PROS HOLDINGS, INC.
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
______________________________________________________
FORM 10-Q
______________________________________________________
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ý
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
March 31, 2017
OR
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
.
Commission File Number: 001-33554
___________________________________________________
PROS HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
___________________________________________________
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Delaware
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76-0168604
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(State of Incorporation)
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(I.R.S. Employer Identification No.)
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3100 Main Street, Suite 900
Houston TX
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77002
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(Address of Principal Executive Offices)
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(Zip Code)
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(713) 335-5151
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(Registrant's telephone number, including area code)
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____________________________________________________
(Former Name, Former Address and Former Fiscal Year, if changed Since Last Report)
Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
x
No
o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
x
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
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Large Accelerated Filer
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o
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Accelerated Filer
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x
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Non-Accelerated Filer
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o
(do not check if a smaller reporting company)
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Smaller Reporting Company
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o
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
o
No
x
The number of shares outstanding of the registrant's Common Stock, $0.001 par value, was 31,434,025 as of
April 27, 2017
.
PROS Holdings, Inc.
Form 10-Q
For the Quarterly Period Ended
March 31, 2017
Table of Contents
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Page
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Item 1.
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Item 2.
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Management's Discussion and Analysis of Financial Condition and Results of Operations
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Item 3.
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Item 4.
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Item 1.
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Item 1A.
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Item 2.
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Item 3.
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Item 4.
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Item 5.
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Item 6.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements relate to future events or our future financial performance. These forward-looking statements regarding future events and our future results are based on current expectations, estimates, forecasts and projections, and the beliefs and assumptions of our management including, without limitation, our expectations regarding the following: our ability to execute on our revenue strategy shift to cloud-first, the license and subscription revenues generated by our software products and services; the impact of our revenue recognition policies; our belief that our current assets, including cash, cash equivalents, short-term investments, and expected cash flows from operating activities, will be sufficient to fund our operations; our belief that we will successfully integrate our acquisitions; our anticipated additions to property, plant and equipment; our belief that our facilities are suitable and adequate to meet our current operating needs; and our belief that we do not have any material exposure to changes in the fair value of our investment portfolio as a result of changes in foreign currency exchange rates or interest rates. Words such as, but not limited to, “we expect,” “anticipate,” “target,” “project,” “believe,” “goals,” “estimate,” “potential,” “predict,” “may,” “might,” “could,” “would,” “intend,” and variations of these types of words and similar expressions are intended to identify these forward-looking statements.
3
PROS Holdings, Inc.
(In thousands, except share and per share amounts)
(Unaudited)
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March 31, 2017
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December 31, 2016
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||||||
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Assets:
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|||||||
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Current assets:
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|||||||
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Cash and cash equivalents
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$
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111,868
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$
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118,039
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Short-term investments
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6,000
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15,996
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Accounts and unbilled receivables, net of allowance of $760
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32,744
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33,285
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Prepaid and other current assets
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6,805
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6,337
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Total current assets
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157,417
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173,657
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Property and equipment, net
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14,789
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15,238
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Intangibles, net
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12,074
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12,650
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Goodwill
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20,245
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20,096
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Other long-term assets
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6,202
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6,013
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Total assets
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$
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210,727
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$
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227,654
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Liabilities and Stockholders' Equity:
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|||||||
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Current liabilities:
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Accounts payable and other liabilities
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$
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6,253
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$
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2,744
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Accrued liabilities
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7,483
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7,279
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Accrued payroll and other employee benefits
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7,391
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18,349
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Deferred revenue
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73,307
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68,349
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Total current liabilities
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94,434
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96,721
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Long-term deferred revenue
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11,561
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11,389
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Convertible debt, net
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123,974
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122,299
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Other long-term liabilities
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628
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639
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Total liabilities
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230,597
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231,048
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Commitments and contingencies (Note 6)
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Stockholders' equity:
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Preferred stock, $0.001 par value, 5,000,000 shares authorized; none issued
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—
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—
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Common stock, $0.001 par value, 75,000,000 shares authorized; 35,821,241 and 35,001,236 shares issued, respectively; 31,403,656 and 30,583,651 shares outstanding, respectively
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36
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35
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Additional paid-in capital
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179,161
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175,678
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Treasury stock, 4,417,585 common shares, at cost
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(13,938
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)
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(13,938
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)
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Accumulated deficit
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(180,466
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)
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(160,259
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)
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Accumulated other comprehensive loss
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(4,663
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)
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(4,910
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)
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Total stockholders' equity
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(19,870
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)
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(3,394
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)
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Total liabilities and stockholders' equity
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$
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210,727
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$
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227,654
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
PROS Holdings, Inc.
(In thousands, except per share data)
(Unaudited)
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Three Months Ended March 31,
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2017
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2016
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Revenue:
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Subscription
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$
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12,214
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$
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8,201
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Maintenance and support
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18,076
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16,662
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Total subscription, maintenance and support
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30,290
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24,863
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License
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2,190
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3,302
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Services
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7,649
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9,763
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Total revenue
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40,129
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37,928
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Cost of revenue:
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Subscription
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5,937
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3,446
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Maintenance and support
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3,146
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3,272
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Total cost of subscription, maintenance and support
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9,083
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6,718
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License
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65
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62
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Services
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7,461
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8,931
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Total cost of revenue
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16,609
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15,711
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Gross profit
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23,520
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22,217
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Operating expenses:
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Selling and marketing
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16,473
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18,018
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General and administrative
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10,408
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9,041
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Research and development
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14,307
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13,132
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Loss from operations
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(17,668
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)
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(17,974
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)
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Convertible debt interest and amortization
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(2,394
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)
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(2,287
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)
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Other income (expense), net
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32
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(58
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)
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Loss before income tax provision
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(20,030
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)
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(20,319
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)
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Income tax provision
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177
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158
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Net loss
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$
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(20,207
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)
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$
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(20,477
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)
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Net loss per share:
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Basic and diluted
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$
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(0.65
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)
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$
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(0.68
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)
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Weighted average number of shares:
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Basic and diluted
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31,099
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30,226
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Other comprehensive income (loss), net of tax:
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Foreign currency translation adjustment
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$
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260
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$
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756
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Unrealized (loss) gain on available-for-sale securities
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(13
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)
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5
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Other comprehensive income (loss), net of tax
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247
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761
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Comprehensive loss
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$
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(19,960
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)
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$
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(19,716
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)
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
PROS Holdings, Inc.
(In thousands)
(Unaudited)
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Three Months Ended March 31,
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2017
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2016
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Operating activities:
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Net loss
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$
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(20,207
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)
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$
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(20,477
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)
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Adjustments to reconcile net loss to net cash provided by operating activities:
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Depreciation and amortization
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2,033
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2,465
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Amortization of debt discount and issuance costs
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1,675
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1,568
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Share-based compensation
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6,162
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5,384
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Deferred income tax, net
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33
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27
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Provision for doubtful accounts
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—
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(96
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)
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Changes in operating assets and liabilities:
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Accounts and unbilled receivables
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543
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1,257
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Prepaid expenses and other assets
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(666
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)
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458
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Accounts payable and other liabilities
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3,631
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801
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Accrued liabilities
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434
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1,034
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Accrued payroll and other employee benefits
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(10,957
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)
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(3,203
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)
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Deferred revenue
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5,126
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8,018
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Net cash used in operating activities
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(12,193
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)
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(2,764
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)
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Investing activities:
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Purchases of property and equipment
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(484
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)
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(3,522
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)
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Capitalized internal-use software development costs
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(572
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)
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—
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Purchases of short-term investments
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—
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(34,946
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)
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Proceeds from maturities of short-term investments
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9,983
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2,500
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Net cash provided by (used in) investing activities
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8,927
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(35,968
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)
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Financing activities:
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Exercise of stock options
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2,198
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—
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Proceeds from employee stock plans
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776
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470
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Tax withholding related to net share settlement of stock awards
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(5,665
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)
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(4,797
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)
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Payments of notes payable
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(50
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)
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(38
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)
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Debt issuance costs related to Revolver
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(125
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)
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—
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Net cash used in financing activities
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(2,866
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)
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(4,365
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)
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Effect of foreign currency rates on cash
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(39
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)
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27
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Net change in cash and cash equivalents
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(6,171
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)
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(43,070
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)
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Cash and cash equivalents:
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Beginning of period
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118,039
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161,770
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End of period
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$
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111,868
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$
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118,700
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
PROS Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Organization and Nature of Operations
PROS Holdings, Inc., a Delaware corporation, through its operating subsidiaries (collectively, the "Company"), is a cloud software company powering the shift to modern commerce by helping companies create personalized and frictionless buying experiences for their customers. Fueled by dynamic pricing science and machine learning, PROS solutions make it possible for companies to price, configure and sell their products and services in an omnichannel environment with speed, precision and consistency. PROS customers, who are leaders in their markets, benefit from decades of data science expertise infused into its industry solutions. The Company provides its solutions to enterprises across the manufacturing, distribution, and services industries, including automotive and industrial, business-to-business ("B2B") services, cargo, chemicals and energy, consumer goods, insurance, food and beverage, healthcare, high tech, and travel. The Company offers its solutions via a SaaS delivery model as well as on a perpetual or term license basis. The Company also provides professional services to implement its software applications as well as business consulting. In addition, the Company provides product maintenance and support to its customers through which they receive unspecified upgrades, maintenance releases and bug fixes during the term of the support period on a when-and-if-available basis.
