PROS(PRO) - 2024 Q1 - Quarterly Report

FORM 10-Q General Information This section details the Quarterly Report on Form 10-Q, registrant information, and filer status as of March 31, 2024 - This is a Quarterly Report on Form 10-Q for the period ended March 31, 2024[2] - Registrant: PROS HOLDINGS, INC. (Commission File Number: 001-33554), listed on the New York Stock Exchange under trading symbol PRO[3][4][6] - Number of shares outstanding of Common Stock: 47,004,361 as of May 1, 2024[7] Registrant Filer Status | Filer Status | | | | | :-------------------- | :--- | :---------------- | :--- | | Large accelerated filer | ☒ | Accelerated Filer | ☐ | | Non-Accelerated Filer | ☐ | Smaller Reporting Company | ☐ | | Emerging Growth Company | ☐ | | | CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This section warns that the report contains forward-looking statements subject to risks and uncertainties, and should not be relied upon as future predictions - This report contains forward-looking statements based on current estimates, assumptions, trends, and projections, identified by words like 'believes,' 'expects,' 'may,' 'should,' 'intends,' 'plans,' 'anticipates,' and 'estimates'[11] - Actual results could differ materially due to numerous important factors, risks, and uncertainties described in the Annual Report on Form 10-K and this Quarterly Report on Form 10-Q[11] - Readers should not rely on forward-looking statements as predictions of future events, and the company undertakes no obligation to publicly update them[12] PART I. FINANCIAL INFORMATION Item 1. Interim Condensed Consolidated Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements, including balance sheets, income statements, cash flows, and equity, with explanatory notes Condensed Consolidated Balance Sheets This section provides a snapshot of the company's financial position, detailing assets, liabilities, and equity as of March 31, 2024, and December 31, 2023 - Total assets decreased by $13.9 million, and total stockholders' (deficit) equity decreased by $6.1 million from December 31, 2023, to March 31, 2024[14] Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | March 31, 2024 | December 31, 2023 | | :------------------------------------------ | :------------- | :------------------ | | Cash and cash equivalents | $156,423 | $168,747 | | Total current assets | $222,909 | $234,674 | | Total assets | $407,889 | $421,833 | | Total current liabilities | $188,873 | $197,331 | | Total liabilities | $491,906 | $499,706 | | Total stockholders' (deficit) equity | $(84,017) | $(77,873) | Condensed Consolidated Statements of Comprehensive Loss This section outlines the company's financial performance, including revenue, gross profit, and net loss for the three months ended March 31, 2024 and 2023 - Total revenue increased by 10.26% year-over-year, driven by a 14.97% increase in subscription revenue[16] - Net loss improved by 40.23% year-over-year, from $(19.0) million in Q1 2023 to $(11.4) million in Q1 2024[16] Condensed Consolidated Statements of Comprehensive Loss Highlights (in thousands, except per share data) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Total revenue | $80,688 | $73,182 | | Gross profit | $51,855 | $43,640 | | Loss from operations | $(10,302) | $(18,796) | | Net loss | $(11,357) | $(19,002) | | Basic and diluted net loss per share | $(0.24) | $(0.41) | Condensed Consolidated Statements of Cash Flows This section details the cash inflows and outflows from operating, investing, and financing activities for the three months ended March 31, 2024 and 2023 - Net cash used in operating activities improved by 24.40% year-over-year, primarily due to increased cash collections[19] - Net cash used in financing activities increased by 104.70% year-over-year, mainly due to higher tax withholding payments related to stock awards[19] Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | $(4,644) | $(6,143) | | Net cash used in investing activities | $(353) | $(1,546) | | Net cash used in financing activities | $(7,314) | $(3,573) | | Net change in cash, cash equivalents and restricted cash | $(12,324) | $(11,251) | | Cash, cash equivalents and restricted cash, end of period | $166,423 | $192,376 | Condensed Consolidated Statements of Stockholders' (Deficit) Equity This section presents changes in stockholders' (deficit) equity, including common stock, additional paid-in capital, and accumulated deficit for Q1 2024 - Noncash share-based compensation expense was $12.7 million for Q1 2024, an increase from $9.9 million in Q1 2023[22] Stockholders' (Deficit) Equity Changes (in thousands, except share data) | Item | Balance at Dec 31, 2023 | Q1 2024 Activity | Balance at Mar 31, 2024 | | :-------------------------- | :---------------------- | :----------------- | :---------------------- | | Common Stock (Shares) | 46,503,861 | 464,579 | 46,968,440 | | Common Stock (Amount) | $51 | $1 | $52 | | Additional Paid-In Capital | $604,084 | $5,485 | $609,469 | | Accumulated Deficit | $(647,252) | $(11,357) | $(658,609) | | Total Stockholders' (Deficit) Equity | $(77,873) | $(6,144) | $(84,017) | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements 1. Organization and Nature of Operations This note describes PROS Holdings, Inc.'s business, focusing on its AI-driven solutions for optimizing shopping and selling experiences - PROS Holdings, Inc. provides AI-driven solutions that optimize shopping and selling experiences for both B2B and B2C companies across various industry verticals[25] - The company's solutions leverage artificial intelligence, self-learning, and automation to deliver customized prices and offers in real-time, supporting fluid, personalized experiences across sales channels[25] 2. Summary of Significant Accounting Policies This note outlines the key accounting policies used in preparing the financial statements and discusses the impact of new accounting pronouncements - The financial statements are prepared in accordance with GAAP for interim financial reporting, and no material changes in significant accounting policies were reported compared to the Annual Report[26][28] - The company is currently evaluating the impact of new FASB ASUs 2023-07 (Segment Reporting) and 2023-09 (Income Tax Disclosures) on its consolidated financial statements[31][32] Deferred Costs (in thousands) | Metric | March 31, 2024 | December 31, 2023 | | :------------- | :------------- | :------------------ | | Deferred costs | $14,500 | $15,100 | | Amortization expense (Q1) | $1,300 | $1,500 | 3. Deferred Revenue and Performance Obligations This note details the company's deferred revenue balances and expected revenue recognition from remaining performance obligations - As of March 31, 2024, the company expects to recognize approximately $447.6 million of revenue from remaining performance obligations, with $227.4 million expected within the next 12 months[35] Revenue Recognized from Deferred Balances (in thousands) | Period | Revenue Recognized | | :----- | :----------------- | | Q1 2024 | $54,500 | | Q1 2023 | $49,400 | 4. Disaggregation of Revenue This note breaks down total revenue by geographic region for the three months ended March 31, 2024 and 2023 - The rest of the world segment contributed the largest share of revenue (35%) in Q1 2024, increasing from 33% in Q1 2023[37] Revenue by Geography (in thousands) | Geographic Region | Q1 2024 Revenue | Q1 2024 Percent | Q1 2023 Revenue | Q1 2023 Percent | | :------------------------ | :-------------- | :-------------- | :-------------- | :-------------- | | United States of America | $26,933 | 33% | $26,232 | 36% | | Europe | $25,671 | 32% | $22,949 | 31% | | The rest of the world | $28,084 | 35% | $24,001 | 33% | | Total revenue | $80,688 | 100% | $73,182 | 100% | 5. Leases This note provides information on the company's lease arrangements, including cash flows and changes in right-of-use assets and liabilities - A lease modification in February 2024 resulted in a $2.1 million increase in right-of-use assets, a $1.4 million increase in lease liability, a $0.7 million noncash gain, and an $0.8 million loss on disposal of assets[40] - Total operating lease liabilities as of March 31, 2024, were $30.751 million, with $5.738 million due in the remaining 2024 period[42] Lease-Related Cash Flow Information (in thousands) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :---------------------------------------- | :-------------------------------- | :-------------------------------- | | Cash paid for operating lease liabilities | $2,233 | $2,251 | | Right-of-use asset obtained | $2,126 | — | 6. Earnings per Share This note presents the calculation of basic and diluted net loss per share, including factors affecting the share count - Potential common shares from RSUs, MSUs, and convertible notes were excluded from diluted EPS calculation due to their antidilutive effect, totaling 1.5 million and 6.7 million shares, respectively, for Q1 2024[43] Earnings Per Share (in thousands, except per share data) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------------- | :-------------------------------- | :-------------------------------- | | Net loss | $(11,357) | $(19,002) | | Weighted average shares (basic and diluted) | 46,817 | 45,926 | | Basic and diluted loss per share | $(0.24) | $(0.41) | 7. Noncash Share-based Compensation This note details the company's share-based compensation plans, grants, and related expenses for the reporting period - As of March 31, 2024, 3,281,287 shares remain available for issuance under the 2017 Stock Plan[44] - In Q1 2024, the company granted 1,196,087 time-based RSUs (weighted average fair value $35.69/share) and 131,892 MSUs (weighted average fair value $41.07/share)[45] - Estimated unrecognized compensation costs related to share-based arrangements totaled $100.0 million as of March 