10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

___________________________________________________________________________ 

FORM 10-Q

___________________________________________________________________________ 

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from      to .

Commission File Number: 001-33554

___________________________________________________________________________ 

PROS HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

__________________________________________________________________________ 

Delaware	76-0168604
(State of Incorporation)	(I.R.S. Employer Identification No.)

3100 Main Street, Suite 900				77002
Houston	TX
(Address of Principal Executive Offices)				(Zip Code)
		(713)	335-5151
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading symbol(s)	Name of each exchange on which registered
Common stock	$0.001 par value per share	PRO	New York Stock Exchange

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  ☒    No  ☐

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  ☒   No  ☐

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.

Large accelerated filer	☒	Accelerated Filer	☐
Non-Accelerated Filer	☐ (do not check if a smaller reporting company)	Smaller Reporting Company	☐
Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes ☐  No  ☒

The number of shares outstanding of the registrant's Common Stock, $0.001 par value, was 42,076,535 as of October 21, 2019.

PROS Holdings, Inc.

Form 10-Q

For the Quarterly Period Ended September 30, 2019

Table of Contents

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Interim Condensed Consolidated Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Comprehensive Income (Loss)	5
	Condensed Consolidated Statements of Cash Flows	6
	Condensed Consolidated Statements of Stockholders' Equity	8
	Notes to Condensed Consolidated Financial Statements	10
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	31
Item 4.	Controls and Procedures	31
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	32
Item 1A.	Risk Factors	32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 3.	Defaults Upon Senior Securities	32
Item 4.	Mine Safety Disclosure	32
Item 5.	Other Information	32
Item 6.	Exhibits	33
Signatures		34

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 ("Exchange Act"). 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. You should also carefully review the risk factors and cautionary statements described in our Annual Report on Form 10-K in the section titled “Risk Factors.” You should not rely on forward-looking statements as predictions of future events, as we cannot guarantee that future results, levels of activity, performance or achievements will meet expectations. The forward-looking statements made herein are only made as of the date hereof, and we undertake no obligation to publicly update such forward-looking statements for any reason.

                        3

PART I.     FINANCIAL INFORMATION

ITEM 1. INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

PROS Holdings, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share amounts)

(Unaudited) 

	September 30, 2019			December 31, 2018
Assets:
Current assets:
Cash and cash equivalents	$	319,162		$	295,476
Trade and other receivables, net of allowance of $968 and $978, respectively	55,986			41,822
Deferred costs, current	5,415			4,089
Prepaid and other current assets	8,764			4,756
Total current assets	389,327			346,143
Property and equipment, net	13,972			14,676
Operating lease right-of-use assets	28,548			—
Deferred costs, noncurrent	15,172			13,373
Intangibles, net	16,191			19,354
Goodwill	48,878			38,231
Other assets, noncurrent	6,650			5,190
Total assets	$	518,738		$	436,967
Liabilities and Stockholders' Equity:
Current liabilities:
Accounts payable and other liabilities	$	7,003		$	6,934
Accrued liabilities	17,433			9,506
Accrued payroll and other employee benefits	27,420			22,519
Operating lease liabilities, current	7,222			—
Deferred revenue, current	113,430			99,262
Current portion of convertible debt, net	42,343			136,529
Total current liabilities	214,851			274,750
Deferred revenue, noncurrent	14,502			17,903
Convertible debt, net	109,024			88,661
Operating lease liabilities, noncurrent	23,377			—
Other liabilities, noncurrent	1,032			754
Total liabilities	362,786			382,068
Commitments and contingencies (see Note 10)
Stockholders' equity:
Preferred stock, $0.001 par value, 5,000,000 shares authorized; none issued	—			—
Common stock, $0.001 par value, 75,000,000 shares authorized; 46,460,212 and 41,573,491 shares issued, respectively; 42,042,627 and 37,155,906 shares outstanding, respectively	47			42
Additional paid-in capital	518,456			364,877
Treasury stock, 4,417,585 common shares, at cost	(13,938		)	(13,938		)
Accumulated deficit	(344,489		)	(292,708		)
Accumulated other comprehensive loss	(4,124		)	(3,374		)
Total stockholders' equity	155,952			54,899
Total liabilities and stockholders' equity	$	518,738		$	436,967

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4

PROS Holdings, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(In thousands, except per share data)

(Unaudited) 

