Business Wire | Oct 29, 2020 04:15PM EDT

PROS Holdings, Inc. Reports Third Quarter 2020 Financial Results

Oct. 29, 2020

HOUSTON--(BUSINESS WIRE)--Oct. 29, 2020--PROS Holdings, Inc. (NYSE: PRO), a provider of AI-powered solutions that optimize selling in the digital economy, today announced financial results for the third quarter ended September 30, 2020.

"I'm proud of how our team is executing and rallying to help our customers win in their markets during these difficult times," stated CEO Andres Reiner. "Buyers are continuing to shift to digital, self-serve channels, and our latest innovations and AI solutions are enabling companies to deliver an optimized, omnichannel experience wherever their customers want to buy. Our digital selling technology is more important than ever, and we're focused on delivering on our mission of helping people and companies outperform."

Third Quarter 2020 Financial Highlights

Key financial results for the third quarter 2020 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

Q3 2020 Q3 2019 Change Q3 2020 Q3 2019 Change

Revenue:

Total Revenue $61.5 $64.2 (4 ) n/a n/a n/a %

Subscription Revenue $42.0 $38.6 9 % n/a n/a n/a

Subscription and $52.8 $53.0 - % n/a n/a n/a Maintenance Revenue

Profitability:

Gross Profit $36.9 $37.8 (2 ) $38.4 $39.4 (3 ) % %

Operating Loss $ ) $ ) $(3.7 ) $(8.0 ) $(4.1 ) $(4.0 ) (16.2 (12.5

Net Loss $ ) $ ) $(1.5 ) $(6.6 ) $(2.5 ) $(4.1 ) (18.9 (17.3

Net Loss Per Share $ ) $ ) $ ) $ ) $ ) $ ) (0.44 (0.42 (0.02 (0.15 (0.06 (0.09

Adjusted EBITDA n/a n/a n/a $(6.2 ) $(2.2 ) $(4.0 )

Cash:

Net Cash (Used In) $ $Provided by Operating (14.9 ) $4.0 (18.9 ) n/a n/a n/a Activities

Free Cash Flow n/a n/a n/a $ ) $3.0 $ ) (15.7 (18.7

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

Recent Business Highlights

* Received several prestigious honors in recognition of our AI-powered digital selling solutions, including being upgraded to the only Challenger in Gartner's 2020 Magic Quadrant for Configure, Price and Quote Application Suites and being selected as the "Best AI-based Solution for Sales" award in the 2020 AI Breakthrough Awards program.

* Expanded our strategic partnership with Adobe to include Magento Commerce, further empowering B2B companies to deliver optimized buying and selling experiences across all go-to-market channels with our AI-powered technology.

* Named to the 2020/2021 Inner Circle for Microsoft Business Applications, continued proof of our successful partnership.

* Delivered the record-breaking, virtual PROS 2020 Outperform Customer Conference; registration exceeded more than 600% of the 2019 mark. More than 5,000 business leaders registered across 35 industries from nearly 90 countries to accelerate their digital selling transformations and learn about our latest innovations such as our next-generation dynamic pricing capabilities for B2B commerce and airlines.

* Welcomed new customers that are adopting our AI platform to accelerate their shift to digital selling such as Crescent Electric Supply, HAWE Hydraulik, Hunter Panels, Spire Healthcare, Unidas, Wien Energie, among others.

* Released findings of the global study, "COVID-19 B2B Buying Trends Report," conducted by Hanover Research on behalf of PROS, which examines digital purchasing trends and vendor preferences as a result of COVID-19 from more than 200 B2B decision makers across industries.

* Celebrated National Hispanic Heritage Month with a global "Day of Learning" in partnership with UNIDOS, our Hispanic employee resource group, to further our continued focus on the importance of diversity, inclusion, and equality at PROS.

* Showcased PROS incredible talent at the Women Impact Tech Connect Texas conference with PROS employees and Blaze employee resource group members speaking in panels on topics including emotional intelligence and culturally conscious leadership.