31, 2024, to be recognized over a weighted average period of 2.8 years[47] Share-based Compensation Expense (in thousands) | Category | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------------- | :-------------------------------- | :-------------------------------- | | Cost of revenue | $1,068 | $832 | | Operating expenses | $11,632 | $9,072 | | Total expense | $12,700 | $9,904 | 8. Convertible Senior Notes This note provides details on the company's outstanding convertible senior notes, including principal balances, interest rates, and fair value - In October 2023, the company exchanged $122.0 million of 2024 Notes for $116.8 million of newly issued 2027 Notes[53] - The fair value of the Notes was $310.7 million as of March 31, 2024, down from $320.5 million at December 31, 2023[55] Convertible Senior Notes Outstanding (as of March 31, 2024, in thousands) | Note Type | Unpaid Principal Balance | Contractual Interest Rate | Maturity Date | | :-------------------------- | :----------------------- | :------------------------ | :------------ | | 1% Convertible Notes due 2024 | $21,713 | 1% | May 15, 2024 | | 2.25% Convertible Notes due 2027 | $266,816 | 2.25% | September 15, 2027 | | Total Notes | $288,529 | | | Convertible Debt Interest Expense (in thousands) | Component | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------------- | :-------------------------------- | :-------------------------------- | | Coupon interest | $1,555 | $1,203 | | Amortization of debt issuance costs | $323 | $373 | | Amortization of debt premium | $(676) | — | | Total | $1,202 | $1,576 | 9. Commitments and Contingencies This note discloses the company's legal proceedings, claims, and significant purchase commitments - The company is not currently involved in any legal proceedings or claims that are expected to have a material adverse effect on its business or financial condition[60] - Remaining purchase commitment for a noncancelable software support services agreement is $2.4 million, expiring in March 2027[61] 10. Severance and Other Related Costs This note outlines severance and related costs incurred due to organizational changes in Q1 2023 - In Q1 2023, the company incurred approximately $3.6 million in severance, employee benefits, and related costs due to organizational changes, with $3.2 million paid in cash[62] 11. Other Income, Net This note details the components of other income, net, including interest income, foreign currency effects, and other gains or losses - The decrease in other income, net, was primarily due to an $0.8 million loss on disposal of assets related to a lease modification in Q1 2024[63] Other Income, Net (in thousands) | Component | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------------- | :-------------------------------- | :-------------------------------- | | Interest income, net | $1,762 | $1,730 | | Foreign currency (loss) gain, net | $(536) | $(203) | | Other (includes loss on disposal of assets) | $(768) | $(76) | | Total other income, net | $458 | $1,451 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's analysis of the company's financial condition, operational results, liquidity, and capital resources for Q1 2024 Q1 2024 Financial Overview This overview highlights key financial performance metrics for Q1 2024, including revenue growth and cash flow trends - Subscription revenue increased by 15% and total revenue increased by 10% for the three months ended March 31, 2024, compared to the same period in 2023[66] - Recurring revenue accounted for 84% of total revenue, and gross revenue retention rates remained above 93% during the twelve months ended March 31, 2024[67] - Cash used in operating activities improved by $1.5 million year-over-year, while free cash flow usage slightly increased by $0.4 million[68][69][70] Cash Flow Metrics (in thousands) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :---------------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | $(4,644) | $(6,143) | | Free cash flow | $(4,884) | $(4,519) | Factors Affecting Our Performance This section discusses macroeconomic conditions, strategic priorities, AI market trends, and industry-specific factors influencing the company's performance - Macroeconomic and Geopolitical Environment: Complex conditions (inflation, interest rates, conflicts) create a challenging selling environment, but also drive demand for AI-driven price optimization solutions[71] - Profitable Growth as a Priority: Focused on disciplined investment to accelerate customer time-to-value, improve efficiency, leverage AI, and develop new applications, expecting operating expenses as a percentage of revenue to decrease long-term[73] - Artificial Intelligence: Rapid market interest in AI fuels demand for PROS's AI-powered solutions, which utilize deep neural networks and are being expanded for internal business operations to drive efficiencies[73] - Travel Industry Stabilizing: Global air passenger traffic has recovered to pre-pandemic levels, with strong travel demand forecast for 2024, positioning PROS's solutions well for airlines enhancing digital marketing and booking capabilities[73] - Digital Purchasing Driving Technology Adoption: Long-term trends toward digital purchasing by consumers and corporate buyers increase demand for technology that provides fast, frictionless, and personalized buying experiences across all sales channels[73] Results of Operations This section provides a detailed analysis of the company's revenue, cost of revenue, gross profit, and operating expenses for the reporting period Revenue This subsection analyzes revenue performance by category, including subscription, maintenance and support, and services revenue - Subscription revenue growth was primarily driven by an increase in new and existing customer contracts[75] - Maintenance and support revenue declined due to customer migration to cloud solutions and, to a lesser extent, customer churn[76] Revenue Performance (in thousands) | Revenue Category | Q1 2024 | Q1 2023 | Variance ($) | Variance (%) | | :-------------------------- | :------ | :------ | :----------- | :----------- | | Subscription | $64,349 | $55,969 | $8,380 | 15% | | Maintenance and support | $3,595 | $5,712 | $(2,117) | (37)% | | Services | $12,744 | $11,501 | $1,243 | 11% | | Total revenue | $80,688 | $73,182 | $7,506 | 10% | Cost of revenue and gross profit This subsection details the cost of revenue and gross profit by category, highlighting changes in profitability - Gross profit increased by 19% year-over-year, with subscription gross profit percentage improving from 75% to 77%[78] - Services gross profit percentage significantly improved from (14)% in Q1 2023 to 3% in Q1 2024, driven by increased services revenue and decreased costs[80] Cost of Revenue and Gross Profit Performance (in thousands) | Category | Q1 2024 | Q1 2023 | Variance ($) | Variance (%) | | :-------------------------------- | :------ | :------ | :----------- | :----------- | | Cost of subscription | $14,613 | $14,093 | $520 | 4% | | Cost of maintenance and support | $1,862 | $2,282 | $(420) | (18)% | | Cost of services | $12,358 | $13,167 | $(809) | (6)% | | Total cost of revenue | $28,833 | $29,542 | $(709) | (2)% | | Gross profit | $51,855 | $43,640 | $8,215 | 19% | Operating expenses This subsection examines trends in selling and marketing, research and development, and general and administrative expenses - Selling and marketing expenses decreased primarily due to lower employee-related costs and events, partially offset by increased noncash share-based compensation[81] - Research and development and general and administrative expenses increased mainly due to higher employee-related costs, including share-based compensation[82][83] Operating Expenses Performance (in thousands) | Expense Category | Q1 2024 | Q1 2023 | Variance ($) | Variance (%) | | :---------------------- | :------ | :------ | :----------- | :----------- | | Selling and marketing | $22,682 | $26,010 | $(3,328) | (13)% | | Research and development | $24,413 | $22,291 | $2,122 | 10% | | General and administrative | $15,062 | $14,135 | $927 | 7% | | Total operating expenses | $62,157 | $62,436 | $(279) | (0.4)% | Non-operating expenses This subsection discusses convertible debt interest and amortization, along with other income and expenses impacting net results - The decrease in convertible debt expense was related to the exchange of 2024 Notes for 2027 Notes[84] - The significant decrease in other income, net, was primarily due to a loss on disposal of assets associated with a lease modification[85] Non-Operating Expenses Performance (in thousands) | Category | Q1 2024 | Q1 2023 | Variance ($) | Variance (%) | | :-------------------------------- | :------ | :------ | :----------- | :----------- | | Convertible debt interest and amortization | $(1,202) | $(1,576) | $374 | (24)% | | Other income, net | $458 | $1,451 | $(993) | (68)% | Income tax provision This subsection details the income tax provision and effective tax rate, explaining factors influencing tax expense - The effective tax rate varies from the 21% federal statutory rate primarily due to valuation allowances on deferred tax assets and foreign income and withholding taxes[87] Income Tax Provision (in thousands) | Metric | Q1 2024 | Q1 2023 | Variance ($) | Variance (%) | | :------------------ | :------ | :------ | :----------- | :----------- | | Income tax provision | $311 | $81 | $230 | 284% | | Effective tax rate | (2.8)% | (0.4)% | n/a | n/a | Liquidity and Capital Resources This section assesses the company's ability to meet its financial obligations, including cash position and available credit - Principal sources of liquidity include cash and cash equivalents, cash flows from operations, and potential borrowings under a $50 million credit agreement[90] - Management believes the