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Revenue:
Subscription	$	37,463		$	23,888		$	100,958		$	66,876
Maintenance and support	14,405			16,238			44,772			49,037
Total subscription, maintenance and support	51,868			40,126			145,730			115,913
License	1,129			1,093			3,663			2,854
Services	11,153			7,856			34,766			25,644
Total revenue	64,150			49,075			184,159			144,411
Cost of revenue:
Subscription	11,039			9,053			30,543			26,308
Maintenance and support	2,632			2,852			8,269			8,762
Total cost of subscription, maintenance and support	13,671			11,905			38,812			35,070
License	51			63			152			200
Services	12,661			7,508			31,792			22,451
Total cost of revenue	26,383			19,476			70,756			57,721
Gross profit	37,767			29,599			113,403			86,690
Operating expenses:
Selling and marketing	21,600			17,513			66,030			53,671
General and administrative	11,553			10,179			35,260			31,013
Research and development	16,878			13,773			50,132			41,517
Acquisition-related	248			—			248			95
Loss from operations	(12,512		)	(11,866		)	(38,267		)	(39,606		)
Convertible debt interest and amortization	(3,717		)	(4,266		)	(12,347		)	(12,671		)
Other (expense) income, net	(1,010		)	521			(601		)	967
Loss before income tax provision	(17,239		)	(15,611		)	(51,215		)	(51,310		)
Income tax provision	108			175			566			176
Net loss	$	(17,347	)	$	(15,786	)	$	(51,781	)	$	(51,486	)
Net loss per share:
Basic and diluted	$	(0.42	)	$	(0.44	)	$	(1.31	)	$	(1.53	)
Weighted average number of shares:
Basic and diluted	41,276			35,676			39,438			33,568
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment	$	(658	)	$	(88	)	$	(750	)	$	(350	)
Other comprehensive income (loss), net of tax	(658		)	(88		)	(750		)	(350		)
Comprehensive loss	$	(18,005	)	$	(15,874	)	$	(52,531	)	$	(51,836	)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5

PROS Holdings, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Nine Months Ended September 30,
	2019			2018
Operating activities:
Net loss	$	(51,781	)	$	(51,486	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	10,264			9,785
Amortization of debt discount and issuance costs	9,159			8,958
Share-based compensation	18,234			16,355
Deferred income tax, net	—			(252		)
Provision for doubtful accounts	—			215
Loss on disposal of assets	—			37
Loss on debt extinguishment	5,000			—
Changes in operating assets and liabilities:
Accounts and unbilled receivables	(13,888		)	(13,898		)
Deferred costs	(3,124		)	(1,517		)
Prepaid expenses and other assets	(4,582		)	(1,884		)
Accounts payable and other liabilities	(492		)	2,569
Accrued liabilities	9,877			(533		)
Accrued payroll and other employee benefits	2,717			(342		)
Deferred revenue	11,009			22,508
Net cash used in operating activities	(7,607		)	(9,485		)
Investing activities:
Purchases of property and equipment	(3,360		)	(1,406		)
Capitalized internal-use software development costs	(1,021		)	(3,686		)
Acquisition of Travelaer, net of cash acquired	(10,510		)	—
Investment in equity securities	(180		)	—
Purchase of intangible assets	(50		)	—
Net cash used in investing activities	(15,121		)	(5,092		)
Financing activities:
Exercise of stock options	—			1,142
Proceeds from employee stock plans	1,995			1,720
Tax withholding related to net share settlement of stock awards	(21,598		)	(9,153		)
Proceeds from Secondary Offering, net	—			141,954
Payments of notes payable	—			(54		)
Proceeds from issuance of convertible debt, net	140,156			—
Debt issuance cost related to convertible debt	(860		)	—
Purchase of capped call	(16,445		)	—
Retirement of convertible debt	(76,018		)	—
Proceeds from termination of bond hedge	64,819			—
Payment for termination of warrant	(45,243		)	—
Net cash provided by financing activities	46,806			135,609
Effect of foreign currency rates on cash	(392		)	352
Net change in cash and cash equivalents	23,686			121,384

6

Cash and cash equivalents:
Beginning of period	295,476		160,505
End of period	$	319,162	$	281,889
Supplemental disclosure of cash flow information:
Noncash investing activities:
Purchase of property and equipment accrued but not paid	$	422	$	8

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

7

PROS Holdings, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands, except share data)

(Unaudited)

 