* Successfully completed a private offering of $150 million in aggregate principal amount at maturity of convertible senior notes due 2027; net proceeds after the purchase of capped call transaction were $120.9 million and are expected to be used for general corporate purposes.

Financial Outlook

Based on information as of October 29, 2020, PROS currently anticipates the following based on an estimated 43.4 million basic weighted average shares outstanding and a 22% non-GAAP estimated tax rate for the fourth quarter ending December 31, 2020.

Q4 2020 v. Q4 2019 Full Year 2020 v. Prior Year Guidance at Mid- Guidance at Mid- Point Point

Total Revenue $58.9 to (10)% $250.5 to -% $59.9 $251.5

Subscription $41.1 to 2% $168.7 to 16%Revenue $41.6 $169.2

ARR n/a n/a $207.0 to (5)% $209.0

Non-GAAP Loss $(0.18) to $ $(0.06) n/a n/aPer Share (0.16)

Adjusted EBITDA $(9.1) to $ $(4.0) $(32.5) to $ $(18.8) (8.1) (31.5)

Free Cash Flow n/a n/a $(65.0) to $ $(61.6) (60.0)

Conference Call

In conjunction with this announcement, PROS Holdings, Inc. will host a conference call on Thursday, October 29, 2020, 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 and archived webcasts of this 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, November 12, 2020, at 1-844-512-2921 (toll-free) or 1-412-317-6671 using the pass code 13710898.

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 within the meaning of the Private Securities Litigation Reform Act of 1995, including statements about the business impact and duration of the coronavirus (COVID-19) pandemic; our financial outlook; expectations; ability to achieve future growth and profitability; management's confidence and optimism; positioning; customer successes; demand for our software solutions; pipeline; business expansion; revenue; subscription revenue; ARR; non-GAAP loss per share; 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, among others, risks related to: (a) the impact of the COVID-19 pandemic, such as the scope and duration of the outbreak and timeframe for recovery of the travel industry, (b) cybersecurity, (c) maintaining subscription renewal rates, (d) potential downturns in sales, (e) implementing our solutions, (f) software innovation, (g) maintaining our corporate culture, (h) disruptions from our third party data center, software, data, and other unrelated service providers, (i) evolving data privacy, cyber security and data localization laws, (j) cloud operations, (k) managing our growth effectively, (l) operating globally, including economic and commercial disruptions, (m) personnel risks including loss of any key employees, (n) the timing of revenue recognition and cash flow from operations, (o) competition, (p) market acceptance of our software innovations, (q) development of our target markets, (r) increasing business from existing customers, (s) migrating customers to our latest cloud solutions; (t) expanding and training our direct and indirect sales force, (u) our debt repayment obligations, (v) returning to profitability, and (w) acquiring and integrating businesses and/or technologies. Additional information relating to the risks and uncertainties affecting our business is contained in our filings with the SEC. These forward-looking statements represent our expectations as of the date hereof. 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 non-GAAP financial measures, including non-GAAP gross profit and margin, non-GAAP income (loss) from operations or non-GAAP operating loss, annual recurring revenue, adjusted EBITDA, free cash flow, non-GAAP subscription revenue, non-GAAP tax rate, non-GAAP net income (loss) or non-GAAP net loss, and diluted earnings (loss) per share or non-GAAP net 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. Non-GAAP gross margin can be compared to gross margin which can be calculated from the condensed consolidated statement on income (loss) by dividing gross profit by total revenue. Non-GAAP gross margin is similarly calculated but first adds back to gross profit the portion of certain of the non-GAAP adjustments described below attributable to cost of revenue. Non-GAAP subscription margin can be compared to subscription margin which can be calculated from the condensed consolidated statement on income (loss) by dividing subscription gross profit (subscription revenue minus subscription cost) by subscription revenue. Non-GAAP subscription margin is similarly calculated but first subtracts out from subscription cost the portion of certain of the non-GAAP adjustments described below attributable to cost of subscription. These items and amounts are presented in the Supplemental Schedule of Non-GAAP Financial Measures.