2. Summary of Significant Accounting Policies
The accompanying unaudited condensed consolidated financial statements reflect the application of significant accounting policies as described below and elsewhere in these notes to the condensed consolidated financial statements.
Basis of presentation
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States ("GAAP") for interim financial reporting and applicable quarterly reporting regulations of the Securities and Exchange Commission ("SEC"). In management's opinion, the accompanying interim unaudited condensed consolidated financial statements include all adjustments necessary for a fair statement of the financial position of the Company as of
March 31, 2017
, the results of operations for the
three
months ended
March 31, 2017
and
2016
, and cash flows for the
three
months ended
March 31, 2017
and
2016
.
Certain information and disclosures normally included in the notes to the annual financial statements prepared in accordance with GAAP have been omitted from these interim unaudited condensed consolidated financial statements pursuant to the rules and regulations of the SEC. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2016
("Annual Report") filed with the SEC. The condensed consolidated balance sheet as of
December 31, 2016
was derived from the Company's audited consolidated financial statements but does not include all disclosures required under GAAP.
Basis of consolidation
The unaudited condensed consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries and a subsidiary where the Company exercises control. All intercompany transactions and balances have been eliminated in consolidation. The functional currency of PROS France SAS, formerly known as Cameleon Software SA ("PROS France") is the Euro. The financial statements of this subsidiary are translated into U.S. dollars using period-end rates of exchange for assets and liabilities, historical rates of exchange for equity, and average rates of exchange for the period for revenue and expenses. Translation gains (losses) are recorded in accumulated other comprehensive loss as a component of stockholders' equity.
Dollar amounts
The dollar amounts presented in the tabular data within these footnote disclosures are stated in thousands of dollars, except per share amounts, or as noted within the context of each footnote disclosure.
Use of estimates
The Company makes estimates and assumptions in the preparation of its unaudited condensed consolidated financial statements, and its estimates and assumptions may affect the reported amounts of assets and liabilities and the disclosure of
7
contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates. The complexity and judgment required in the Company's estimation process, as well as issues related to the assumptions, risks and uncertainties inherent in the application of the percentage-of-completion method of accounting, affect the amounts of revenue, expenses, unbilled receivables and deferred revenue. Estimates are also used for, but not limited to, receivables, allowance for doubtful accounts, useful lives of assets, depreciation and amortization, income taxes and deferred tax asset valuation, valuation of stock options, other current liabilities and accrued liabilities. Numerous internal and external factors can affect estimates. The critical accounting policies related to the estimates and judgments are discussed in the Company's Annual Report under management's discussion and analysis of financial condition and results of operations. There have been no significant changes to the Company's critical accounting policies as described in the Company's Annual Report.
Revenue recognition
The Company derives its revenues primarily from subscription services fees, professional services, the perpetual licensing of its software products and the associated software maintenance and support services. The Company has historically derived the majority of its revenue from the licensing of its software products, the related implementation and associated software maintenance and support. More recently, it has emphasized its offers of subscription services that do not require customers to host its solutions in their data centers.
The Company commences revenue recognition when all of the following criteria are met:
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•
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there is persuasive evidence of an arrangement;
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•
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the service has been or is being provided to the customer;
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•
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collection of the fee is reasonably assured; and
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•
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the amount of fees to be paid by the customer is fixed and determinable.
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Subscription services revenue
Subscription services revenue is generally recognized ratably over the contractual term of the arrangement beginning on the date that the Company's service is made available to the customer, assuming all other revenue recognition criteria have been met. The Company's subscription contracts do not provide customers with the right to take possession of the software supporting the applications and, as a result, are accounted for as service contracts. Any revenue related to up-front activation or set-up fees are deferred and recognized ratably over the estimated period that the customer benefits from the related services. Direct and incremental costs related to up-front activation or set-up activities are capitalized until the date the Company's service is made available and then expensed ratably over the estimated period that the customer benefits from the related services.
For the Company's subscription services that include professional services, the Company determines whether the professional services have standalone value. Professional services deemed to have standalone value are accounted for separately from subscription services and the subscription services revenue recognition commences on the date that the Company's service is made available to the customer. If determined that the professional services do not have standalone value, the transaction is treated as a single element and the subscription services and professional services revenue is deferred until the customer commences use of the subscription services, and the subscription services revenue is recognized over the remaining term of the arrangement.
Maintenance and support revenue
Maintenance and support revenue includes post-implementation customer support and the right to unspecified software updates and enhancements on a when-and-if-available basis. The Company recognizes revenue from maintenance arrangements ratably over the period in which the services are provided.
License revenue
The Company derives the majority of its license revenue from the sale of perpetual licenses. For software license arrangements that do not require significant modification or customization of the underlying software, the Company recognizes software licenses revenues upon software delivery, assuming all other revenue recognition criteria have been met.
The Company evaluates the nature and scope of professional services for each arrangement, and if it determines that the professional services revenue should not be accounted for separately from license revenue, the license revenue is recognized together with the professional services revenue using the percentage-of-completion method or completed contract method. The
8
completed contract method is also used for contracts where there is a risk over final acceptance by the customer or for contracts that are short-term in nature.
The percentage-of-completion method is measured by the percentage of man-days incurred during the reporting period as compared to the estimated total man-days necessary for each contract for implementation of the software solutions. The Company believes that for each such project, man-days expended in proportion to total estimated man-days at completion represents the most reliable and meaningful measure for determining a project's progress toward completion. Under the Company's fixed-fee arrangements, should a loss be anticipated on a contract, the full amount of the loss is recorded when the loss is determinable.
The Company also licenses software solutions under term license agreements that typically include maintenance during the license term. When maintenance is included for the entire term of the term license, there is no renewal rate and the Company has not established vendor specific objective evidence ("VSOE") of fair value for the maintenance on term licenses. For term license agreements, revenue and the associated costs are deferred until the delivery of the solution and recognized ratably over the remaining license term.
Professional services revenue
Professional services revenues are generally recognized as the services are rendered for time and material contracts, or on a proportional performance basis for fixed price contracts. The majority of the Company's professional services contracts are on a time and materials basis. Training revenues are recognized as the services are rendered.
For the Company's subscription services that include professional services, the Company determines whether the professional services have standalone value. Professional services deemed to have standalone value are accounted for separately from subscription services and typically recognized as the services are performed. If determined that the professional services do not have standalone value, the transaction is treated as a single element, the professional services revenue is deferred until the customer commences use of the subscription services, and the professional services revenue is recognized over the remaining term of the arrangement.
For software license arrangements that include professional services, the Company determines whether the professional services are considered essential to the functionality of the software using factors such as: the nature of its software products; whether they are ready for use by the customer upon receipt; the nature of professional services; the availability of services from other vendors; whether the timing of payments for license revenue coincides with performance of services; and whether milestones or acceptance criteria exist that affect the realizability of the software license fee. For professional services considered essential to the functionality of the software, the license revenue is recognized together with the professional services revenue using the percentage-of-completion method or completed contract method. The completed contract method is also used for contracts where there is a risk over final acceptance by the customer or for contracts that are short-term in nature.
Multiple element arrangements
For arrangements with multiple deliverables, the Company evaluates whether the individual deliverables qualify as separate units of accounting. In order to treat deliverables in a multiple deliverable arrangement as separate units of accounting, the deliverables must have standalone value upon delivery. If the deliverables have standalone value upon delivery, the Company accounts for each deliverable separately and revenue is recognized for the respective deliverables as they are delivered.
When multiple deliverables included in an arrangement are separable into different units of accounting, the arrangement consideration is allocated to the identified separate units of accounting based on their relative selling price. Multiple deliverable arrangement accounting guidance provides a hierarchy when determining the relative selling price for each unit of accounting. VSOE of selling price, based on the price at which the item is regularly sold by the vendor on a standalone basis, should be used if it exists. If VSOE of selling price is not available, third-party evidence ("TPE") of selling price is used to establish the selling price if it exists. If neither VSOE nor TPE exist for a deliverable, arrangements with multiple deliverables can be separated into discrete units of accounting based on the Company's best estimate of selling price ("BESP"). The objective of BESP is to determine the price at which the Company would transact a sale if the product or service were sold on a standalone basis. The amount of arrangement fee allocated is limited by contingent revenues, if any. For transactions that only include software and software-related elements, the Company continues to account for such arrangements under the software revenue recognition standards which require it to establish VSOE of fair value to allocate arrangement consideration to multiple deliverables.
For multiple-element arrangements that contain software and nonsoftware elements such as its subscription services, the Company allocates revenue between the software and software related elements as a group and any nonsoftware elements based
9
on a relative fair value allocation. The Company determines fair value for each deliverable using the selling price hierarchy described above and utilizing VSOE of fair value if it exists.
The Company applies the residual method to recognize revenue for the delivered elements in standalone software transactions. Under the residual method, the amount of revenue allocated to delivered elements equals the total arrangement consideration, less the aggregate fair value of any undelivered elements, typically maintenance, provided that VSOE of fair value exists for all undelivered elements. VSOE of fair value is based on the price charged when the element is sold separately or, in the case of maintenance, substantive renewal rates for maintenance.