	Three Months Ended September 30, 2019
	Common Stock			Additional Paid-In Capital			Treasury Stock				Accumulated (Deficit) Retained Earnings			Accumulated other comprehensive loss			Total Stockholders’ Equity
	Shares	Amount					Shares	Amount
Balance at June 30, 2019	40,183,723	$	45	$	439,995		4,417,585	$	(13,938	)	$	(327,142	)	$	(3,466	)	$	95,494
Stock awards net settlement	69,764	—		(2,956		)	—	—			—			—			(2,956		)
Proceeds from employee stock plans	39,964	—		1,052			—	—			—			—			1,052
Retirement of convertible debt	1,749,176	2		74,176			—	—			—			—			74,178
Noncash share-based compensation	—	—		6,189			—	—			—			—			6,189
Other comprehensive income (loss)	—	—		—			—	—			—			(658		)	(658		)
Net loss	—	—		—			—	—			(17,347		)	—			(17,347		)
Balance at September 30, 2019	42,042,627	$	47	$	518,456		4,417,585	$	(13,938	)	$	(344,489	)	$	(4,124	)	$	155,952

	Three Months Ended September 30, 2018
	Common Stock			Additional Paid-In Capital			Treasury Stock				Accumulated (Deficit) Retained Earnings			Accumulated other comprehensive loss			Total Stockholders’ Equity
	Shares	Amount					Shares	Amount
Balance at June 30, 2018	32,711,339	$	37	$	212,481		4,417,585	$	(13,938	)	$	(264,161	)	$	(3,078	)	$	(68,659	)
Exercise of stock options	2,440	1		(60		)	—	—			—			—			(59		)
Stock awards net settlement	16,825	—		(185		)	—	—			—			—			(185		)
Proceeds from employee stock plans	38,431	—		886			—	—			—			—			886
Proceeds from Secondary Offering, net	4,370,000	4		141,950			—	—			—			—			141,954
Noncash share-based compensation	—	—		4,949			—	—			—			—			4,949
Cumulative effect of adoption of section 606	—	—		—			—	—			(1		)	—			(1		)
Other comprehensive income (loss)	—	—		—			—	—			—			(88		)	(88		)
Net loss	—	—		—			—	—			(15,786		)	—			(15,786		)
Balance at September 30, 2018	37,139,035	$	42	$	360,021		4,417,585	$	(13,938	)	$	(279,948	)	$	(3,166	)	$	63,011

8

PROS Holdings, Inc.

Condensed Consolidated Statements of Stockholders’ Equity (Continued)

(In thousands, except share data)

(Unaudited)

	Nine Months Ended September 30, 2019
	Common Stock			Additional Paid-In Capital			Treasury Stock				Accumulated (Deficit) Retained Earnings			Accumulated other comprehensive loss			Total Stockholders’ Equity
	Shares	Amount					Shares	Amount
Balance at December 31, 2018	37,155,906	$	42	$	364,877		4,417,585	$	(13,938	)	$	(292,708	)	$	(3,374	)	$	54,899
Stock awards net settlement	885,740	1		(21,599		)	—	—			—			—			(21,598		)
Proceeds from employee stock plans	75,304	—		1,995			—	—			—			—			1,995
Retirement of convertible debt	3,925,677	4		118,985			—	—			—			—			118,989
Termination of bond hedge	—	—		64,819			—	—			—			—			64,819
Termination of warrant	—	—		(45,243		)	—	—			—			—			(45,243		)
Equity component of the convertible debt issuance, net	—	—		32,883			—	—			—			—			32,883
Purchase of capped call	—	—		(16,445		)	—	—			—			—			(16,445		)
Noncash share-based compensation	—	—		18,184			—	—			—			—			18,184
Other comprehensive income (loss)	—	—		—			—	—			—			(750		)	(750		)
Net loss	—	—		—			—	—			(51,781		)	—			(51,781		)
Balance at September 30, 2019	42,042,627	$	47	$	518,456		4,417,585	$	(13,938	)	$	(344,489	)	$	(4,124	)	$	155,952

	Nine Months Ended September 30, 2018
	Common Stock			Additional Paid-In Capital			Treasury Stock				Accumulated (Deficit) Retained Earnings			Accumulated other comprehensive loss			Total Stockholders’ Equity
	Shares	Amount					Shares	Amount
Balance at December 31, 2017	31,939,175	$	36	$	207,924		4,417,585	$	(13,938	)	$	(238,185	)	$	(2,816	)	$	(46,979	)
Exercise of stock options	161,997	1		1,141			—	—			—			—			1,142
Stock awards net settlement	592,317	1		(9,154		)	—	—			—			—			(9,153		)
Proceeds from employee stock plans	75,546	—		1,720			—	—			—			—			1,720
Proceeds from Secondary Offering, net	4,370,000	4		141,950			—	—			—			—			141,954
Noncash share-based compensation	—	—		16,440			—	—			—			—			16,440
Cumulative effect of adoption of section 606	—	—		—			—	—			9,723			—			9,723
Other comprehensive income (loss)	—	—		—			—	—			—			(350		)	(350		)
Net loss	—	—		—			—	—			(51,486		)	—			(51,486		)
Balance at September 30, 2018	37,139,035	$	42	$	360,021		4,417,585	$	(13,938	)	$	(279,948	)	$	(3,166	)	$	63,011