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, non-GAAP loss per share, adjusted EBITDA, free cash flow, non-GAAP tax rates, and calculated billings (collectively the "non-GAAP financial measures") as follows:

Non-GAAP income (loss) from operations: Non-GAAP income (loss) from operations excludes the impact of share-based compensation, amortization of acquisition-related intangibles, acquisition-related expenses, new headquarters noncash rent expense and debt extinguishment fees. 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. * New Headquarters Noncash Rent Expense: Noncash rent expense is related to our 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. * Debt extinguishment fees: Debt extinguishment fees relate to third party fees incurred in connection with the retirement of our senior convertible notes due in December 2019. 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 debt extinguishment fees in order for investors to better understand our business performance and allow investors to compare our operating results with peer companies.

Non-GAAP loss per share Non-GAAP net income (loss) excludes the items listed above as excluded from non-GAAP income (loss) from operations and also excludes amortization of debt discount and issuance costs and the taxes related to these items and the items excluded from non-GAAP income (loss) from operations. Estimates of non-GAAP loss per share are calculated by dividing estimates for non-GAAP loss by our estimate of shares outstanding for the future period. In addition to the items listed above as excluded from non-GAAP income (loss) from operations, non-GAAP net income (loss) excludes the following items from non-GAAP estimates:

* 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. * Loss on Debt Extinguishment: Loss on debt extinguishment relates to the settlement of our senior convertible notes due in December 2019 and June 2047. This amount is 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 loss on debt extinguishment 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, new headquarters noncash rent expense, debt extinguishment fees 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)

September 30, December 31, 2020 2019

Assets:

Current assets:

Cash and cash equivalents $ 322,352 $ 306,077

Trade and other receivables, net of allowance 67,940 65,074 of $4,616 and $214, respectively

Deferred costs, current 5,917 5,756

Prepaid and other current assets 9,010 9,038

Total current assets 405,219 385,945

Property and equipment, net 35,994 14,794

Operating lease right-of-use assets 31,030 26,550

Deferred costs, noncurrent 12,974 15,478

Intangibles, net 9,869 14,605

Goodwill 49,560 49,104

Other assets, noncurrent 6,796 6,831

Total assets $ 551,442 $ 513,307

Liabilities and Stockholders' Equity:

Current liabilities:

Accounts payable and other liabilities $ 14,014 $ 9,098

Accrued liabilities 11,906 22,748

Accrued payroll and other employee benefits 22,017 32,656

Operating lease liabilities, current 5,132 7,173

Deferred revenue, current 106,547 124,459

Total current liabilities 159,616 196,134

Deferred revenue, noncurrent 11,493 17,801

Convertible debt, net, noncurrent 214,751 110,704

Operating lease liabilities, noncurrent 35,218 22,391

Other liabilities, noncurrent 1,330 1,281

Total liabilities 422,408 348,311

Stockholders' equity:

Preferred stock, $0.001 par value, 5,000,000 - - shares authorized; none issued

Common stock, $0.001 par value, 75,000,000shares authorized; 48,030,340 and 47,310,846 48 47 shares issued, respectively; 43,349,617 and42,630,123 shares outstanding, respectively

Additional paid-in capital 583,284 560,496

Treasury stock, 4,680,723 common shares, at (29,847 ) (29,847 ) cost

Accumulated deficit (420,589 ) (361,789 )

Accumulated other comprehensive loss (3,862 ) (3,911 )

Total stockholders' equity 129,034 164,996

Total liabilities and stockholders' equity $ 551,442 $ 513,307

PROS Holdings, Inc.