Revenue that has been recognized, but for which the Company has not invoiced the customer, is recorded as unbilled receivables. Invoices that have been issued before revenue has been recognized are recorded as deferred revenue in the accompanying consolidated balance sheets.
Internal-use software
Costs incurred to develop internal-use software during the development stage are capitalized, stated at cost, and depreciated using the straight-line method over the estimated useful lives of the assets. Development stage costs generally include salaries and personnel costs and third-party contractor expenses associated with internal-use software configuration, coding, installation and testing. For the
three
months ended
March 31, 2017
and
2016
, the Company capitalized
$0.6 million
and
zero
, respectively, of internal-use software development costs related to cloud-based offerings. Capitalized internal-use software development costs related to cloud-based offerings are amortized using the straight-line method over the useful life of the asset. For the
three
months ended
March 31, 2017
and
2016
, the Company amortized
no
capitalized internal-use software development costs. Capitalized software for internal use is included in property and equipment, net in the
unaudited
condensed consolidated balance sheets. Amortization of capitalized internal-use software development costs, if any, is included in cost of subscription revenues in the accompanying unaudited condensed consolidated statements of comprehensive income (loss).
Impairment of long-lived assets
Long-lived assets are reviewed for impairment whenever an event or change in circumstances indicates that the carrying amount of an asset or group of assets may not be recoverable. The impairment review includes comparison of future cash flows expected to be generated by the asset or group of assets with the associated assets' carrying value. If the carrying value of the asset or group of assets exceeds its expected future cash flows (undiscounted and without interest charges), an impairment loss is recognized to the extent that the carrying amount of the asset exceeds its fair value. The Company recorded
no
impairment charges during the
three
months ended
March 31, 2017
and
2016
.
Noncash share-based compensation
The Company measures all share-based payments to its employees based on the grant date fair value of the awards and recognizes expenses in the Company's unaudited consolidated statement of comprehensive income (loss) on a straight-line basis over the periods during which the recipient is required to perform services (generally over the vesting period of the awards). To date, the Company has granted stock options, Restricted Stock Units ("RSUs"), stock settled Stock Appreciation Rights ("SARs"), and Market Stock Units ("MSUs"). RSUs include (i) time-based awards, and (ii) market-based awards in which the number of shares that vest are based upon attainment of target average per share closing price over a requisite trading period. MSUs are performance-based awards in which the number of shares that vest are based upon the Company's relative stockholder return.
The following table presents the number of shares or units outstanding for each award type as of
March 31, 2017
and
December 31, 2016
, respectively, (in thousands):
|
Award type
|
March 31, 2017
|
December 31, 2016
|
||||
|
Stock options
|
478
|
|
734
|
|
||
|
Restricted stock units (time-based)
|
2,347
|
|
2,237
|
|
||
|
Restricted stock units (market-based)
|
460
|
|
460
|
|
||
|
Stock appreciation rights
|
490
|
|
515
|
|
||
|
Market stock units
|
347
|
|
342
|
|
||
10
Stock options, time-based RSUs and SARs vest ratably between
one
and
four
years. Market-based RSUs vest if the average trailing closing price of the Company's Common Stock meets certain minimum performance hurdles for at least 105 calendar days prior to September 9, 2020, with
25%
vesting at
$27
, an additional
25%
vesting at
$33
, and the remaining
50%
vesting at
$41
. The actual number of MSUs that will be eligible to vest is based on the total stockholder return of the Company relative to the total stockholder return of the Russell 2000 Index ("Index") over their respective performance periods, as defined by each award's plan documents. The Company did not grant any stock options or SARs during the
three
months ended
March 31, 2017
or
2016
.
The fair value of the time-based RSUs is based on the closing price of the Company's stock on the date of grant.
The Company estimates the fair value and the derived service period of the market-based RSUs on the date of grant using a Monte Carlo simulation model. The model requires the use of a number of assumptions including the expected volatility of the Company's stock, its risk-free interest rate and expected dividends. The Company's expected volatility at the date of grant was based on the historical volatility of the Company over the performance period.
The fair value of the market-based RSUs is expensed over the derived service period for each separate vesting tranche. The derived service period for the vesting tranches of the market-based RSUs ranges between
1.01
and
1.98
years.
The Company estimates the fair value of MSUs on the date of grant using a Monte Carlo simulation model. The determination of fair value of the MSUs is affected by the Company's stock price and a number of assumptions including the expected volatilities of the Company's stock and the Index, its risk-free interest rate and expected dividends. The Company's expected volatility at the date of grant was based on the historical volatilities of the Company and the Index over the performance period.
The weighted average assumptions used to value the MSUs granted during the
three
months ended
March 31, 2017
were as follows:
|
|
March 31, 2017
|
|
|
Volatility
|
45.88%
|
|
|
Risk-free interest rate
|
1.52%
|
|
|
Expected option life in years
|
3.10
|
|
|
Dividend yield
|
—
|
|
Earnings per share
The Company computes basic earnings (loss) per share by dividing net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding. Diluted earnings (loss) per share is computed by dividing net income (loss) attributable to common stockholders by the weighted average number of common shares and dilutive potential common shares then outstanding. Diluted earnings per share reflect the assumed conversion of all dilutive securities, using the treasury stock method. Dilutive potential common shares consist of shares issuable upon the exercise of stock options, shares of unvested restricted stock units, and settlement of stock appreciation rights. When the Company incurs a net loss, the effect of the Company's outstanding stock options, stock appreciation rights and restricted stock units are not included in the calculation of diluted earnings (loss) per share as the effect would be anti-dilutive. Accordingly, basic and diluted net loss per share are identical.
Short-term investments
The Company's investments are available-for-sale commercial paper and certificate of deposit that are recorded at fair value in the consolidated balance sheets. The Company classifies all commercial paper regardless of original maturity at purchase date as investments. Unrealized gains and losses on available-for-sale securities are recorded, net of tax, as a component of accumulated other comprehensive income (loss), unless impairment is considered to be other-than-temporary. Other-than-temporary unrealized losses on available-for-sale securities are generally recorded in gain (loss) on investments, net, in the consolidated statements of comprehensive income (loss) unless certain criteria are met. The primary factors considered when determining if a charge must be recorded because a decline in the fair value of an investment is other-than-temporary include whether: (i) the fair value of the investment is significantly below the Company's cost basis; (ii) the financial condition of the issuer of the security has deteriorated; (iii) if a debt security, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the security; (iv) the decline in fair value has existed for an extended period of time; (v) if a debt security, such security has been downgraded by a rating agency; and (vi) the Company has the intent and ability to retain the investment for a period of time sufficient to allow for any anticipated recovery in fair value. Investments with remaining
11
maturities of twelve months or less are classified as short-term investments since they are readily convertible to cash to fund short-term operations. Investments with remaining maturities of more than twelve months are classified as long-term investments. All of the Company's investments had contractual maturities of less than twelve months as of
March 31, 2017
.
Cost method investment
Investments in equity securities of privately held companies without readily determinable fair value, where the Company does not exercise significant influence over the investee, are recorded using the cost method of accounting, carrying the investment at historical cost. If there are no identified events or changes in circumstances that might have an adverse effect on the cost method investments, the Company does not estimate the investments' fair value. For all investments, if a decline in the fair value of an investment below the carrying value is determined to be other-than-temporary, such investment is written down to its estimated fair value with a charge to current earnings.
Fair value measurement
The Company's financial assets that are included in cash and cash equivalents and that are measured at fair value on a recurring basis consisted of
$96.8 million
and
$106.3 million
invested in treasury money market funds at
March 31, 2017
and
December 31, 2016
, respectively. The fair value of the treasury money market funds is determined based on quoted market prices, which represents level 1 in the fair value hierarchy as defined by Accounting Standard Codification ("ASC") 820, "
Fair Value Measurement and Disclosure
."
The Company's short-term investments that are measured at fair value are comprised of
zero
and
$10.0 million
invested in available-for-sale commercial paper as of
March 31, 2017
and
December 31, 2016
, respectively, and
$6.0 million
invested in certificate of deposit at
March 31, 2017
and
December 31, 2016
. The fair value of these accounts is determined based on quoted market prices for similar assets in active markets, which represents level 2 in the fair value hierarchy. The Company recorded an immaterial amount of unrealized gain related to the short-term investments for the
three
months ended
March 31, 2017
and
2016
. Reclassification adjustments for realized gain (loss) on available-for-sale securities in net income were immaterial for the
three
months ended
March 31, 2017
and
2016
.
At
March 31, 2017
and
December 31, 2016
, the Company held
$2.0 million
of equity securities in a privately held company. This investment is accounted for under the cost method and the Company measures it at fair value on a nonrecurring basis when it is deemed to be other-than-temporarily impaired. The Company estimates fair value of its cost method investment considering available information such as pricing in recent rounds of financing, current cash positions, earnings and cash flow forecasts, recent operational performance and any other readily available market data, which represents level 3 in the fair value hierarchy. As of
March 31, 2017
, the Company determined there were no other-than-temporary impairments on its cost method investment.
Deferred revenue and unbilled receivables
Software license and implementation services that have been performed, but for which the Company has not invoiced the customer, are recorded as unbilled receivables, and invoices that have been issued before the software license and implementation, maintenance and subscription services have been performed are recorded as deferred revenue in the accompanying unaudited condensed consolidated balance sheets.