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

9

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"), provides artificial intelligence ("AI") solutions that power commerce in the digital economy by providing fast, frictionless and personalized buying experiences. PROS solutions enable dynamic buying experiences for both business-to-business ("B2B") and business-to-consumer ("B2C") companies across industry verticals. Companies can use the Company's dynamic pricing optimization, sales effectiveness, revenue management and commerce solutions to assess their market environments in real time to deliver customized prices and offers. The Company's solutions enable buyers to move fluidly across its customers’ direct sales, online, mobile and partner channels with personalized experiences regardless of which channel those customers choose. The Company's decades of data science and AI expertise are infused into its solutions and are designed to reduce time and complexity through actionable intelligence. The Company provides standard configurations of its software based on the industries it serves and offers professional services to configure these solutions to meet the specific needs of each customer.

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 unaudited 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 September 30, 2019, the results of operations for the three and nine months ended September 30, 2019 and 2018, cash flows for the nine months ended September 30, 2019 and 2018, and stockholders' equity for the three and nine months ended September 30, 2019 and 2018.

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, 2018 ("Annual Report") filed with the SEC. The unaudited condensed consolidated balance sheet as of December 31, 2018 was derived from the Company's audited consolidated financial statements but does not include all disclosures required under GAAP.

Changes in accounting policies

The Company has consistently applied these accounting policies to all periods presented in these consolidated financial statements, except for the Company's adoption of certain accounting standards described in more detail under "Recently adopted accounting pronouncements" in this Note 2 below.

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 ("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.

10

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 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 determining the nature and timing of satisfaction of performance obligations and determining the standalone selling price of performance obligations, 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, operating lease right-of-use assets and operating lease liabilities, 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 estimates and judgments are discussed in the Annual Report under management's discussion and analysis of financial condition and results of operations and are also discussed under Item 2 "Management's discussion and analysis of financial condition and results of operations".

Revenue recognition

The Company derives its revenues primarily from subscription services, professional services, perpetual licensing of its software products and associated software maintenance and support services.

The Company determines revenue recognition through the following steps:

• Identification of the contract, or contracts, with a customer;

• Identification of the performance obligations in the customer contract(s);

• Determination of the transaction price;

• Allocation of the transaction price to each performance obligation in the customer contract(s); and

• Recognition of revenue when, or as, the Company satisfies a performance obligation.

Subscription services revenue

Subscription services primarily include customer access to one or more of the Company's cloud applications and associated customer support. Subscription services revenue is generally recognized ratably over the contractual subscription term, beginning on the date that the Company's subscription service is made available to the customer. The Company's subscription contracts do not provide customers with the right to take possession of the software supporting the service and, as a result, are accounted for as service contracts. The Company's subscription contracts are generally two to five years in length, billed annually in advance, and non-cancelable.

Maintenance and support revenue

Maintenance and support revenue includes post-implementation customer support for on-premise licenses and the right to unspecified software updates and enhancements. The Company recognizes revenue from maintenance and support arrangements ratably over the period in which the services are provided. The Company's maintenance and support contracts are generally one to three years in length, billed annually in advance, and non-cancelable.

License revenue

Licenses to on-premise software provide the customer with a right to use, in the customer's environment, the Company's software as it exists when made available to the customer. License revenue from customer contracts with distinct on-premises licenses is recognized at the point in time when the software is made available to the customer. For customer contracts that contain license and professional services that are not considered distinct, both the license and professional services are determined to be a single performance obligation and the revenue is recognized over time based upon the Company's efforts to satisfy the performance obligation.

11

Professional services revenue

Professional services revenue primarily consists of fees for deployment and configuration services, as well as training services. Professional services revenues are generally recognized as the services are rendered for time and material contracts, or on a proportional performance basis for fixed fee contracts. The majority of the Company's professional services contracts are on a fixed fee basis. Training revenues are recognized as the services are rendered.

