
statements represent PROS' expectations as of the date of this press
release. Subsequent events may cause these expectations to change, and
PROS disclaims any obligations to update or alter these forward-looking
statements in the future, whether as a result of new information, future
events or otherwise.

Non-GAAP Financial Measures

PROS has provided in this release certain financial information that has
not been prepared in accordance with U.S. generally accepted accounting
principles ("GAAP"). This information includes non-GAAP income (loss)
from operations, annual recurring revenue, adjusted EBITDA, free cash
flow, tax rate, net income (loss) and diluted earnings (loss) per share.
PROS uses these non-GAAP financial measures internally in analyzing its
financial results and believes they are useful to investors, as a
supplement to GAAP measures, in evaluating PROS' ongoing operational
performance and cloud transition.

PROS also presents certain information in "constant currency," which is
also a non-GAAP financial measure. Since PROS has operations outside of
the United States reporting in currencies other than the U.S. dollar,
the comparability of our operating results reported in U.S. Dollars is
affected by foreign currency exchange rate fluctuations because the
underlying currencies in which we transact change in value over time
compared to the U.S. Dollar. These fluctuations may have a significant
effect on our reported results. As such, this release contains
references to constant currency measures, which are calculated based on
currency rates set at the start of a year and held constant throughout
the year. Management believes this supplemental information is useful to
investors as a framework for facilitating period-to-period comparisons
of our business performance excluding the effects of foreign currency
exchange rate fluctuations.

Non-GAAP financial measures should not be considered in isolation from,
or as a substitute for, financial information prepared in accordance
with GAAP. Investors are encouraged to review the reconciliation of
these non-GAAP measures to their most directly comparable GAAP financial
measure as detailed above. A reconciliation of GAAP to the non-GAAP
financial measures has been provided in the tables included as part of
this press release, and can be found, along with other financial
information, in the investor relations portion of our website. PROS' use
of non-GAAP financial measures may not be consistent with the
presentations by similar companies in PROS' industry. PROS has also
provided in this release certain forward-looking non-GAAP financial
measures, including non-GAAP income (loss) from operations, annual
recurring revenue, adjusted EBITDA, free cash flow and non-GAAP tax
rates (collectively the "non-GAAP financial measures") as follows:

Non-GAAP income (loss) from operations: Non-GAAP income (loss)
from operations excludes the impact of stock-based compensation,
amortization of acquisition-related intangibles, acquisition-related
expenses, amortization of debt discount and issuance costs, new
headquarters noncash rent expense and related taxes. Non-GAAP income
(loss) from operations excludes the following items from non-GAAP
estimates:

  • 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 believe it is useful to exclude
    these amounts in order to better understand our business performance
    and allow investors to compare our results with peer companies.
  • New Headquarters Noncash Rent Expense: Noncash rent expense is
    related to PROS new corporate headquarters and is incurred prior to
    occupation of this facility. These amounts are unrelated to our core
    performance during any particular period and 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 the noncash rent expense on the preoccupied new
    headquarters in order for investors to better understand our business
    performance and allow investors to compare our operating results with
    peer companies.
  • 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.

Annual Recurring Revenue: Annual Recurring Revenue ("ARR") is
used to assess the trajectory of our cloud business. ARR means, as of a
specified date, the contracted recurring revenue, including contracts
with a future start date, together with annualized overage fees incurred
above contracted minimum transactions, and excluding perpetual and term
license agreements recognized as license revenue in accordance with
GAAP. ARR should be viewed independently of revenue and any other GAAP
measure.

Non-GAAP Tax Rate: The estimated non-GAAP effective tax rate
adjusts the tax effect to quantify the impact of the excluded non-GAAP
items.

Adjusted EBITDA: Adjusted EBITDA is defined as GAAP net income
(loss) before interest expense, provision for income taxes, depreciation
and amortization, as adjusted to eliminate the effect of stock-based
compensation cost, amortization of acquisition-related intangibles,
depreciation and amortization, integration costs and other one-time
direct costs associated with our acquisitions, new headquarters noncash
rent expense and capitalized internal-use software development costs.
Adjusted EBITDA should not be considered as an alternative to net income
(loss) as an indicator of our operating performance.

Free Cash Flow: Free cash flow is a non-GAAP financial measure
which is defined as net cash provided by (used in) operating activities,
less capital expenditures (excluding expenditures for PROS new
headquarters), purchases of other (non-acquisition-related) intangible
assets and capitalized internal-use software development costs.