Credit facility
On January 27, 2017, the Company, through its wholly owned subsidiary PROS, Inc., entered into a Seventh Amendment (the "Seventh Amendment") to the
$50 million
secured Credit Agreement ("Revolver"). The Seventh Amendment provides for, among other things, an extension of the maturity date of the Revolver to July 2, 2022, and additional financial covenants with which the Company must comply if the Company's liquidity falls below an increased amount of
$50 million
or upon the occurrence of an event of default. The remaining material terms of the Revolver remain unchanged, and are summarized in the Company's Annual Report, Note 14.
As of
March 31, 2017
, the Company had
no
outstanding borrowings under the Revolver, and
$0.2 million
of unamortized debt issuance costs related to the Revolver is included in prepaid and other current assets and other long-term assets in the condensed consolidated balance sheets. For the
three
months ended
March 31, 2017
and
2016
, the Company recorded an immaterial amount of amortization of debt issuance cost which is included in other expense, net in the unaudited condensed consolidated statements of comprehensive income (loss).
12
Income taxes
The Company recorded an income tax provision of
$0.2 million
for the
three
months ended
March 31, 2017
and
2016
, primarily related to foreign income taxes and state taxes not based on income. The effective tax rate for both the
three
months ended
March 31, 2017
and
2016
was
(1)%
. The income tax rates vary from the federal and state statutory rates primarily due to the valuation allowances on the Company’s deferred tax assets, the limitation on deductibility of certain officers’ compensation, and foreign and state taxes not based on income. The Company estimates its annual effective tax rate at the end of each quarterly period. Jurisdictions with a projected loss for the year where no tax benefit can be recognized due to the valuation allowances on the Company’s deferred tax assets are excluded from the estimated annual effective tax rate. The impact of such an exclusion could result in a higher or lower effective tax rate during a particular quarter depending on the mix and timing of actual earnings versus annual projections.
Recently adopted accounting pronouncements
In March 2016, the FASB issued ASU 2016-09, "Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting" which is intended to simplify several aspects of the accounting for share-based payment transactions including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. This standard is effective for interim and annual reporting periods beginning after December 15, 2016. The Company adopted this standard on January 1, 2017. Upon adoption, the Company recognized the previously unrecognized excess tax benefits using the modified retrospective transition method, which resulted in a cumulative-effect adjustment of
$4.2 million
to accumulated deficit. The previously unrecognized excess tax effects were recorded as a deferred tax asset, which was fully offset by a valuation allowance and as such the cumulative adjustment had no net impact on the Company's financial statements. As required by ASU 2016-09, excess tax benefits recognized on stock-based compensation expense are reflected in the condensed consolidated statements of operations as a component of the provision for income taxes on a prospective basis. In addition, ASU 2016-09 allows companies to account for forfeitures as they occur or estimate expected forfeitures over the course of a vesting period; the Company has elected to continue to estimate forfeitures expected to occur to determine the amount of compensation cost to be recognized each period.
Recent accounting pronouncements
In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)," which supersedes nearly all existing revenue recognition guidance under GAAP and permits the use of either the retrospective or cumulative effect transition method. In August 2015, the FASB issued ASU 2015-14, "Revenue from Contracts with Customers: Deferral of the Effective Date" which deferred the effective date of the new revenue standard for periods beginning after December 15, 2016 to December 15, 2017, with early adoption permitted but not earlier than the original effective date. In March 2016, the FASB issued ASU 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations” which clarifies the implementation of guidance on principal versus agent considerations. In April 2016, the FASB issued ASU 2016-10, "Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligation and Licensing" which clarifies the implementation of guidance on identifying performance obligations and licensing. In May 2016, the FASB issued ASU 2016-12, "Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients", which clarifies the disclosure requirements for an entity that retrospectively applies the guidance in Topic 606. These standards are effective for the Company in the first quarter of fiscal 2018. The Company has not yet selected a transition method and is currently evaluating the effect that the updated standard will have on its consolidated financial statements and related disclosures.
The Company continues to assess all potential impacts of the new standard, and currently believes the most significant impact relates to its accounting for arrangements that include term-based software licenses bundled with maintenance and support
,
the deferral of incremental costs of obtaining a contract with a customer, including the period of amortization of such costs and additional disclosures. Under current GAAP, the revenue attributable to these term-based software licenses is recognized ratably over the term of the arrangement because VSOE does not exist for the undelivered maintenance and support element as it is not sold separately. The requirement to have VSOE for undelivered elements to enable the separation of revenue for the delivered software licenses is eliminated under the new standard. Accordingly, under the new standard, the Company will be required to recognize as revenue a portion of the arrangement fee upon delivery of the software license. In addition, under current GAAP, the Company deferred only direct and incremental commission costs to obtain a contract and amortized those costs over the term of the related contract. Under the new standard, the Company will defer all incremental costs related to the customer contract and will amortize these costs over the expected period of customer benefit. While the Company currently expects revenue related to professional services and subscription services to remain substantially unchanged, it is still in the process of evaluating the impact of the new standard on these types of customer arrangements, including the impact of the deferral of incremental costs of obtaining a contract with a customer.
13
In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)" which requires the lessee to recognize most leases on the balance sheet thereby resulting in the recognition of lease assets and liabilities for those leases currently classified as operating leases. Lessor accounting remains largely unchanged from current guidance, however, ASU 2016-02 provides improvements that are intended to align lessor accounting with the lessee model and with updated revenue recognition guidance. This standard is effective for interim and annual reporting periods beginning after December 15, 2018. The Company is currently assessing the impact of ASU 2016-02 on its condensed consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments" which is intended to reduce the diversity in practice on classification of certain transactions in the statement of cash flows. This standard is effective for interim and annual reporting periods beginning after December 15, 2017; early adoption is permitted. The Company is currently assessing the impact of ASU 2016-15 on its condensed consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment", which eliminates step two from the goodwill impairment test. Under the amendments in this standard, an entity should recognize an impairment charge for the amount by which the carrying amount of a reporting unit exceeds its fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The standard is effective for interim and annual reporting periods beginning after December 15, 2019; earlier adoption is permitted for goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently assessing the impact of ASU 2017-04 on its condensed consolidated financial statements.
With the exception of the new standards discussed above, there have been no other recent accounting pronouncements or changes in accounting pronouncements during the
three
months ended
March 31, 2017
, as compared to the recent accounting pronouncements described in the Company's Annual Report, that are of significance or potential significance to the Company.
3. Earnings per Share
The following table sets forth the computation of basic and diluted earnings per share for the
three
months ended
March 31, 2017
and
2016
:
|
|
Three Months Ended March 31,
|
||||||
|
(in thousands, except per share data)
|
2017
|
2016
|
|||||
|
Numerator:
|
|||||||
|
Net loss
|
$
|
(20,207
|
)
|
$
|
(20,477
|
)
|
|
|
Denominator:
|
|||||||
|
Weighted average shares (basic)
|
31,099
|
|
30,226
|
|
|||
|
Dilutive effect of potential common shares
|
—
|
|
—
|
|
|||
|
Weighted average shares (diluted)
|
31,099
|
|
30,226
|
|
|||
|
Basic loss per share
|
$
|
(0.65
|
)
|
$
|
(0.68
|
)
|
|
|
Diluted loss per share
|
$
|
(0.65
|
)
|
$
|
(0.68
|
)
|
|
Dilutive potential common shares consist of shares issuable upon the exercise of stock options, settlement of SARs, and the vesting of RSUs and MSUs. Potential common shares determined to be antidilutive and excluded from diluted weighted average shares outstanding were approximately
2.5 million
and
2.0 million
for the
three
months ended
March 31, 2017
and
2016
, respectively. Basic shares were used to calculate loss per share for the
three
months ended
March 31, 2017
and
2016
.
Since the Company has the intention and ability to settle the principal amount of its Senior Notes (see Note 5) in cash, the treasury stock method is expected to be used for calculating any potential dilutive effect of the conversion spread on diluted net income per share, if applicable. The conversion spread will have a dilutive impact on diluted net income per share of common stock when the average market price of common stock for a given period exceeds the conversion price of
$33.79
per share.
4. Noncash Share-based Compensation
During the
three
months ended
March 31, 2017
, the Company granted
891,390
RSUs with a weighted average grant-date fair value of
$21.38
per share. The Company also granted
110,100
MSUs with a weighted average grant-date fair value of
$26.99
to certain executive employees during the
three
months ended
March 31, 2017
. These MSUs vest on March 1, 2020 and the actual number of MSUs that will be eligible to vest is based on the total stockholder return of the Company relative to the total
14
stockholder return of the Index over the Performance Period, as defined by each award's plan documents or individual award agreements. The Company did not grant any stock options or SARs during the
three
months ended
March 31, 2017
.
