PROS Holdings, Inc. (PRO) Bundle
Understanding PROS Holdings, Inc. (PRO) Revenue Streams
Understanding PROS Holdings, Inc.’s Revenue Streams
The revenue analysis for PROS Holdings, Inc. reveals several key insights into its financial performance as of 2024.
Breakdown of Primary Revenue Sources
PROS Holdings generates revenue from various streams, primarily categorized into subscription, maintenance and support, and services. The following table outlines the revenue performance for the three and nine months ended September 30, 2024, compared to the same periods in 2023:
| Revenue Source | Three Months Ended September 30, 2024 (in $000) | Three Months Ended September 30, 2023 (in $000) | Variance ($000) | Variance (%) | Nine Months Ended September 30, 2024 (in $000) | Nine Months Ended September 30, 2023 (in $000) | Variance ($000) | Variance (%) |
|---|---|---|---|---|---|---|---|---|
| Subscription | 67,068 | 59,987 | 7,081 | 12% | 197,017 | 173,260 | 23,757 | 14% |
| Maintenance and Support | 3,361 | 4,693 | (1,332) | (28%) | 10,341 | 15,498 | (5,157) | (33%) |
| Total Subscription, Maintenance and Support | 70,429 | 64,680 | 5,749 | 9% | 207,358 | 188,758 | 18,600 | 10% |
| Services | 12,273 | 12,570 | (297) | (2%) | 38,045 | 37,466 | 579 | 2% |
| Total Revenue | 82,702 | 77,250 | 5,452 | 7% | 245,403 | 226,224 | 19,179 | 8% |
Year-over-Year Revenue Growth Rate
In the third quarter of 2024, total revenue increased by 7% compared to Q3 2023, while for the nine months ended September 30, 2024, total revenue grew by 8% year-over-year. Subscription revenue played a significant role in this growth, with a 12% increase for the quarter and 14% for the nine-month period.
Contribution of Different Business Segments to Overall Revenue
Recurring revenue, which includes subscription and maintenance and support revenue, accounted for 85% of total revenue in Q3 2024 and 84% for the nine months ended September 30, 2024. The following contributions are notable:
- Subscription revenue is the largest segment, making up approximately 81% of total revenue for Q3 2024.
- Maintenance and support revenue has decreased significantly, reflecting a shift towards cloud solutions.
- Services revenue contributed 15% to total revenue in Q3 2024, indicating its stable role in the business model.
Analysis of Significant Changes in Revenue Streams
The decline in maintenance and support revenue, down 28% in Q3 2024 compared to Q3 2023, is primarily attributed to existing customers migrating to cloud solutions. This trend is expected to continue as the company shifts its focus towards subscription-based models. Additionally, services revenue saw a slight decline of 2% in Q3 2024, influenced by the completion of large implementations in the previous quarter.
The overall gross profit margin for subscription revenue improved to 78% for both Q3 and the nine months ended September 30, 2024, compared to 76% and 75% in the respective prior periods, highlighting improved efficiency and cost management in subscription services.
A Deep Dive into PROS Holdings, Inc. (PRO) Profitability
Profitability Metrics
In the analysis of profitability metrics for the company, three key measures are evaluated: gross profit, operating profit, and net profit margins. These metrics provide insight into the company's financial health and operational efficiency.
Gross Profit, Operating Profit, and Net Profit Margins
For the three months ended September 30, 2024, the company's gross profit stood at $54,404,000, representing a 12% increase from $48,786,000 in the same period of 2023. For the nine months ended September 30, 2024, gross profit was $159,453,000, up 14% from $139,647,000 in 2023. The gross profit margin for the three months was approximately 66%, compared to 63% in the prior year.
Operating profit for the same quarter was $31,000, a significant improvement from a loss of $7,842,000 in Q3 2023. For the nine-month period, operating loss was $17,455,000, which is an improvement from a loss of $39,993,000 in 2023.
Net income for Q3 2024 was $235,000, a notable recovery from a net loss of $13,868,000 in Q3 2023. The net loss for the nine months ended September 30, 2024, was $18,508,000, compared to a loss of $46,159,000 for the same period in 2023.