Calculated Billings: Calculated billings is defined as total
subscription, maintenance and support revenue plus the change in
recurring deferred revenue in a given period.

These non-GAAP estimates are not measurements of financial performance
prepared in accordance with GAAP, and we are unable to reconcile these
forward-looking non-GAAP financial measures to their directly comparable
GAAP financial measures because the information described above which is
needed to complete a reconciliation is unavailable at this time without
unreasonable effort.

       

PROS Holdings, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share amounts)

(Unaudited)

 
December 31, 2018 December 31, 2017
Assets:
Current assets:
Cash and cash equivalents $ 295,476 $ 160,505
Trade and other receivables, net of allowance of $978 and $760,
respectively
41,822 32,484
Deferred costs 4,089 3,137
Prepaid and other current assets 4,756   5,930  
Total current assets 346,143 202,056
Property and equipment, net 14,676 14,007
Deferred costs, noncurrent 13,373 3,194
Intangibles, net 19,354 26,929
Goodwill 38,231 38,458
Other assets, noncurrent 5,190   4,039  
Total assets $ 436,967   $ 288,683  
Liabilities and Stockholders' Equity:
Current liabilities:
Accounts payable and other liabilities $ 6,934 $ 2,976
Accrued liabilities 9,506 6,733
Accrued payroll and other employee benefits 22,519 16,712
Deferred revenue 99,262 75,604
Current portion of convertible debt, net 136,529    
Total current liabilities 274,750 102,025
Deferred revenue, noncurrent 17,903 19,591
Convertible debt, net, noncurrent 88,661 213,203
Other liabilities, noncurrent 754   843  
Total liabilities 382,068   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;
41,573,491

and 36,356,760 shares issued, respectively; 37,155,906 and
31,939,175 shares

outstanding, respectively 42 36
Additional paid-in capital 364,877 207,924
Treasury stock, 4,417,585 common shares, at cost (13,938 ) (13,938 )
Accumulated deficit (292,708 ) (238,185 )
Accumulated other comprehensive loss (3,374 ) (2,816 )
Total stockholders' equity 54,899   (46,979 )
Total liabilities and stockholders' equity $ 436,967   $ 288,683  
       

PROS Holdings, Inc.

Condensed Consolidated Statements of Income (Loss)

(In thousands, except per share data)

(Unaudited)

 
Three Months Ended December 31, Year Ended December 31,
2018   2017 2018   2017
Revenue:
Subscription $ 28,316 $ 19,082 $ 95,192 $ 60,539
Maintenance and support 15,723   17,076   64,760   69,408  
Total subscription, maintenance and support 44,039 36,158 159,952 129,947
License 662 1,679 3,516 5,562
Services 7,912   8,507   33,556   33,307  
Total revenue 52,613 46,344 197,024 168,816
Cost of revenue:
Subscription 9,060 8,253 35,368 27,858
Maintenance and support 2,840   2,807   11,602   11,693  
Total cost of subscription, maintenance and support 11,900 11,060 46,970 39,551
License 51 72 251 282
Services 7,507   7,015   29,958   28,733  
Total cost of revenue 19,458   18,147   77,179   68,566  
Gross profit 33,155 28,197 119,845 100,250
Operating expenses:
Selling and marketing 18,335 17,491 72,006 68,116
General and administrative 10,289 9,822 41,302 40,336
Research and development 14,140 13,592 55,657 56,021
Acquisition-related   107   95   720  
Loss from operations (9,609 ) (12,815 ) (49,215 ) (64,943 )
Convertible debt interest and amortization (4,315 ) (4,140 ) (16,986 ) (13,218 )
Other income, net 1,188   69   2,155   384  
Loss before income tax provision (12,736 ) (16,886 ) (64,046 ) (77,777 )
Income tax provision 24   94   200   149  
Net loss $ (12,760 ) $ (16,980 ) $ (64,246 ) $ (77,926 )
 
Net loss per share:
Basic and diluted $ (0.34 ) $ (0.53 ) $ (1.86 ) $ (2.46 )
Weighted average number of shares:
Basic and diluted 37,154 31,927 34,465 31,627
       