Condensed Consolidated Statements of Income (Loss)

(In thousands, except per share data)

(Unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2020

2019

2020

2019

Revenue:

Subscription

$

42,029

$

38,592

$

127,576

$

104,621

Maintenance and support

10,765

14,405

35,029

44,772

Total subscription, maintenance and support

52,794

52,997

162,605

149,393

Services

8,714

11,153

28,961

34,766

Total revenue

61,508

64,150

191,566

184,159

Cost of revenue:

Subscription

12,897

11,090

38,153

30,695

Maintenance and support

2,177

2,632

7,577

8,269

Total cost of subscription, maintenance and support

15,074

13,722

45,730

38,964

Services

9,563

12,661

33,584

31,792

Total cost of revenue

24,637

26,383

79,314

70,756

Gross profit

36,871

37,767

112,252

113,403

Operating expenses:

Selling and marketing

21,951

21,600

67,882

66,030

General and administrative

11,948

11,553

40,356

35,260

Research and development

19,135

16,878

56,668

50,132

Acquisition-related

-

248

-

248

Loss from operations

(16,163

)

(12,512

)

(52,654

)

(38,267

)

Convertible debt interest and amortization

(2,498

)

(3,717

)

(6,645

)

(12,347

)

Other income (expense), net

122

(1,010

)

1,099

(601

)

Loss before income tax provision

(18,539

)

(17,239

)

(58,200

)

(51,215

)

Income tax provision

318

108

600

566

Net loss

$

(18,857

)

$

(17,347

)

$

(58,800

)

$

(51,781

)

Net loss per share:

Basic and diluted

$

(0.44

)

$

(0.42

)

$

(1.36

)

$

(1.31

)

Weighted average number of shares:

Basic and diluted

43,347

41,276

43,251

39,438

PROS Holdings, Inc.

Condensed Consolidated Statements of Income (Loss)

(In thousands, except per share data)

(Unaudited)

Three Months Ended September Nine Months Ended September 30, 30,

2020 2019 2020 2019

Revenue:

Subscription $ 42,029 $ 38,592 $ 127,576 $ 104,621

Maintenance and 10,765 14,405 35,029 44,772 support

Total subscription,maintenance and 52,794 52,997 162,605 149,393 support

Services 8,714 11,153 28,961 34,766

Total revenue 61,508 64,150 191,566 184,159

Cost of revenue:

Subscription 12,897 11,090 38,153 30,695

Maintenance and 2,177 2,632 7,577 8,269 support

Total cost ofsubscription, 15,074 13,722 45,730 38,964 maintenance andsupport

Services 9,563 12,661 33,584 31,792

Total cost of 24,637 26,383 79,314 70,756 revenue

Gross profit 36,871 37,767 112,252 113,403

Operating expenses:

Selling and 21,951 21,600 67,882 66,030 marketing

General and 11,948 11,553 40,356 35,260 administrative

Research and 19,135 16,878 56,668 50,132 development

Acquisition-related - 248 - 248

Loss from (16,163 ) (12,512 ) (52,654 ) (38,267 ) operations

Convertible debtinterest and (2,498 ) (3,717 ) (6,645 ) (12,347 ) amortization

Other income 122 (1,010 ) 1,099 (601 ) (expense), net

Loss before income (18,539 ) (17,239 ) (58,200 ) (51,215 ) tax provision

Income tax 318 108 600 566 provision

Net loss $ (18,857 ) $ (17,347 ) $ (58,800 ) $ (51,781 )



Net loss per share:

Basic and diluted $ (0.44 ) $ (0.42 ) $ (1.36 ) $ (1.31 )

Weighted average number of shares:

Basic and diluted 43,347 41,276 43,251 39,438

PROS Holdings, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands) (Unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2020

2019

2020

2019

Operating activities:

Net loss

$

(18,857

)

$

(17,347

)

$

(58,800

)

$

(51,781

)

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization

3,651

3,435

10,584

10,264

Amortization of debt discount and issuance costs

2,008

2,864

5,456

9,159

Share-based compensation

6,378

6,209

18,477

18,234

Provision for doubtful accounts

263

-

5,549

-

Loss on debt extinguishment

-

2,734

-

5,000

Changes in operating assets and liabilities:

Accounts and unbilled receivables

(13,700

)

(2,641

)

(8,584

)

(13,888

)

Deferred costs

717

(1,191

)

2,343

(3,124

)

Prepaid expenses and other assets

(192

)

(1,059

)

131

(4,582

)

Accounts payable and other liabilities

5,747

76

9,344

(492

)