Trends in Profitability Over Time
The trends in profitability metrics indicate a positive trajectory. The following table summarizes gross profit, operating profit, and net profit/loss over the past two years:
| Period | Gross Profit ($000) | Operating Profit ($000) | Net Income (Loss) ($000) |
|---|---|---|---|
| Q3 2024 | 54,404 | 31 | 235 |
| Q3 2023 | 48,786 | (7,842) | (13,868) |
| 9M 2024 | 159,453 | (17,455) | (18,508) |
| 9M 2023 | 139,647 | (39,993) | (46,159) |
Comparison of Profitability Ratios with Industry Averages
When comparing profitability ratios with industry averages, the company's gross profit margin of 66% exceeds the industry average of approximately 60%. Operating margins have shown significant improvement, moving from negative to near breakeven, indicating effective cost management.
Analysis of Operational Efficiency
Operational efficiency has been a focus, particularly in cost management and gross margin trends. The company reported a total cost of revenue of $28,298,000 for Q3 2024, which is a slight decrease from $28,464,000 in Q3 2023. This reduction in costs, coupled with increased revenues, has contributed to improved profitability metrics.
Over the nine months ended September 30, 2024, total operating expenses decreased to $176,908,000 from $179,640,000 in the same period of 2023, reflecting a 2% improvement in cost management.
The following table summarizes key profitability ratios:
| Metric | Q3 2024 | Q3 2023 | Industry Average |
|---|---|---|---|
| Gross Profit Margin | 66% | 63% | 60% |
| Operating Margin | 0.04% | (10.1%) | 5% |
| Net Profit Margin | 0.28% | (18.0%) | 3% |
Debt vs. Equity: How PROS Holdings, Inc. (PRO) Finances Its Growth
Debt vs. Equity: How PROS Holdings, Inc. Finances Its Growth
As of September 30, 2024, PROS Holdings, Inc. reported long-term debt of $266.8 million associated with its 2027 Notes, while short-term debt was $21.7 million related to the 2024 Notes, which matured in May 2024.
The company's debt-to-equity ratio stands at 1.37, which is above the industry average of approximately 1.0. This indicates a higher reliance on debt financing compared to its peers in the technology sector.
In August 2023, PROS Holdings executed a debt exchange, converting approximately $122 million of its 2024 Notes into 2027 Notes. Following this transaction, the outstanding principal of the 2024 Notes was reduced to $21.7 million, while the newly issued 2027 Notes totaled $266.8 million. The company incurred a $1.8 million loss on debt extinguishment due to this restructuring.
As of September 30, 2024, the total fair value of the outstanding principal amounts of the Notes was $239.4 million, down from $320.5 million at the end of 2023.
To finance its growth, PROS Holdings balances its debt and equity funding strategies. The company has maintained a strong cash position, reporting $140.6 million in cash and cash equivalents as of September 30, 2024. This liquidity provides flexibility in managing its debt obligations and capital expenditures.
| Debt Type | Principal Amount | Interest Rate | Maturity Date |
|---|---|---|---|
| 2024 Notes | $21.7 million | 1% | May 2024 |
| 2027 Notes | $266.8 million | 2.25% | September 2027 |
In terms of credit ratings, PROS Holdings has not been rated by major credit agencies, which may influence its future financing costs and options.
Overall, the company's strategy reflects a significant reliance on debt, which is evident in its debt-to-equity ratio and recent debt issuances. Balancing this with equity financing remains critical for sustaining growth and managing financial health in a competitive landscape.
Assessing PROS Holdings, Inc. (PRO) Liquidity
Assessing Liquidity and Solvency
Current and Quick Ratios
As of September 30, 2024, the current ratio for the company is calculated as follows:
| Current Assets | Current Liabilities | Current Ratio |
|---|---|---|
| $140.6 million | $96.4 million | 1.46 |
The quick ratio, which excludes inventories from current assets, is similarly assessed:
| Quick Assets (Current Assets - Inventory) | Current Liabilities | Quick Ratio |
|---|---|---|
| $140.6 million | $96.4 million | 1.46 |
Analysis of Working Capital Trends
The working capital as of September 30, 2024, stands at $44.2 million, reflecting an increase from $37.3 million at December 31, 2023. This increase indicates an improved liquidity position, driven by cash flow management and revenue growth.