PROS Holdings, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

Three Months Ended December 31, Year Ended December 31,
2018     2017 2018     2017
Operating activities:
Net loss $ (12,760 ) $ (16,980 ) $ (64,246 ) $ (77,926 )
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 3,270 3,484 13,055 10,531
Amortization of debt discount and issuance costs 3,069 2,901 12,027 9,264
Share-based compensation 5,098 5,131 21,453 22,796
Deferred income tax, net (211 ) (67 ) (463 ) (520 )
Provision for doubtful accounts (3 ) 212
Loss on disposal of assets 59 37 59
Changes in operating assets and liabilities:
Accounts and unbilled receivables 4,348 2,163 (9,550 ) 2,022
Deferred costs (2,569 ) (4,086 )
Prepaid expenses and other assets 1,971 2,586 87 (3,715 )
Accounts payable and other liabilities 1,362 (1,034 ) 3,931 700
Accrued liabilities 3,297 (582 ) 2,764 (1,055 )
Accrued payroll and other employee benefits 6,172 3,378 5,830 (2,344 )
Deferred revenue 2,144   3,496   24,652   14,875  
Net cash provided by (used in) operating activities 15,188 4,535 5,703 (25,313 )
Investing activities:
Purchases of property and equipment (69 ) (51 ) (1,475 ) (1,286 )
Purchase of equity securities (45 ) (45 )
Acquisition of Vayant, net of cash acquired (34,130 )
Capitalized internal-use software development costs (927 ) (801 ) (4,613 ) (2,797 )
Purchase of intangible asset (125 ) (50 ) (125 ) (125 )
Proceeds from maturities of short-term investments       15,992  
Net cash used in investing activities (1,166 ) (902 ) (6,258 ) (22,346 )
Financing activities:
Exercise of stock options (16 ) 1,142 6,331
Proceeds from employee stock plans 1,720 1,535
Tax withholding related to net share settlement of stock awards (257 ) (132 ) (9,410 ) (7,375 )
Proceeds from Secondary Offering, net 141,954
Payments of notes payable (54 ) (54 ) (209 )
Proceeds from issuance of convertible debt, net 93,500
Debt issuance costs related to convertible debt (305 ) (2,978 )
Debt issuance costs related to Revolver       (150 )
Net cash (used in) provided by financing activities (257 ) (507 ) 135,352 90,654
Effect of foreign currency rates on cash (178 ) 20   174   (529 )
Net change in cash and cash equivalents 13,587 3,146 134,971 42,466
Cash and cash equivalents:
Beginning of period 281,889   157,359   160,505   118,039  
End of period $ 295,476   $ 160,505   $ 295,476   $ 160,505  
 

PROS Holdings, Inc.

Reconciliation of GAAP to Non-GAAP Financial Measures

(In thousands, except per share data)

(Unaudited)

We use these non-GAAP financial measures to assist in the
management of the Company because we believe that this information
provides a more
consistent and complete understanding of the
underlying results and trends of the ongoing business due to the
uniqueness of these charges.

See breakdown of the reconciling line items on page 11.
     

Three Months Ended
December 31,

 

Quarter
over
Quarter

  Year Ended December 31,  

Year over
Year

2018   2017 % change 2018   2017 % change
GAAP gross profit $ 33,155 $ 28,197 18 % $ 119,845 $ 100,250 20 %
Non-GAAP adjustments:
New headquarters noncash rent expense 48 48
Amortization of acquisition-related intangibles 1,077 1,280 4,624 3,297
Share-based compensation 396   402   1,721   1,971  
Non-GAAP gross profit $ 34,676   $ 29,879   16 % $ 126,238   $ 105,518   20 %
 
Non-GAAP gross margin 65.9 % 64.5 % 64.1 % 62.5 %
 
GAAP loss from operations $ (9,609 ) $ (12,815 ) (25 )% $ (49,215 ) $ (64,943 ) (24 )%
Non-GAAP adjustments:
Acquisition-related expenses 107 95 720
New headquarters noncash rent expense 185 185
Amortization of acquisition-related intangibles 1,694 2,112 7,396 5,174
Share-based compensation 5,098   5,131   21,453   22,796  
Total Non-GAAP adjustments 6,977   7,350   29,129   28,690  
Non-GAAP loss from operations $ (2,632 ) $ (5,465 ) (52 )% $ (20,086 ) $ (36,253 ) (45 )%
 
Non-GAAP loss from operations % of total revenue (5.0 )% (11.8 )% (10.2 )% (21.5 )%
 
GAAP net loss $ (12,760 ) $ (16,980 ) (25 )% $ (64,246 ) $ (77,926 ) (18 )%
Non-GAAP adjustments:
Total Non-GAAP adjustments affecting loss from operations 6,977 7,350 29,129 28,690
Amortization of debt discount and issuance costs 3,065 2,891 11,986 9,228
Tax impact related to non-GAAP adjustments 617   2,486   5,244   14,498  
Non-GAAP net loss $ (2,101 ) $ (4,253 ) (51 )% $ (17,887 ) $ (25,510 ) (30 )%
 
Non-GAAP diluted loss per share $ (0.06 ) $ (0.13 ) $ (0.52 ) $ (0.81 )
 
Shares used in computing non-GAAP loss per share 37,154 31,927 34,465 31,627
       

PROS Holdings, Inc.