Accrued liabilities

(4,877

)

4,646

(11,500

)

9,877

Accrued payroll and other employee benefits

4,378

6,737

(10,601

)

2,717

Deferred revenue

(402

)

(426

)

(24,240

)

11,009

Net cash (used in) provided by operating activities

(14,886

)

4,037

(61,841

)

(7,607

)

Investing activities:

Purchases of property and equipment

(4,353

)

(1,053

)

(23,551

)

(3,360

)

Capitalized internal-use software development costs

(459

)

(153

)

(1,265

)

(1,021

)

Acquisition of Travelaer, net of cash acquired

-

(10,510

)

-

(10,510

)

Purchase of equity securities

(113

)

(112

)

(113

)

(180

)

Purchase of intangible asset

-

-

-

(50

)

Net cash used in investing activities

(4,925

)

(11,828

)

(24,929

)

(15,121

)

Financing activities:

Proceeds from employee stock plans

1,460

1,052

2,824

1,995

Tax withholding related to net share settlement of stock awards

(113

)

(2,956

)

(20,334

)

(21,598

)

Proceeds from issuance of convertible debt, net

146,925

-

146,925

140,156

Debt issuance costs related to convertible debt

(675

)

(212

)

(675

)

(860

)

Purchase of capped call

(25,335

)

-

(25,335

)

(16,445

)

Settlement of convertible debt

-

(60

)

-

(76,018

)

Proceeds from termination of bond hedge

-

-

-

64,819

Payment for termination of warrant

-

-

-

(45,243

)

Net cash provided by (used in) financing activities

122,262

(2,176

)

103,405

46,806

Effect of foreign currency rates on cash

(256

)

(433

)

(360

)

(392

)

Net change in cash and cash equivalents

102,195

(10,400

)

16,275

23,686

Cash and cash equivalents:

Beginning of period

220,157

329,562

306,077

295,476

End of period

$

322,352

$

319,162

$

322,352

$

319,162

PROS Holdings, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands) (Unaudited)

Three Months Ended September Nine Months Ended September 30, 30,

2020 2019 2020 2019

Operating activities:

Net loss $ (18,857 ) $ (17,347 ) $ (58,800 ) $ (51,781 )

Adjustments toreconcile netloss to net cash used inoperatingactivities:

Depreciationand 3,651 3,435 10,584 10,264 amortization

Amortization ofdebt discount 2,008 2,864 5,456 9,159 and issuancecosts

Share-based 6,378 6,209 18,477 18,234 compensation

Provision fordoubtful 263 - 5,549 - accounts

Loss on debt - 2,734 - 5,000 extinguishment

Changes inoperating assets andliabilities:

Accounts andunbilled (13,700 ) (2,641 ) (8,584 ) (13,888 ) receivables

Deferred costs 717 (1,191 ) 2,343 (3,124 )

Prepaidexpenses and (192 ) (1,059 ) 131 (4,582 ) other assets

Accountspayable and 5,747 76 9,344 (492 ) otherliabilities

Accrued (4,877 ) 4,646 (11,500 ) 9,877 liabilities

Accrued payrolland other 4,378 6,737 (10,601 ) 2,717 employeebenefits

Deferred (402 ) (426 ) (24,240 ) 11,009 revenue

Net cash (usedin) provided by (14,886 ) 4,037 (61,841 ) (7,607 ) operatingactivities

Investing activities:

Purchases ofproperty and (4,353 ) (1,053 ) (23,551 ) (3,360 ) equipment

Capitalizedinternal-usesoftware (459 ) (153 ) (1,265 ) (1,021 ) developmentcosts

Acquisition ofTravelaer, net - (10,510 ) - (10,510 ) of cashacquired

Purchase ofequity (113 ) (112 ) (113 ) (180 ) securities

Purchase ofintangible - - - (50 ) asset

Net cash usedin investing (4,925 ) (11,828 ) (24,929 ) (15,121 ) activities

Financing activities:

Proceeds fromemployee stock 1,460 1,052 2,824 1,995 plans

Tax withholdingrelated to netshare (113 ) (2,956 ) (20,334 ) (21,598 ) settlement ofstock awards

Proceeds fromissuance of 146,925 - 146,925 140,156 convertibledebt, net

Debt issuancecosts related (675 ) (212 ) (675 ) (860 ) to convertibledebt

Purchase of (25,335 ) - (25,335 ) (16,445 ) capped call

Settlement ofconvertible - (60 ) - (76,018 ) debt

Proceeds fromtermination of - - - 64,819 bond hedge

Payment fortermination of - - - (45,243 ) warrant

Net cashprovided by(used in) 122,262 (2,176 ) 103,405 46,806 financingactivities

Effect offoreign (256 ) (433 ) (360 ) (392 ) currency rateson cash

Net change incash and cash 102,195 (10,400 ) 16,275 23,686 equivalents

Cash and cash equivalents:

Beginning of 220,157 329,562 306,077 295,476 period

End of period $ 322,352 $ 319,162 $ 322,352 $ 319,162

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 10.

Three Months Ended September 30,

Quarter over Quarter

Nine Months Ended September 30,

Year over Year

2020

2019

% change

2020

2019

% change

GAAP gross profit

$

36,871

$

37,767

(2

)

%

$

112,252

$

113,403

(1

)

%

Non-GAAP adjustments:

New headquarters noncash rent expense

99

166

417

479

Amortization of acquisition-related intangibles

910

961

2,700

2,988

Share-based compensation

519

503

1,545

1,535

Non-GAAP gross profit

$

38,399

$

39,397

(3

)

%

$

116,914

$

118,405

(1

)

%

Non-GAAP gross margin

62.4

%

61.4

%

61.0

%

64.3

%

GAAP loss from operations

$

(16,163

)

$

(12,512

)

29

%

$

(52,654

)

$

(38,267

)

38

%

Non-GAAP adjustments:

Acquisition-related expenses

-

248

-

248

Debt extinguishment fees

-

-

-

319

New headquarters noncash rent expense

370

554

1,479

1,663

Amortization of acquisition-related intangibles

1,386

1,425

4,144

4,433

Share-based compensation

6,378

6,209

18,477

18,234

Total Non-GAAP adjustments

8,134

8,436

24,100

24,897

Non-GAAP loss from operations

$

(8,029

)

$

(4,076

)

97

%

$

(28,554

)

$

(13,370

)

114

%

Non-GAAP loss from operations % of total revenue

(13.1

)

%

(6.4

)

%

(14.9

)

%

(7.3

)

%

GAAP net loss

$

(18,857

)

$

(17,347

)

9

%

$

(58,800

)

$

(51,781

)

14

%

Non-GAAP adjustments:

Total Non-GAAP adjustments affecting loss from operations

8,134

8,436

24,100

24,897

Amortization of debt discount and issuance costs

1,998

2,855

5,426

9,129

Loss on debt extinguishment

-

2,734

-

5,000

Tax impact related to non-GAAP adjustments

2,168

815

6,908

3,248

Non-GAAP net loss

$

(6,557

)

$

(2,507

)

162

%

$

(22,366

)

$

(9,507

)

135

%

Non-GAAP diluted loss per share

$

(0.15

)

$

(0.06

)

$

(0.52

)

$

(0.24

)

Shares used in computing non-GAAP loss per share

43,347

41,276

43,251

39,438

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 theCompany because we believe that this information provides a more consistent andcomplete understanding of the underlying results and trends of the ongoingbusiness due to the uniqueness of these charges.

See breakdown of the reconciling line items on page 10.