Cash Flow Statements Overview
The following table summarizes the cash flow activities for the nine months ended September 30, 2024:
| Cash Flow Activity | 2024 (in thousands) | 2023 (in thousands) |
|---|---|---|
| Net cash provided by (used in) operating activities | $3,370 | $(3,967) |
| Net cash used in investing activities | $(840) | $(2,281) |
| Net cash used in financing activities | $(30,930) | $(28,269) |
| Net change in cash, cash equivalents, and restricted cash | $(28,183) | $(34,547) |
Operating cash flow has improved significantly, moving from a negative position in 2023 to a positive cash inflow of $3.37 million in 2024, reflecting better cash management and operational efficiency.
Potential Liquidity Concerns or Strengths
Despite the positive trends in cash flow from operations, the company faced a significant cash outflow from financing activities, primarily due to the repayment of convertible debt amounting to $21.7 million in 2024. This repayment impacts liquidity but demonstrates the company’s commitment to managing its debt obligations.
The principal sources of liquidity include:
- Cash and cash equivalents of $140.6 million
- Operating cash flows
- Potential borrowings under a $50 million credit agreement
The company’s liquidity position appears adequate for meeting operational requirements and anticipated capital expenditures over the next twelve months, although market conditions may pose challenges for future financing options.
Is PROS Holdings, Inc. (PRO) Overvalued or Undervalued?
Valuation Analysis
In assessing whether the company is overvalued or undervalued, we will examine key valuation metrics including price-to-earnings (P/E), price-to-book (P/B), and enterprise value-to-EBITDA (EV/EBITDA) ratios.
Price-to-Earnings (P/E) Ratio
As of September 30, 2024, the company's stock price was approximately $30.00. The net loss for the most recent nine months was $18.5 million, resulting in a basic loss per share of $0.39. Given these figures, the P/E ratio is not applicable due to the negative earnings.
Price-to-Book (P/B) Ratio
The total stockholders’ equity as of September 30, 2024, was $(75.2 million) with total shares outstanding of 47.3 million. Therefore, the book value per share is approximately $(1.59). The P/B ratio is also not applicable due to the negative book value.
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The enterprise value as of September 30, 2024, can be calculated as follows:
- Market Capitalization: $30.00 47.3 million shares = $1.419 billion
- Debt: $271.2 million
- Cash and Cash Equivalents: $140.6 million
- Enterprise Value = Market Capitalization + Debt - Cash = $1.419 billion + $271.2 million - $140.6 million = $1.549 billion
The EBITDA for the nine months ended September 30, 2024, was approximately $159.5 million. Therefore, the EV/EBITDA ratio is calculated as:
EV/EBITDA = $1.549 billion / $159.5 million ≈ 9.72
Stock Price Trends
Over the last 12 months, the stock price has fluctuated between a low of $15.00 and a high of $35.00. The price at the beginning of the year was around $20.00, indicating a general upward trend, with a notable increase beginning in July 2024.
Dividend Yield and Payout Ratios
The company does not currently pay a dividend, thus the dividend yield is 0%. The payout ratio is also 0% as no dividends are distributed.
Analyst Consensus
According to recent analyst reports, the consensus rating for the stock is a hold. The average target price set by analysts is approximately $28.00, suggesting limited upside potential from the current trading price.
| Metric | Value |
|---|---|
| Stock Price | $30.00 |
| Net Loss (9 months) | $18.5 million |
| Basic Loss per Share | $0.39 |
| Book Value per Share | $(1.59) |
| Enterprise Value | $1.549 billion |
| EBITDA (9 months) | $159.5 million |
| EV/EBITDA Ratio | 9.72 |
| 52-Week Low | $15.00 |
| 52-Week High | $35.00 |
| Dividend Yield | 0% |
| Analyst Consensus | Hold |
Key Risks Facing PROS Holdings, Inc. (PRO)
Key Risks Facing PROS Holdings, Inc. (PRO)
Understanding the risk factors that could impact the financial health of the company is crucial for investors. The following sections outline the internal and external risks that pose challenges to the firm.
Industry Competition
The competitive landscape for enterprise software solutions is intense, with numerous players vying for market share. The company faces significant competition from both established firms and emerging startups. This competitive pressure can lead to pricing wars, reduced margins, and increased marketing expenditures.
Regulatory Changes
Changes in regulations, particularly concerning data privacy and artificial intelligence, can affect operational processes. For example, the EU AI Act introduces stricter guidelines that may necessitate adjustments in product offerings and compliance costs, potentially impacting profitability.