company has adequate liquidity to meet operational requirements, anticipated capital expenditures, and coupon interest for the next twelve months, including principal payments for the remaining 2024 Notes[91] Liquidity Position (in thousands) | Metric | March 31, 2024 | December 31, 2023 | | :-------------------------- | :------------- | :------------------ | | Cash and cash equivalents | $156,400 | $168,700 | | Working capital | $34,000 | $37,300 | Off-Balance Sheet Arrangements This section confirms the absence of any material off-balance sheet arrangements impacting the company's financial position - The company does not have any material off-balance sheet arrangements[97] Contractual Obligations and Commitments This section outlines the company's contractual obligations and commitments, including credit agreements and restricted cash balances - No material changes to contractual obligations and commitments were reported, other than those described in Note 9[98] - The company has a $50 million credit agreement with no outstanding borrowings as of March 31, 2024, and maintains a $10.0 million restricted cash balance as a depository condition[99][100] Recent Accounting Pronouncements This section refers to Note 2 for a discussion of recently issued accounting pronouncements not yet adopted - Refer to Note 2 for a discussion of recently issued accounting pronouncements not yet adopted[101] Critical accounting policies and estimates This section highlights the significant estimates and assumptions required for financial statement preparation, as detailed in the Annual Report - The preparation of financial statements requires significant estimates and assumptions, particularly concerning revenue recognition, receivables, leases, and income taxes[102] - Critical accounting policies related to these estimates and judgments are discussed in the company's Annual Report[102] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section confirms no material changes in the company's market risk exposure compared to its Annual Report disclosures - No material changes in market risk exposure were reported from those disclosed in Part II, Item 7A, of the Annual Report[104] Item 4. Controls and Procedures This section details management's evaluation of disclosure controls and procedures and reports on changes in internal control over financial reporting Disclosure Controls and Procedures This subsection confirms the effectiveness of the company's disclosure controls and procedures as of March 31, 2024 - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2024[105] Changes in Internal Control over Financial Reporting This subsection reports no material changes in the company's internal control over financial reporting during Q1 2024 - There have been no material changes in the company's internal control over financial reporting during the three months ended March 31, 2024[106] PART II. OTHER INFORMATION Item 1. Legal Proceedings This section confirms the company is not involved in any legal proceedings expected to materially adversely affect its business - The company is not currently aware of any legal proceedings or claims that are believed to have a material adverse effect on its business, financial condition, results of operations, or cash flows[108] Item 1A. Risk Factors This section states no material changes in the company's risk factors from those disclosed in its Annual Report - No material changes in the company's risk factors were reported from those disclosed in Part I, Item 1A, of the Annual Report[109] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports no unregistered sales of equity securities or use of proceeds during the reporting period - None reported[110] Item 3. Defaults Upon Senior Securities This section indicates no defaults upon senior securities occurred during the reporting period - None reported[111] Item 4. Mine Safety Disclosure This section states that there is no mine safety disclosure information to report - None reported[112] Item 5. Other Information This section reports on other information, specifically regarding securities trading plans of directors and executive officers - None of the company's directors or officers adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the three months ended March 31, 2024[113] Item 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q, including certifications and XBRL documents - Exhibits include certifications from the Chief Executive Officer and Chief Financial Officer (31.1, 31.2, 32.1) and various XBRL taxonomy documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE)[114] SIGNATURES This section provides the signatures of the company's President, Chief Executive Officer, and Chief Financial Officer, certifying the report - The report was signed on May 7, 2024, by Andres Reiner, President and Chief Executive Officer, and Stefan Schulz, Executive Vice President and Chief Financial Officer[118]