Three Months Ended Quarter Nine Months Ended Year September 30, over September 30, over Quarter Year

2020 2019 % 2020 2019 % change change

GAAP gross profit $ 36,871 $ 37,767 (2 ) % $ 112,252 $ 113,403 (1 ) %

Non-GAAP adjustments:

New headquarters noncash rent 99 166 417 479 expense

Amortization of acquisition-related 910 961 2,700 2,988 intangibles

Share-based 519 503 1,545 1,535 compensation

Non-GAAP gross profit $ 38,399 $ 39,397 (3 ) % $ 116,914 $ 118,405 (1 ) %



Non-GAAP gross margin 62.4 % 61.4 % 61.0 % 64.3 %



GAAP loss from $ (16,163 ) $ (12,512 ) 29 % $ (52,654 ) $ (38,267 ) 38 %operations

Non-GAAP adjustments:

Acquisition-related - 248 - 248 expenses

Debt extinguishment - - - 319 fees

New headquarters noncash rent 370 554 1,479 1,663 expense

Amortization of acquisition-related 1,386 1,425 4,144 4,433 intangibles

Share-based 6,378 6,209 18,477 18,234 compensation

Total Non-GAAP 8,134 8,436 24,100 24,897 adjustments

Non-GAAP loss from $ (8,029 ) $ (4,076 ) 97 % $ (28,554 ) $ (13,370 ) 114 %operations



Non-GAAP loss fromoperations % of total (13.1 ) % (6.4 ) % (14.9 ) % (7.3 ) % revenue



GAAP net loss $ (18,857 ) $ (17,347 ) 9 % $ (58,800 ) $ (51,781 ) 14 %

Non-GAAP adjustments:

Total Non-GAAP adjustments 8,134 8,436 24,100 24,897 affecting loss from operations

Amortization of debt discount and 1,998 2,855 5,426 9,129 issuance costs

Loss on debt - 2,734 - 5,000 extinguishment

Tax impact related to non-GAAP 2,168 815 6,908 3,248 adjustments

Non-GAAP net loss $ (6,557 ) $ (2,507 ) 162 % $ (22,366 ) $ (9,507 ) 135 %



Non-GAAP diluted loss $ (0.15 ) $ (0.06 ) $ (0.52 ) $ (0.24 ) per share



Shares used incomputing non-GAAP 43,347 41,276 43,251 39,438 loss per share

PROS Holdings, Inc.

Supplemental Schedule of Non-GAAP Financial Measures

Increase (Decrease) in GAAP Amounts Reported

(In thousands)

(Unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2020

2019

2020

2019

Cost of Subscription Items

New headquarters noncash rent expense

13

16

42

48

Amortization of acquisition-related intangibles

742

801

2,214

2,502

Share-based compensation

119

71

297

210

Total cost of subscription items

$

874

$

888

$

2,553

$

2,760

Cost of Maintenance Items

New headquarters noncash rent expense

13

27

64

83

Amortization of acquisition-related intangibles

168

160

486

486

Share-based compensation

50

48

178

152

Total cost of maintenance items

$

231

$

235

$

728

$

721

Cost of Services Items

New headquarters noncash rent expense

73

123

311

348

Share-based compensation

350

384

1,070

1,173

Total cost of services items

$

423

$

507

$

1,381

$

1,521

Sales and Marketing Items

New headquarters noncash rent expense

73

99

283

305

Amortization of acquisition-related intangibles

476

464

1,444

1,445

Share-based compensation

1,727

1,515

5,558

4,329

Total sales and marketing items

$

2,276

$

2,078

$

7,285

$

6,079

General and Administrative Items

New headquarters noncash rent expense

65

91

262

272

Debt extinguishment fees

-

-

-

319

Share-based compensation

2,593

2,901

6,960

8,521

Total general and administrative items

$

2,658

$

2,992

$

7,222

$

9,112

Research and Development Items

New headquarters noncash rent expense

133

198

517

607

Share-based compensation

1,539

1,290

4,414

3,849

Total research and development items

$

1,672

$

1,488

$

4,931

$

4,456

Acquisition-related expenses

$

-

$

248

$

-

$

248

PROS Holdings, Inc.