Significant judgment is required in determining whether professional services contained in a customer subscription services contract are capable of being distinct and are separately identifiable in the customer contract. Professional services determined to be distinct are accounted for as a separate performance obligation and revenue is recognized as the services are performed. If the professional services are not determined to be distinct, the professional services and the subscription services are accounted for as a single performance obligation and revenue is recognized over the contractual term of the subscription beginning on the date that subscription services are made available to the customer.

Customer contracts with multiple performance obligations

A portion of the Company's customer contracts contain multiple performance obligations. Significant judgment is required in determining whether multiple performance obligations contained in a single customer contract are capable of being distinct and are separately identifiable. An obligation determined to be distinct is accounted for as a separate performance obligation and revenue for that separate performance obligation is recognized when, or as, the Company satisfies the performance obligation. If obligations are not determined to be distinct, those obligations are accounted for as a single, combined performance obligation. The transaction price is allocated to each performance obligation on a relative standalone selling price basis.

Leases

The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use ("ROU") assets, current operating lease liabilities and noncurrent operating lease liabilities in the Company's unaudited condensed consolidated balance sheet.

ROU assets represent the Company’s right to use an underlying asset over the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. The Company includes any anticipated lease incentives in the determination of lease liability.

The Company uses its estimated incremental borrowing rate, which is derived from information available at the lease commencement date, in determining the present value of lease payments. The Company gives consideration to its recent debt issuances as well as publicly available data for instruments with similar characteristics when determining its incremental borrowing rates.

The Company’s lease terms will include options to extend the lease when it is reasonably certain that the Company will exercise that option. Leases with a term of 12 months or less are not recorded on the Company's unaudited condensed consolidated balance sheet. The Company’s lease agreements do not contain any residual value guarantees.

Internal-use software

Costs incurred to develop internal-use software during the development stage are capitalized, stated at cost, and amortized 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 September 30, 2019 and 2018, the Company capitalized $0.2 million and $1.2 million, respectively, of internal-use software development costs related to cloud-based offerings, and for the nine months ended September 30, 2019 and 2018, the Company capitalized $1.0 million and $3.7 million, 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 September 30, 2019 and 2018, the Company amortized $0.8 million and $0.3 million, respectively, and for the nine months ended September 30, 2019 and 2018, the Company amortized $2.0 million and $0.7 million, respectively, of 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, once it commences, is included in cost of subscription and cost of services revenues in the accompanying unaudited condensed consolidated statements of comprehensive income (loss).

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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 and nine months ended September 30, 2019 and 2018.

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, (ii) performance-based awards in which the number of shares that vest are based upon achievement of certain internal performance metrics set by the Company, and (iii) 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 September 30, 2019 and December 31, 2018, respectively, (in thousands): 

Award type	September 30, 2019	December 31, 2018
Restricted stock units (time-based)	1,876	1,969
Restricted stock units (performance-based)	114	—
Restricted stock units (market-based)	—	215
Stock appreciation rights	165	287
Market stock units	267	419

Stock options, time-based RSUs and SARs vest ratably between one and 4 years. Performance-based RSUs vest on the third anniversary of the grant and the maximum number of shares issuable upon vesting is 200% of the initially granted shares based upon achievement of certain internal performance metrics set by the Company, as defined by each award's plan documents or individual award agreements. 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, SARs or MSUs during the three and nine months ended September 30, 2019 or 2018.

The fair value of the time-based and performance-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

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expected volatility at the date of grant was based on the historical volatilities of the Company and the Index over the performance period.

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 giving effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible notes using the if-converted method. Dilutive potential common shares consist of shares issuable upon the exercise of stock options, shares of unvested restricted stock units and market 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, restricted stock units, market stock units and convertible notes 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.

Equity 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 at cost, less impairment and adjusted for subsequent observable price changes obtained from orderly transactions for identical or similar investments issued by the same investee.  Adjustments resulting from impairment, fair value, or observable price changes are accounted for in the unaudited condensed consolidated statements of comprehensive income (loss).

As of September 30, 2019 and December 31, 2018, the Company held $2.2 million and $2.0 million, respectively, of equity securities in a privately held company. This investment is accounted for at cost, less impairment and adjusted for subsequent observable price changes obtained from orderly transactions for identical or similar investments issued by the same investee. The Company estimates fair value of its equity 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 defined by Accounting Standard Codification ("ASC") 820, "Fair Value Measurement and Disclosure" ("ASC 820"). As of September 30, 2019 and December 31, 2018, the Company determined there were no other-than-temporary impairments on its equity investment. 