Supplemental Schedule of Non-GAAP Financial Measures

Increase (Decrease) in GAAP Amounts Reported

(In thousands)

(Unaudited)

 
Three Months Ended December 31, Year Ended December 31,
2018     2017 2018     2017
Cost of Subscription Items
New headquarters noncash rent expense 5 5
Amortization of acquisition-related intangibles 901 1,099 3,898 2,603
Share-based compensation 53   50   218   237
Total cost of subscription items $ 959   $ 1,149   $ 4,121   $ 2,840
 
Cost of Maintenance Items
New headquarters noncash rent expense 9 9
Amortization of acquisition-related intangibles 165 170 682 652
Share-based compensation 57   80   242   298
Total cost of maintenance items $ 231   $ 250   $ 933   $ 950
 
Cost of License Items
Amortization of acquisition-related intangibles 11   11   44   42
Total cost of license items $ 11   $ 11   $ 44   $ 42
 
Cost of Services Items
New headquarters noncash rent expense 34 34
Share-based compensation 286   272   1,261   1,436
Total cost of services items $ 320   $ 272   $ 1,295   $ 1,436
 
Sales and Marketing Items
New headquarters noncash rent expense 35 35
Amortization of acquisition-related intangibles 617 832 2,772 1,877
Share-based compensation 1,049   1,035   4,396   4,348
Total sales and marketing items $ 1,701   $ 1,867   $ 7,203   $ 6,225
 
General and Administrative Items
New headquarters noncash rent expense 33 33
Share-based compensation 2,515   2,617   10,717   11,163
Total general and administrative items $ 2,548   $ 2,617   $ 10,750   $ 11,163
 
Research and Development Items
New headquarters noncash rent expense 69 69
Share-based compensation 1,138   1,077   4,619   5,314
Total research and development items $ 1,207   $ 1,077   $ 4,688   $ 5,314
             
Acquisition-related expenses $   $ 107   $ 95   $ 720
 

PROS Holdings, Inc.

Supplemental Reconciliation of GAAP to Non-GAAP Financial
Measures

(In thousands)

(Unaudited)

       
Three Months Ended December 31, Year Ended December 31,
2018     2017 2018     2017
Adjusted EBITDA
GAAP Loss from Operations $ (9,609 ) $ (12,815 ) $ (49,215 ) $ (64,943 )
Acquisition-related expenses 107 95 720
Amortization of acquisition-related intangibles 1,694 2,112 7,396 5,174
New headquarters noncash rent expense 185 185
Share-based compensation 5,098 5,131 21,453 22,796
Depreciation and other amortization 1,576 1,372 5,659 5,357
Capitalized internal-use software development costs (927 ) (801 ) (4,613 ) (2,797 )
Adjusted EBITDA $ (1,983 ) $ (4,894 ) $ (19,040 ) $ (33,693 )
 
Free Cash Flow
Net cash provided by (used in) operating activities $ 15,188 $ 4,535 $ 5,703 $ (25,313 )
Purchase of property and equipment (69 ) (51 ) (1,475 ) (1,286 )
Purchase of intangible asset (125 ) (50 ) (125 ) (125 )
Capitalized internal-use software development costs (927 ) (801 ) (4,613 ) (2,797 )
Free Cash Flow $ 14,067   $ 3,633   $ (510 ) $ (29,521 )
 
 
Guidance Q1 2019 Guidance Full Year 2019 Guidance
Low High Low High
Adjusted EBITDA
GAAP Loss from Operations $ (14,200 ) $ (13,300 ) $ (47,300 ) $ (45,300 )
Amortization of acquisition-related intangibles 1,600 1,600 5,700 5,700
New headquarters noncash rent expense 600 600 1,900 1,900
Share-based compensation 5,900 5,900 23,400 23,400
Depreciation and other amortization 1,800 1,800 6,600 6,600
Capitalized internal-use software development costs (800 ) (700 ) (3,300 ) (3,300 )
Adjusted EBITDA $ (5,100 ) $ (4,100 ) $ (13,000 ) $ (11,000 )

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