Share-based compensation expense is allocated to expense categories on the unaudited condensed consolidated statements of comprehensive income (loss). The following table summarizes share-based compensation expense included in the Company's unaudited condensed consolidated statements of comprehensive income (loss) for the
three
months ended
March 31, 2017
and
2016
:
|
|
Three Months Ended March 31,
|
||||||
|
|
2017
|
2016
|
|||||
|
Share-based compensation:
|
|||||||
|
Cost of revenue
|
$
|
575
|
|
$
|
599
|
|
|
|
Operating expenses:
|
|||||||
|
Selling and marketing
|
1,273
|
|
1,780
|
|
|||
|
General and administrative
|
2,802
|
|
1,730
|
|
|||
|
Research and development
|
1,512
|
|
1,275
|
|
|||
|
Total included in operating expenses
|
5,587
|
|
4,785
|
|
|||
|
Total share-based compensation expense
|
$
|
6,162
|
|
$
|
5,384
|
|
|
In January 2017, the number of shares available for issuance increased by
900,000
to
10,868,000
under an evergreen provision in the Company's 2007 Equity Incentive Plan ("2007 Stock Plan"). The 2007 Stock Plan expired on March 26, 2017. On March 24, 2017, the Board of Directors adopted the 2017 Equity Incentive Plan (2017 Stock Plan), and recommended that the Company’s stockholders approve the 2017 Stock Plan. The 2017 Stock Plan, if approved by the stockholders, would reserve an aggregate amount of
2,500,000
shares for issuance.
At
March 31, 2017
, the Company had an estimated
$49.4 million
of total unrecognized compensation costs related to share-based compensation arrangements. These costs will be recognized over a weighted average period of
2.7
years.
The Company's Employee Stock Purchase Plan ("ESPP") provides for eligible employees to purchase shares on an after-tax basis in an amount between
1%
and
10%
of their annual pay: (i) on June 30 of each year at a
15%
discount of the fair market value of the Company's common stock on January 1 or June 30, whichever is lower, and (ii) on December 31 of each year at a
15%
discount of the fair market value of the Company's common stock on July 1 or December 31, whichever is lower. An employee may not purchase more than
$5,000
in either of the six-month measurement periods described above or more than
$10,000
annually. During the
three
months ended
March 31, 2017
, the Company issued
50,927
shares, respectively, under the ESPP. As of
March 31, 2017
,
332,383
shares remain authorized and available for issuance under the ESPP. As of
March 31, 2017
, the Company held approximately
$0.4 million
on behalf of employees for future purchases under the ESPP, and this amount was recorded in accrued liabilities in the Company's unaudited condensed consolidated balance sheet.
5. Convertible Senior Notes
2.0% Convertible Senior Notes Due December 1, 2019
In December 2014, the Company issued
$143.8 million
aggregate principal amount of
2%
convertible Senior Notes (the "Senior Notes") due December 1, 2019, unless earlier purchased by the Company or converted. Interest is payable semiannually in arrears on June 1 and December 1 of each year, commencing on June 1, 2015.
The Senior Notes are governed by an Indenture between the Company, as issuer, and Wilmington Trust, National Association, as trustee. The Senior Notes are the Company's general unsecured obligations and will rank senior in right of payment to all of the Company's indebtedness that is expressly subordinated in right of payment to the Senior Notes, will rank equally in right of payment with all of Company's existing and future liabilities that are not so subordinated, will be effectively junior to any of the Company's secured indebtedness to the extent of the value of the assets securing such indebtedness and will be structurally subordinated to all indebtedness and other liabilities (including trade payables but excluding intercompany obligations owed to the Company or its subsidiaries).
Upon conversion of the Senior Notes, the Company will pay or deliver, as the case may be, cash, shares of the Company's common stock or a combination of cash and shares of common stock, at the Company's election.
15
The initial conversion rate for the Senior Notes will be
29.5972
shares of common stock per $1,000 in principal amount of Senior Notes, equivalent to a conversion price of approximately
$33.79
per share of common stock. Throughout the term of the Senior Notes, the conversion rate may be adjusted upon the occurrence of certain events. Holders of the Senior Notes will not receive any cash payment representing accrued and unpaid interest upon conversion. Accrued but unpaid interest will be deemed to be paid in full upon conversion rather than canceled, extinguished or forfeited. Holders may convert their Senior Notes at their option at any time prior to the close of business on the business day immediately preceding September 1, 2019 only under the following circumstances:
|
•
|
during any calendar quarter commencing after the calendar quarter ending on March 31, 2015, if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;
|
|
•
|
during the five consecutive business day period immediately following any five consecutive trading day period in which the trading price per $1,000 principal amount of Senior Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company's common stock and the conversion rate on each such trading day; or
|
|
•
|
upon the occurrence of specified corporate events.
|
On or after September 1, 2019 to the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their Senior Notes regardless of the above. Upon conversion, the Company will pay or deliver cash, shares of its common stock or a combination of cash and shares of its common stock, at its election, as described in the indenture.
As of
March 31, 2017
, the Senior Notes are not yet convertible.
In accounting for the issuance of the Senior Notes, the Company separated the Senior Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the face value of the Senior Notes as a whole. The excess of the principal amount of the liability component over its carrying amount ("debt discount") is amortized to interest expense over the term of the Senior Notes. The equity component is not remeasured as long as it continues to meet the conditions for equity classification.
In accounting for the transaction costs related to the Senior Notes issuance, the Company allocated the total amount incurred to the liability and equity components based on their relative values. Issuance costs attributable to the liability component, totaling
$4.3 million
, are being amortized to expense over the term of the Senior Notes using the effective interest method, and issuance costs attributable to the equity component, totaling
$1.2 million
, were netted with the equity component in stockholders' equity. Additionally, the Company recorded an immaterial deferred tax asset on a portion of the equity component transaction costs which are deductible for tax purposes.
The Senior Notes consist of the following (in thousands):
|
March 31, 2017
|
December 31, 2016
|
||||||
|
Liability component:
|
|||||||
|
Principal
|
$
|
143,750
|
|
$
|
143,750
|
|
|
|
Less: debt discount and issuance cost, net of amortization
|
(19,776
|
)
|
(21,451
|
)
|
|||
|
Net carrying amount
|
$
|
123,974
|
|
$
|
122,299
|
|
|
|
Equity component (1)
|
$
|
28,714
|
|
$
|
28,714
|
|
|
(1) Recorded in the consolidated balance sheet within additional paid-in capital, net of
$1.2 million
issuance cost in equity.
The following table sets forth total interest expense recognized related to the Senior Notes (in thousands):
16
|
Three Months Ended March 31,
|
|||||||
|
2017
|
2016
|
||||||
|
2.0% coupon
|
$
|
719
|
|
$
|
719
|
|
|
|
Amortization of debt issuance costs
|
214
|
|
204
|
|
|||
|
Amortization of debt discount
|
1,461
|
|
1,364
|
|
|||
|
Total
|
$
|
2,394
|
|
$
|
2,287
|
|
|
As of
March 31, 2017
and
December 31, 2016
, the fair value of the Senior Notes was
$125.4 million
and
$120.0 million
, respectively. The fair value was determined based on inputs that are observable in the market or that could be derived from, or corroborated with, observable market data, including the Company's stock price, interest rates and carrying value of the debt instrument (carrying value excludes the equity component of the Company's convertible notes classified in equity), which represents level 2 in the fair value hierarchy.
Note Hedge
To minimize the impact of potential economic dilution upon conversion of the Senior Notes, the Company entered into convertible note hedge transactions with respect to its common stock (the "Note Hedge"). In December 2014, the Company paid an aggregate amount of
$29.4 million
for the Note Hedge. The Note Hedge will expire upon maturity of the Senior Notes. The Note Hedge is intended to offset the potential dilution upon conversion of the Senior Notes and/or offset any cash payments the Company is required to make in excess of the principal amount upon conversion of the Senior Notes in the event that the market value per share of the Company's common stock, as measured under the Senior Notes, is greater than the strike price of the Note Hedge, which initially corresponds to the conversion price of the Notes and is subject to anti-dilution adjustments substantially similar to those applicable to the conversion rate of the Senior Notes. The Note Hedge is a separate transaction, entered into by the Company and is not part of the Senior Notes or the Warrant, and has been accounted for as part of additional paid-in capital.
Warrant
Separately, in December 2014, the Company entered into warrant transactions (the "Warrant"), whereby the Company sold warrants to acquire shares of the Company's common stock at a strike price of
$45.48
per share. The Company received aggregate proceeds of
$17.1 million
from the sale of the Warrant. If the average market value per share of the Company's common stock for the reporting period, as measured under the Warrant, exceeds the strike price of the Warrant, the Warrant will have a dilutive effect on the Company's earnings per share. The Warrant is a separate transaction, entered into by the Company and is not part of the Senior Notes or the Note Hedge, and has been accounted for as part of additional paid-in capital. Holders of the Senior Notes and Note Hedge will not have any rights with respect to the Warrant.
6. Commitments and Contingencies
Litigation
In the ordinary course of business, the Company regularly becomes involved in contract and other negotiations and, in more limited circumstances, becomes involved in legal proceedings, claims and litigation. The outcomes of these matters are inherently unpredictable. The Company is not currently involved in any outstanding litigation that it believes, individually or in the aggregate, will have a material adverse effect on its business, financial condition, results of operations or cash flows.
Lease commitments
The Company leases office space and office equipment under noncancelable operating leases that expire at various dates.