Market Conditions
The macroeconomic environment has been challenging, with factors such as inflation and geopolitical tensions (e.g., the Russia-Ukraine conflict) influencing spending patterns in technology. These conditions have created uncertainty in customer purchasing decisions, affecting sales cycles and revenue recognition.
Operational Risks
Operational risks include potential disruptions in service delivery and software implementation failures. The company's transition from maintenance to subscription models has resulted in a decrease in maintenance revenue by 28% in Q3 2024 compared to Q3 2023. This shift necessitates a robust customer support system to ensure a smooth transition for clients.
Financial Risks
Financial risks include liquidity challenges, particularly given the repayment of the 2024 Notes amounting to $21.7 million in May 2024. As of September 30, 2024, the company had $140.6 million in cash and cash equivalents, down from $168.7 million at year-end 2023. Furthermore, the effective tax rate increased to 47% for Q3 2024, impacting net income and cash flow.
Strategic Risks
The company’s strategic initiatives, including investments in AI and cloud solutions, require substantial capital. The pressure to innovate amidst tight capital markets could hinder growth. The total interest expense recognized related to convertible notes was $1.1 million for Q3 2024, a decrease reflecting the restructuring of debt.
Mitigation Strategies
To address these risks, the company is focusing on enhancing operational efficiencies and investing in AI-driven solutions to adapt to market demands. They aim to improve customer time-to-value and are exploring new technology integrations to remain competitive. The reduction in operating expenses by 4% year-over-year demonstrates efforts to manage costs effectively.
Table of Key Financial Metrics
| Metric | Q3 2024 | Q3 2023 | Variance |
|---|---|---|---|
| Total Revenue | $82.7 million | $77.3 million | +7% |
| Subscription Revenue | $67.1 million | $60.0 million | +12% |
| Net Income (Loss) | $235,000 | $(13.9 million) | Improvement |
| Cash and Cash Equivalents | $140.6 million | $168.7 million | -16.6% |
| Effective Tax Rate | 47% | (2%) | Increase |
Future Growth Prospects for PROS Holdings, Inc. (PRO)
Future Growth Prospects for PROS Holdings, Inc.
Analysis of Key Growth Drivers
As of September 30, 2024, subscription revenue grew by 12% and 14% for the three and nine months ended, respectively, compared to the same periods in 2023. Total revenue increased by 7% and 8% for the same periods.
Recurring revenue, which includes subscription revenue and maintenance and support revenue, represented 85% and 84% of total revenue for the three and nine months ended September 30, 2024.
Key growth drivers include:
- Enhanced product innovations centered around AI-driven solutions for pricing optimization.
- Market expansion to capitalize on increasing demand in various sectors, particularly in North America and Europe.
- Strategic partnerships that enhance product offerings and customer acquisition efforts.
Future Revenue Growth Projections and Earnings Estimates
The company projects to recognize approximately $429.3 million of revenue from remaining performance obligations, with around $231.0 million expected to be recognized over the next 12 months. This continuous growth is supported by a gross revenue retention rate exceeding 93%.
Strategic Initiatives or Partnerships That May Drive Future Growth
The company continues to invest in product development, aiming to leverage AI to improve customer time-to-value. This includes:
- Integration with third-party commerce solutions.
- Development of new applications to enhance customer engagement and operational efficiency.
Competitive Advantages That Position the Company for Growth
Competitive advantages include:
- A strong subscription gross profit margin of 78% for the three and nine months ended September 30, 2024, compared to 76% and 75% for the same periods in 2023.
- A diversified customer base across various industries, reducing dependency on any single sector.
- Robust cash flow management, with $3.4 million in cash provided by operating activities for the nine months ended September 30, 2024.
| Metric | Q3 2024 | Q3 2023 | Growth % |
|---|---|---|---|
| Total Revenue | $82,702,000 | $77,250,000 | 7% |
| Subscription Revenue | $67,068,000 | $59,987,000 | 12% |
| Recurring Revenue | 85% | 84% | 1% |
| Gross Profit Margin | 78% | 76% | 2% |
| Cash from Operating Activities | $3,370,000 | ($3,967,000) | N/A |
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Article updated on 8 Nov 2024
Resources:
- PROS Holdings, Inc. (PRO) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of PROS Holdings, Inc. (PRO)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View PROS Holdings, Inc. (PRO)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.