Supplemental Schedule of Non-GAAP Financial Measures

Increase (Decrease) in GAAP Amounts Reported

(In thousands)

(Unaudited)

Three Months Ended Nine Months Ended September 30, September 30,

2020 2019 2020 2019

Cost of Subscription Items

New headquarters noncash rent 13 16 42 48 expense

Amortization of 742 801 2,214 2,502 acquisition-related intangibles

Share-based compensation 119 71 297 210

Total cost of subscription $ 874 $ 888 $ 2,553 $ 2,760 items



Cost of Maintenance Items

New headquarters noncash rent 13 27 64 83 expense

Amortization of 168 160 486 486 acquisition-related intangibles

Share-based compensation 50 48 178 152

Total cost of maintenance items $ 231 $ 235 $ 728 $ 721



Cost of Services Items

New headquarters noncash rent 73 123 311 348 expense

Share-based compensation 350 384 1,070 1,173

Total cost of services items $ 423 $ 507 $ 1,381 $ 1,521



Sales and Marketing Items

New headquarters noncash rent 73 99 283 305 expense

Amortization of 476 464 1,444 1,445 acquisition-related intangibles

Share-based compensation 1,727 1,515 5,558 4,329

Total sales and marketing items $ 2,276 $ 2,078 $ 7,285 $ 6,079



General and Administrative Items

New headquarters noncash rent 65 91 262 272 expense

Debt extinguishment fees - - - 319

Share-based compensation 2,593 2,901 6,960 8,521

Total general and $ 2,658 $ 2,992 $ 7,222 $ 9,112 administrative items



Research and Development Items

New headquarters noncash rent 133 198 517 607 expense

Share-based compensation 1,539 1,290 4,414 3,849

Total research and development $ 1,672 $ 1,488 $ 4,931 $ 4,456 items



Acquisition-related expenses $ - $ 248 $ - $ 248

PROS Holdings, Inc.

Supplemental Reconciliation of GAAP to Non-GAAP Financial Measures

(In thousands)

(Unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2020

2019

2020

2019

Adjusted EBITDA

GAAP Loss from Operations

$

(16,163

)

$

(12,512

)

$

(52,654

)

$

(38,267

)

Acquisition-related expenses

-

248

-

248

Amortization of acquisition-related intangibles

1,386

1,425

4,144

4,433

New headquarters noncash rent expense

370

554

1,479

1,663

Debt extinguishment fees

-

-

-

319

Share-based compensation

6,378

6,209

18,477

18,234

Depreciation and other amortization

2,265

2,010

6,440

5,831

Capitalized internal-use software development costs

(459

)

(153

)

(1,265

)

(1,021

)

Adjusted EBITDA

$

(6,223

)

$

(2,219

)

$

(23,379

)

$

(8,560

)

Net cash (used in) provided by operating activities

$

(14,886

)

$

4,037

$

(61,841

)

$

(7,607

)

Purchase of property and equipment (excluding new headquarters)

(384

)

(876

)

(1,647

)

(3,145

)

Purchase of intangible asset

-

-

-

(50

)

Capitalized internal-use software development costs

(459

)

(153

)

(1,265

)

(1,021

)

Free Cash Flow

$

(15,729

)

$

3,008

$

(64,753

)

$

(11,823

)

Guidance

Q4 2020 Guidance

Full Year 2020 Guidance

Low

High

Low

High

Adjusted EBITDA

GAAP Loss from Operations

$

(18,900

)

$

(17,900

)

$

(71,900

)

$

(70,900

)

Amortization of acquisition-related intangibles

1,400

1,400

5,500

5,500

New headquarters noncash rent expense

600

600

1,500

1,500

Share-based compensation

5,800

5,800

25,300

25,300

Depreciation and other amortization

2,400

2,400

8,800

8,800

Capitalized internal-use software development costs

(400

)

(400

)

(1,700

)

(1,700

)

Adjusted EBITDA

$

(9,100

)

$

(8,100

)

$

(32,500

)

$

(31,500

)

View source version on businesswire.com: https://www.businesswire.com/news/home/20201029006110/en/

CONTACT: Investor Contact: PROS Investor Relations Shannon Tatz 713-335-5932 ir@pros.com

CONTACT: Media Contact: Amanda Parrish 832-924-4731 aparrish@pros.com