As of
March 31, 2017
, the future minimum lease commitments related to lease agreements were as follows:
17
|
Year Ending December 31,
|
Amount
|
|||
|
Remaining 2017
|
$
|
2,873
|
|
|
|
2018
|
2,736
|
|
||
|
2019
|
2,268
|
|
||
|
2020
|
787
|
|
||
|
2021
|
301
|
|
||
|
2022 and thereafter
|
75
|
|
||
|
Total minimum lease payments
|
$
|
9,040
|
|
|
18
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The terms “we,” “us,” “PROS“ and “our” refer to PROS Holdings, Inc. and all of its subsidiaries that are consolidated in conformity with generally accepted accounting principles in the United States.
This management's discussion and analysis of financial condition and results of operations should be read along with the unaudited condensed consolidated financial statements and unaudited notes to condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q, as well as the audited consolidated financial statements and notes to consolidated financial statements and management's discussion and analysis of financial condition and results of operations set forth in our Annual Report.
Overview
PROS is a cloud software company powering the shift to modern commerce by helping companies create personalized and frictionless buying experiences for their customers. Fueled by dynamic pricing science and machine learning, our solutions make it possible for companies to price, configure and sell their products and services in an omnichannel environment with speed, precision and consistency. Our customers, who are leaders in their markets, benefit from decades of data science expertise infused into our industry solutions. We also provides professional services to implement our software solutions.
Q1 2017 Financial Overview
In 2016, we reached several key milestones in our cloud transformation efforts while continuing to enable our customers to leverage our data science driven solutions to help them compete in modern commerce. In the first quarter of 2017, we continued to make substantial progress in the execution of our cloud-first strategy, as our subscription revenue increased by
49%
for the three months ended
March 31, 2017
as compared to the same period in
2016
, and our recurring revenue, which consists of maintenance and subscription revenue, grew by
22%
over the first quarter of
2016
.
Cash used in operating activities was
$12.2 million
for the
three
months ended
March 31, 2017
, as compared to
$2.8 million
for the
three
months ended
March 31, 2016
, primarily due to the net impact of working capital changes, mainly driven by the decrease in accrued payroll and other employee benefits due to the payment of the annual incentive in the period.
Free cash flow is a key metric to assess the strength of our business. Free cash flow is a non-GAAP financial measure which is defined as net cash provided or used by operating activities, less additions to property, plant and equipment, purchases of other (non-acquisition-related) intangible assets and capitalized internal-use software development costs. We believe free cash flow may be useful to investors and other users of our financial information in evaluating the amount of cash generated by our business operations. Free cash flow use for the three months ended
March 31, 2017
was
$13.2 million
, compared to
$6.3 million
for the three months ended
March 31, 2016
. The following is a reconciliation of free cash flow to the most comparable GAAP measure, net cash used in operating activities:
|
Three Months Ended March 31,
|
||||||||
|
2017
|
2016
|
|||||||
|
Net cash used in operating activities
|
$
|
(12,193
|
)
|
$
|
(2,764
|
)
|
||
|
Purchase of property and equipment
|
(484
|
)
|
(3,522
|
)
|
||||
|
Capitalized internal-use software development costs
|
(572
|
)
|
—
|
|
||||
|
Free Cash Flow
|
$
|
(13,249
|
)
|
$
|
(6,286
|
)
|
||
Total deferred revenue was
$84.9 million
as of
March 31, 2017
, as compared to
$79.7 million
as of
December 31, 2016
, an increase of
$5.1 million
, or
6%
, primarily due to an increase in subscription deferred revenue.
Revenue by Geography
The following geographic information is presented for the
three
months ended
March 31, 2017
and
2016
. PROS categorizes geographic revenues based on the location of the customer's headquarters. Because our contracts are predominately denominated in U.S. dollars, we have limited exposure to foreign currency exchange risk as discussed under Item 3 "Quantitative and Qualitative Disclosures About Market Risk - Foreign Currency Exchange Risk".
19
|
|
Three Months Ended March 31,
|
||||||||||||
|
|
2017
|
2016
|
|||||||||||
|
|
Revenue
|
Percent
|
Revenue
|
Revenue
|
|||||||||
|
United States of America
|
$
|
15,830
|
|
39
|
%
|
$
|
14,476
|
|
38
|
%
|
|||
|
Europe
|
11,406
|
|
29
|
%
|
10,830
|
|
29
|
%
|
|||||
|
The rest of the world
|
12,893
|
|
32
|
%
|
12,622
|
|
33
|
%
|
|||||
|
Total revenue
|
$
|
40,129
|
|
100
|
%
|
$
|
37,928
|
|
100
|
%
|
|||
Opportunities, Trends and Uncertainties
We have noted opportunities, trends and uncertainties that we believe are particularly significant to understand our financial results and condition.
|
•
|
We intend to continue investing for long-term growth. We have invested, and expect to continue to invest, in product development to enhance our existing technologies and develop new applications and technologies. In addition, we plan to continue to expand our ability to sell our subscription offerings globally through future investments in sales and marketing and cloud support and infrastructure. These investments will increase our costs on an absolute basis in the near-term.
|
|
•
|
In 2016 and in the first quarter of 2017, we sold more subscription-based solutions such as SaaS and subscription cloud-based solutions, and a lower percentage of perpetual licenses. We expect this trend to continue as part of our cloud strategy. Following our cloud strategy announced in 2015, the increase in the sales of subscription-based solutions has resulted in an increase in our subscription revenue and deferred more of our revenue recognition to later periods than we have experienced historically.
|
|
•
|
In June 2016, voters in the United Kingdom approved a referendum to exit the European Union, and in November 2016, voters in the U.S. elected a new president. Each of these events created uncertainty regarding the economic, regulatory and social implications for the U.S., the United Kingdom, the European Union and the world in general. In addition, during 2016 and in early 2017, the global economic environment continued to show signs of uncertainty regarding future domestic and global economic growth, and the global financial system experienced numerous ongoing geopolitical issues around the globe. During times of uncertain economic conditions, we generally experience longer sales cycles, increased scrutiny on purchasing decisions and overall cautiousness by customers. Certain foreign countries continue to face significant economic, political and social crises, and it is possible that these crises could result in economic deterioration in the markets in which we operate. This economic uncertainty may negatively affect the overall demand environment in fiscal 2017, particularly in the U.S. and Europe. These changes, and other effects we cannot anticipate, may negatively impact our business, business operations, results of operations, financial condition and cash flows. We believe that our expanded offerings of industry-specific solutions and innovative technology will enable us to stay competitive in a challenging economic environment as business leaders continue to focus on projects that quickly deliver value, however the extent to which the current economic conditions will further affect our business is uncertain.
|
|
•
|
Our income tax rates vary from the federal and state statutory rates due to the valuation allowances on our deferred tax assets and foreign withholding taxes; changing tax laws, regulations, and interpretations in multiple jurisdictions in which we operate; changes to the financial accounting rules for income taxes; unanticipated changes in tax rates; differences in accounting and tax treatment of our equity-based compensation and the tax effects of purchase accounting for acquisitions. We expect this fluctuation in income tax rates to continue as well as its potential impact on our results of operations.
|
20
Results of Operations
The following table sets forth certain items in our Condensed Consolidated Statements of Comprehensive Income (Loss) as a percentage of total revenues for the
three
months ended
March 31, 2017
and
2016
:
|
|
Three Months Ended March 31,
|
||||
|
2017
|
2016
|
||||
|
Revenue:
|
|||||
|
Subscription
|
30
|
%
|
22
|
%
|
|
|
Maintenance and support
|
45
|
|
44
|
|
|
|
Total subscription, maintenance and support
|
75
|
|
66
|
|
|
|
License
|
5
|
|
9
|
|
|
|
Services
|
19
|
|
26
|
|
|
|
Total revenue
|
100
|
|
100
|
|
|
|
Cost of revenue:
|
|||||
|
Subscription
|
15
|
|
9
|
|
|
|
Maintenance and support
|
8
|
|
9
|
|
|
|
Total cost of subscription, maintenance and support
|
23
|
|
18
|
|
|
|
License
|
—
|
|
—
|
|
|
|
Services
|
19
|
|
24
|
|
|
|
Total cost of revenue
|
41
|
|
41
|
|
|
|
Gross profit
|
59
|
|
59
|
|
|
|
Operating Expenses:
|
|||||
|
Selling and marketing
|
41
|
|
48
|
|
|
|
General and administrative
|
26
|
|
24
|
|
|
|
Research and development
|
36
|
|
35
|
|
|
|
Total operating expenses
|
103
|
|
106
|
|
|
|
Convertible debt interest and amortization
|
(6
|
)
|
(6
|
)
|
|
|
Other income (expense), net
|
—
|
|
—
|
|
|
|
Loss before income tax provision
|
(50
|
)
|
(54
|
)
|
|
|
Income tax provision
|
—
|
|
—
|
|
|
|
Net loss
|
(50
|
)%
|
(54
|
)%
|
|
Revenue:
|
|
Three Months Ended March 31,
|
Variance
|
||||||||||||
|
(Dollars in thousands)
|
2017
|
2016
|
$
|
%
|
||||||||||
|
Subscription
|
$
|
12,214
|
|
$
|
8,201
|
|
$
|
4,013
|
|
49
|
%
|
|||
|
Maintenance and support
|
18,076
|
|
16,662
|
|
1,414
|
|
8
|
%
|
||||||
|
Total subscription, maintenance and support
|
30,290
|
|
24,863
|
|
5,427
|
|
22
|
%
|
||||||
|
License
|
2,190
|
|
3,302
|
|
(1,112
|
)
|
(34
|
)%
|
||||||
|
Services
|
7,649
|
|
9,763
|
|
(2,114
|
)
|
(22
|
)%
|
||||||
|
Total revenue
|
$
|
40,129
|
|
$
|
37,928
|
|
$
|
2,201
|
|
6
|
%
|
|||
Subscription revenue.
