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PROS Holdings Inc. Reports Operating Results (10-Q)

November 04, 2010 | About:
10qk

10qk

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PROS Holdings Inc. (PRO) filed Quarterly Report for the period ended 2010-09-30.

Pros Holdings Inc. has a market cap of $281.6 million; its shares were traded at around $10.88 with a P/E ratio of 119.7 and P/S ratio of 4.1. PRO is in the portfolios of Chuck Royce of Royce& Associates, Jim Simons of Renaissance Technologies LLC.

Highlight of Business Operations:

On September 2, 2010, we settled our sole legal dispute with a customer and neither party admitted liability. As part of the settlement, the Company agreed to pay $9.0 million, which approximates the cash received by us under the original contract. The settlement resulted in a pre-tax charge to operating income of $5.1 million of which $3.1 million was a reduction of revenue and $2.0 million was an expense. In accordance with the Accounting Standard Codification (ASC) 605-50, we reduced total revenue by $3.1 million, consisting of a reduction of $2.8 million in license and implementation revenue and a reduction of $0.3 million in maintenance and support revenue. In addition, we released the $4.9 million classified as other current liabilities, which consisted of $1.1 million of capitalized implementation costs included in other assets, $0.2 million in accounts receivable and $6.1 million of long-term deferred revenue related to the Harrahs contract. Included in the $5.1 million third quarter charge are legal fees of $1.0 million in the quarter. We do not anticipate any future payment obligations related to the litigation.

License and implementation. License and implementation revenue decreased $1.7 million to $8.6 million for the three months ended September 30, 2010 from $10.3 million for the three months ended September 30, 2009. The decline in license and implementation revenue for the three months ended September 30, 2010 was principally the result of a reduction of $2.8 million of license and implementation revenue associated with the one-time legal settlement. Without this reduction, license and implementation revenue would have increased $1.1 million, or 11%, period over period. In addition, an increase in license and implementation revenue in the period is due to a 15% increase in the number of man-days attributable to the implementation of our products. Also, there has been an increase of 12% in the number of implementations generating license and implementation revenue period over period.

Cost of license and implementation. Cost of license and implementation increased $0.7 million to $3.8 million for the three months ended September 30, 2010 from $3.1 million for the three months ended September 30, 2009, representing a 24% increase. The increase in cost of license and implementation is principally attributable to an increase of $0.8 million of personnel costs, which includes $0.6 million of third party system integrators costs. In addition, there was an increase of $0.1 million of travel expense. These increases were partially offset by a decrease of $0.1 million of share-based compensation expense and a decrease of $0.1 million in the expensing of capitalized implementation costs from contracts in which revenue has been deferred. License and implementation gross margins were 56% for the three months ended September 30, 2010 as compared to 70% for the three months ended September 30, 2009. Without the reduction of $2.8 million of license and implementation revenue, license and implementation gross margins would have been 67%. In addition commencing in 2010, the utilization of systems integrators increased implementation costs which reduced gross margins approximately 2 percentage points. License and implementation costs may vary from period to period depending on factors, including the amount of implementation services required to deploy our products relative to the total contract price.

Selling, general and administrative expenses. Selling, general and administrative expenses increased $3.3 million to $9.3 million for the three months ended September 30, 2010 from $6.0 million for the three months ended September 30, 2009, representing a 57% increase. The increase was principally attributed to $2.0 million of legal fees and one-time legal settlement costs. In addition as part of our increased investment in sales and marketing, there was an increase of $0.5 million of sales personnel expense, $0.2 million of marketing expense, $0.2 million of travel expense, $0.1 million of share-based compensation expense and $0.1 million of sales personnel recruiting expense.

Research and development expenses. Research and development expenses decreased $0.3 million to $4.9 million for the three months ended September 30, 2010 from $5.2 million for the three months ended September 30, 2009, representing a 6% decrease. The decrease was principally attributed to a $0.4 million reduction in share-based compensation expense, partially offset by $0.1 million increase in personnel expense.

License and implementation. License and implementation revenue decreased $4.0 million to $29.4 million for the nine months ended September 30, 2010 from $33.4 million for the nine months ended September 30, 2009. The decrease in our license and implementation revenue for the nine months ended September 30, 2010 was principally the result of a reduction of $2.8 million of licenses and implementation revenue associated with the one-time legal settlement. Without the reduction, license and implementation revenue would have decreased $1.2 million or 4%. The decrease of $1.2 million of license and implementation revenue is principally due to a limited number of contracts that require us to defer revenue until the implementation is complete. In addition, there was an 11% decrease in the number of man-days attributable to the implementation of our products period over period. Despite a 10% increase in the number of implementations in progress, license and implementation revenue recognized per man-day was relatively unchanged period over period.

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