Subscription revenue increased primarily due to an increase in the number of customers purchasing our subscription services and add-on revenue from existing customers. The total number of customers generating subscription revenue increased 23% for the
three
months ended
March 31, 2017
. We expect our subscription revenue will continue to increase as we focus on the sale of our subscription services over our perpetual license offerings.
21
Maintenance and support revenue.
The increase in maintenance and support revenue was principally a result of the timing of certain cash collections. Since a portion of our maintenance contracts are recognized on a cash basis this may create variability in maintenance revenue. As a result of our cloud strategy, we expect that maintenance revenue will decline in the future.
License revenue.
Our license revenue depends on the amount of perpetual licenses sold in the period, as well as the timing of revenue recognition. As a result of our cloud strategy, we sold fewer perpetual licenses and experienced a corresponding decrease in license revenue, which included a decrease of $1.7 million in license revenue recognized on a percentage of completion basis, offset by an increase of $0.6 million in license revenue recognized upon software delivery. As a result of our transition to a cloud strategy, we expect to sell a lower percentage of perpetual licenses and sell more subscription services, resulting in lower future license revenue and higher subscription services revenue.
Services revenue.
Services revenue declined primarily as a result of several larger customer implementations that were completed in 2016. The decrease was also due to lower levels of professional services required for our new subscription sales, and professional services revenue on certain subscription contracts which is deferred until the customer commences use of the subscription services because the professional services were deemed not to have standalone value. Services revenue can vary from period to period depending on different factors, including the level of professional services required to implement our solutions, the timing of services revenue recognition on certain subscription service contracts and any additional professional services requested from our customers during a particular period.
Cost of revenue and gross profit:
|
|
Three Months Ended March 31,
|
Variance
|
||||||||||||
|
(Dollars in thousands)
|
2017
|
2016
|
$
|
%
|
||||||||||
|
Cost of subscription
|
$
|
5,937
|
|
$
|
3,446
|
|
$
|
2,491
|
|
72
|
%
|
|||
|
Cost of maintenance and support
|
3,146
|
|
3,272
|
|
(126
|
)
|
(4
|
)%
|
||||||
|
Total cost of subscription, maintenance and support
|
9,083
|
|
6,718
|
|
2,365
|
|
35
|
%
|
||||||
|
Cost of license
|
65
|
|
62
|
|
3
|
|
5
|
%
|
||||||
|
Cost of services
|
7,461
|
|
8,931
|
|
(1,470
|
)
|
(16
|
)%
|
||||||
|
Total cost of revenue
|
16,609
|
|
15,711
|
|
898
|
|
6
|
%
|
||||||
|
Gross profit
|
$
|
23,520
|
|
$
|
22,217
|
|
$
|
1,303
|
|
6
|
%
|
|||
Cost of subscription.
The
three
-month increase in cost of subscription was primarily attributable to an increase of $2.3 million in infrastructure cost to support our current and anticipated future subscription customer base. The remaining increase in cost of subscription of $0.2 million was related to personnel cost growth commensurate with our subscription revenue growth. The subscription gross profit percentage for the
three
months ended
March 31, 2017
and
2016
, was
51%
and
58%
, respectively.
Cost of maintenance and support.
The cost of maintenance and support remained relatively consistent over the
three
months ended
March 31, 2017
as compared to the same period in 2016. The maintenance and support gross profit percentage was
83%
and
80%
for the
three
months ended
March 31, 2017
and
2016
, respectively.
Cost of license.
Cost of license consists of third-party fees for licensed software and remained consistent for the
three
months ended
March 31, 2017
and
2016
. License gross profit percentages for the
three
months ended
March 31, 2017
and
2016
, were
97%
and
98%
, respectively.
Cost of services.
The
three
-month decrease in cost of services was primarily attributable to a decrease in personnel cost used in our software implementations of $1.2 million and a decrease in other overhead expenses of $0.3 million. Services gross profit percentages for the
three
months ended
March 31, 2017
and
2016
, were
2%
and
9%
, respectively. Services gross profit percentages can vary from period to period depending on different factors, including the level of professional services required to implement our solutions, our effective man-day rates and the utilization of our professional services personnel.
Gross profit.
The increase in overall gross profit for the
three
months ended
March 31, 2017
was primarily attributable to an increase of
6%
in total revenue as compared to the same periods in
2016
.
22
Operating expenses:
|
|
Three Months Ended March 31,
|
Variance
|
||||||||||||
|
(Dollars in thousands)
|
2017
|
2016
|
$
|
%
|
||||||||||
|
Selling and marketing
|
$
|
16,473
|
|
$
|
18,018
|
|
$
|
(1,545
|
)
|
(9
|
)%
|
|||
|
General and administrative
|
10,408
|
|
9,041
|
|
1,367
|
|
15
|
%
|
||||||
|
Research and development
|
14,307
|
|
13,132
|
|
1,175
|
|
9
|
%
|
||||||
|
Total operating expenses
|
$
|
41,188
|
|
$
|
40,191
|
|
$
|
997
|
|
2
|
%
|
|||
Selling and marketing expenses.
The three-month decrease in sales and marketing expenses was attributable to a decrease of $0.5 million in noncash share-based compensation expense, primarily related to the change in employment status of our former Chief Operating Officer in July 2016. The remaining decrease of $1.0 million was primarily related to the timing of certain sales and marketing events and a decrease in other overhead expenses.
General and administrative expenses.
The three-month increase in general and administrative expenses was primarily attributable to an increase of $1.1 million in noncash share-based compensation expense and $0.8 million in personnel costs and contract labor, partially offset by a $0.5 million decrease in legal and other overhead expenses.
Research and development expenses.
The
three
-month increase in research and development expenses was primarily attributable to an increase of $0.7 million in personnel cost as a result of an increase in headcount to support our current and future product development and growth objectives, and an increase of $0.5 million in non-personnel costs and related overhead expenses associated with higher personnel cost.
Other income (expense), net:
|
|
Three Months Ended March 31,
|
Variance
|
||||||||||||
|
(Dollars in thousands)
|
2017
|
2016
|
$
|
%
|
||||||||||
|
Convertible debt interest and amortization
|
$
|
(2,394
|
)
|
$
|
(2,287
|
)
|
$
|
(107
|
)
|
5
|
%
|
|||
|
Other income (expense), net
|
$
|
32
|
|
$
|
(58
|
)
|
$
|
90
|
|
(155
|
)%
|
|||
Convertible debt interest and amortization.
The convertible debt expense for the
three
months ended
March 31, 2017
and
2016
related to coupon interest and amortization of debt discount and issuance costs attributable to our Senior Notes issued in December 2014.
Other income (expense) net.
Other income (expense), net changed by
$0.1 million
during the
three
months ended
March 31, 2017
, primarily due to the impact of movements in foreign currency exchange rates during the period.
Income tax provision:
|
|
Three Months Ended March 31,
|
|
Variance
|
|||||||||||
|
(Dollars in thousands)
|
2017
|
2016
|
$
|
%
|
||||||||||
|
Effective tax rate
|
(1
|
)%
|
(1
|
)%
|
n/a
|
|
n/a
|
|
||||||
|
Income tax provision
|
$
|
177
|
|
$
|
158
|
|
$
|
19
|
|
12
|
%
|
|||
Income tax provision
.
The tax provision of
$0.2 million
for the
three
months ended
March 31, 2017
includes foreign taxes and state taxes not based on pre-tax income. No tax benefit was recognized on jurisdictions with a projected loss for the year due to the valuation allowances on our deferred tax assets.
Our effective tax rate was
(1)%
for both the
three
months ended
March 31, 2017
and
2016
. The income tax rate varies from the 34% federal statutory rate primarily due to the valuation allowances on our deferred tax assets and the limitation on deductibility of certain officers’ compensation. While our expected tax rate would be 0% due to the full valuation on the deferred tax assets, the
(1)%
tax rate for the
three
months ended
March 31, 2017
and
2016
are due to foreign and state taxes not based on pre-tax income. Jurisdictions with a projected loss for the year where no tax benefit can be recognized due to the valuation allowances on our deferred tax assets are excluded from the estimated annual Federal effective tax rate. The impact of such an
23
exclusion could result in a higher or lower effective tax rate during a particular quarter depending on the mix and timing of actual earnings versus annual projections.
Liquidity and Capital Resources
At
March 31, 2017
, we had
$111.9 million
of cash and cash equivalents and
$63.0 million
of working capital as compared to
$118.0 million
of cash and cash equivalents and
$76.9 million
of working capital at
December 31, 2016
. In addition, we had
$6.0 million
and
$16.0 million
of short-term investments as of
March 31, 2017
and
December 31, 2016
, respectively.
Our principal sources of liquidity are our cash and cash equivalents, short-term investments, cash flows generated from operations and potential borrowings under our
secured Credit Agreement (the "Revolver") with the lenders party thereto and Wells Fargo Bank, National Association as agent for the lenders party thereto
. In December 2014, we issued the Senior Notes to supplement our overall liquidity position. Our material drivers or variants of operating cash flow are net income, noncash expenses (principally share-based compensation, intangible amortization and amortization of debt discount and issuance costs) and the timing of periodic invoicing and cash collections related to licenses, subscriptions and support for our software and related services. The primary source of operating cash flows is the collection of accounts receivable from our customers. Our operating cash flows are also impacted by the timing of payments to our vendors and the payments of our other liabilities. We generally pay our vendors and service providers in accordance with the invoice terms and conditions.
We believe our existing cash, cash equivalents and short-term investments balances, including funds provided by the issuance of our Senior Notes, funds available under our Revolver and our current estimates of future operating cash flows, will provide adequate liquidity and capital resources to meet our operational requirements, anticipated capital expenditures and coupon payments for our Senior Notes for the next twelve months. Our future working capital requirements will depend on many factors, including the operations of our existing business, potential growth of our subscription services, future acquisitions we might undertake, and expansion into complementary businesses. If such need arises, we may raise additional funds through equity or debt financings.
The following table presents key components of our unaudited condensed consolidated statements of cash flows for the
three
months ended
March 31, 2017
and
2016
:
|
|
Three Months Ended March 31,
|
||||||
|
(Dollars in thousands)
|
2017
|
2016
|
|||||
|
Net cash used in operating activities
|
$
|
(12,193
|
)
|
$
|
(2,764
|
)
|
|
|
Net cash provided by (used in) investing activities
|
8,927
|
|
(35,968
|
)
|
|||
|
Net cash used in financing activities
|
(2,866
|
)
|
(4,365
|
)
|
|||
|
Cash and cash equivalents (beginning of period)
|
118,039
|
|
161,770
|
|
|||
|
Cash and cash equivalents (end of period)
|
$
|
111,868
|
|
$
|
118,700
|
|
|
Net cash used in operating activities
. The
$9.4 million
increase in net cash used in operating activities was primarily due to the net impact of working capital changes, mainly driven by the decrease in accrued payroll and other employee benefits due to the payment of the annual incentive in the period.
Net cash provided by (used in) investing activities
. The
$44.9 million
increase in net cash provided by investing activities was primarily due to
$42.4 million
related to the timing of purchases and maturities of short-term investments. In addition, capital expenditures decreased by
$3.0 million
and capitalized internal-use software increased by
$0.6 million
in the
three
months ended
March 31, 2017
as compared to the same period in
2016
.
Net cash used in financing activities
. The decrease of
$1.5 million
in net cash used in financing activities was primarily the result of higher proceeds from the exercise of stock options and employee stock plans, increasing
$2.2 million
and
$0.3 million
, respectively, partially offset by an increase of
$0.9 million
in tax withholdings on vesting of employee share-based awards and payment of
$0.1 million
in debt issuance costs on the Revolver renewal.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures
24
or capital resources that are material. We do not have any relationships with unconsolidated entities or financial partnerships, such as variable interest entities, that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Contractual Obligations and Commitments
There have been no material changes to our contractual obligations and commitments disclosed in our Annual Report.
Credit facility
In July 2012, we entered into the Revolver. In January 2017, we extended the maturity date of the Revolver through July 2022. There were
no
outstanding borrowings under the Revolver as of
March 31, 2017
. As of
March 31, 2017
, we had
$0.2 million
of unamortized debt issuance costs related to the Revolver included in prepaids and other current assets and other long-term assets in the unaudited condensed consolidated balance sheets. For the
three
months ended
March 31, 2017
and
2016
, we recorded an immaterial amount of amortization of debt issuance cost which is included in other expense, net in the unaudited condensed consolidated statements of comprehensive income (loss).
Recent Accounting Pronouncements
See Note 2, “Recent Accounting Pronouncements” of Notes to Unaudited Condensed Consolidated Financial Statements of this Form 10-Q for discussion of recent accounting pronouncements including the respective expected dates of adoption.
25
Foreign Currency Exchange Risk
Our contracts are predominately denominated in U.S. dollars. We are exposed to foreign currency exchange risk because we also have contracts denominated in foreign currencies. The effect of a hypothetical 10% adverse change in exchange rates on our foreign denominated receivables as of
March 31, 2017
would result in a loss of approximately $0.2 million. We are also exposed to foreign currency risk due to our French subsidiary, PROS France. A hypothetical 10% adverse change in the value of the U.S. dollar in relation to the Euro, which is the Company's single most significant foreign currency exposure, would have changed revenue for the
three
months ended
March 31, 2017
by approximately $0.2 million. In addition, we have operating subsidiaries in the United Kingdom, Canada, Germany, Ireland, Australia and United Arab Emirates. However, due to the relatively low volume of payments made and received by the Company through our foreign subsidiaries, we do not believe that we have significant exposure to foreign currency exchange risks. Fluctuations in foreign currency exchange rates could harm our financial results in the future.
We currently do not use derivative financial instruments to mitigate foreign currency exchange risks. We continue to review this matter and may consider hedging certain foreign exchange risks through the use of currency futures or options in future years.
Interest Rate Risk
The Company is exposed to market risk for changes in interest rates related to the variable interest rate on borrowings under the Revolver. As of
March 31, 2017
, the Company had
no
borrowings under the Revolver.
Our investment portfolio mainly consists of short-term interest-bearing obligations, including government and investment grade debt securities and money market funds. These securities are classified as available-for-sale and, consequently, are recorded in the unaudited condensed consolidated balance sheets at fair value with unrealized gains or losses reported as a separate component of accumulated other comprehensive income (loss), net of tax. Our investment strategy is focused on the preservation of capital and supporting our working capital requirements. We do not enter into investments for trading or speculative purposes. We believe that we do not have any material exposure to changes in the fair value as a result of changes in interest rates due to the short term nature of our cash equivalents.
As of
March 31, 2017
, we had
$143.8 million
principal amount of Senior Notes outstanding which are fixed rate instruments. Therefore, our results of operations are not subject to fluctuations in interest rates. The fair value of the Senior Notes may change when the market price of our stock fluctuates.
Disclosure Controls and Procedures
Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act of 1934, as amended (the "Exchange Act") as of
March 31, 2017
. Based on our evaluation of our disclosure controls and procedures as of
March 31, 2017
, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
Our management, with the participation of our chief executive officer and chief financial officer, concluded that there have been no changes in our internal control over financial reporting during the three months ended
March 31, 2017
that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
26
From time to time, we are a party to legal proceedings and claims arising in the ordinary course of business. We are not currently aware of any such proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition, results of operations or cash flows.
There have been no material changes to the risk factors as presented in our Annual Report on Form 10-K for the year ended
December 31, 2016
.
We have an ongoing authorization from our Board of Directors to repurchase up to $15.0 million in shares of our common stock in the open market or through privately negotiated transactions. As of
March 31, 2017
, $10.0 million remained available for repurchase under the existing repurchase authorization. We did not make any purchases of our common stock under this program for the three months ended
March 31, 2017
.
None.
None.
None.
|
Index to Exhibits
|
||||||||||
|
Provided
|
Incorporated by Reference
|
|||||||||
|
Exhibit No.
|
Description
|
Herewith
|
Form
|
SEC File No.
|
Filing Date
|
|||||
|
10.1
|
Seventh Amendment to Credit Agreement, dated January 27, 2017, by and between PROS, Inc. and Wells Fargo Bank, National Association.
|
8-K
|
333-141884
|
2/2/2017
|
||||||
|
31.1
|
Certification of Chief Executive Officer Pursuant to Exchange Act Rule 13a-14(a)/15d-14(a).
|
X
|
||||||||
|
31.2
|
Certification of Chief Financial Officer Pursuant to Exchange Act Rule 13a-14(a)/ 15d-14(a).
|
X
|
||||||||
|
32.1*
|
Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350.
|
X
|
||||||||
|
Exhibit No.
|
Description
|
|||||||||
|
101.INS
|
XBRL Instance Document.
|
|||||||||
|
101.SCH
|
XBRL Taxonomy Extension Schema Document.
|
|||||||||
|
101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase Document.
|
|||||||||
|
101.DEF
|
XBRL Taxonomy Extension Definition Linkbase Document.
|
|||||||||
|
101.LAB
|
XBRL Taxonomy Extension Label Linkbase Document.
|
|||||||||
|
101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase Document.
|
|||||||||
27
|
*
|
This certification shall not be deemed “filed” for purposes of Section 18 of the Securities Act of 1934, or otherwise subject to the liability of that Section, nor shall it be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.
|
28
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
PROS HOLDINGS, INC.
|
||
|
May 2, 2017
|
By:
|
|
/s/ Andres Reiner
|
|
|
Andres Reiner
|
||
|
|
President and Chief Executive Officer
(Principal Executive Officer)
|
||
|
May 2, 2017
|
By:
|
|
/s/ Stefan Schulz
|
|
|
Stefan Schulz
|
||
|
|
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
|
||
29
TABLE OF CONTENTS
Part I. Financial InformationItem 1. Interim Condensed Consolidated Financial StatementsItem 2. Management's Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II. Other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 3. Defaults Upon Senior SecuritiesItem 4. Mine Safety DisclosureItem 5. Other InformationItem 6. Exhibits