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 $289.8 million and $268.6 million at September 30, 2019 and December 31, 2018, respectively, and were invested in treasury money market funds. 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 ASC 820.

Trade and other receivables

Trade and other receivables are primarily comprised of trade receivables, net of allowance for doubtful accounts, contract assets and unbilled receivables. The Company records trade accounts receivable for its unconditional rights to consideration arising from the Company's performance under contracts with customers. The Company's standard billing terms are that payment is due upon receipt of invoice, payable generally within thirty to sixty days. The carrying value of such receivables, net of the allowance for doubtful accounts, represents their estimated net realizable value. The Company estimates its allowance for doubtful accounts for specific trade receivable balances based on historical collection trends, the age of outstanding trade receivables, existing economic conditions, and any financial security associated with the receivables.

Contract assets represent conditional rights to consideration that have been recognized as revenue in advance of billing the customer. Unbilled receivables represent unconditional rights to consideration arising from contingent revenue that have been recognized as revenue in advance of billing the customer.

Deferred costs

Sales commissions earned by the Company's sales representatives are considered incremental and recoverable costs of obtaining a customer contract. Sales commissions are deferred and amortized on a straight-line basis over the period of benefit, which the Company has determined to be five to eight years. The Company determined the period of benefit by taking into consideration its customer contracts, expected renewals of those customer contracts (as the Company currently does not pay an

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incremental sales commission), the Company's technology and other factors. The Company also defers amounts earned by employees other than sales representatives who earn incentive payments under compensation plans that are also tied to the value of customer contracts acquired. Deferred costs were $20.6 million and $17.5 million as of September 30, 2019 and December 31, 2018, respectively. Amortization expense for the deferred costs was $1.3 million and $0.8 million for the three months ended September 30, 2019 and 2018, respectively, and $3.5 million and $2.1 million for the nine months ended September 30, 2019 and 2018, respectively.

Deferred implementation costs

The Company capitalizes certain contract fulfillment costs, including personnel and other costs (such as hosting, employee salaries, benefits and payroll taxes), that are associated with arrangements where professional services are not distinct from other undelivered obligations in its customer contracts. The Company analyzes implementation costs and capitalizes those costs that are directly related to customer contracts, that are expected to be recoverable, and that enhance the resources which will be used to satisfy the undelivered performance obligations in those contracts. Deferred implementation costs are amortized ratably over the remaining contract term once the revenue recognition criteria for the respective performance obligation has been met and revenue recognition commences. Deferred implementation costs were $4.8 million and $3.9 million as of September 30, 2019 and December 31, 2018, respectively. Amortization expense for the deferred implementation costs was $0.4 million and $0.1 million for the three months ended September 30, 2019 and 2018, respectively, and $1.0 million and $0.4 million for the nine months ended September 30, 2019 and 2018, respectively. Deferred implementation costs are included in prepaid and other current assets and other assets, noncurrent in the unaudited condensed consolidated balance sheets. Amortization of deferred implementation costs is included in cost of subscription and cost of services revenues in the accompanying unaudited condensed consolidated statements of comprehensive income (loss).

Deferred revenue

Deferred revenue primarily consists of customer invoicing in advance of revenues being recognized. The Company generally invoices its customers annually in advance for subscription services and maintenance and support services. Deferred revenue that is anticipated to be recognized during the next twelve-month period is recorded as current deferred revenue and the remaining portion is recorded as long-term.

Credit facility

As of September 30, 2019, the Company had no outstanding borrowings under its $50.0 million secured Credit Agreement ("Revolver") with the lenders party thereto and Wells Fargo Bank, National Association as agent for the lenders party thereto. The Company included $0.1 million of unamortized debt issuance costs related to the Revolver in prepaid and other current assets and other assets, noncurrent in the unaudited condensed consolidated balance sheets. For the three and nine months ended September 30, 2019 and 2018, the Company recorded an immaterial amount of amortization of debt issuance cost which is included in other income (expense), net in the unaudited condensed consolidated statements of comprehensive income (loss).

Income taxes

The Company recorded an income tax provision of $0.1 million and $0.2 million for the three months ended September 30, 2019 and 2018, respectively, and $0.6 million and $0.2 million for the nine months ended September 30, 2019 and 2018, respectively, primarily related to foreign income taxes and withholding taxes. The effective tax rate was (0.6)% and (1.1)% for the three months ended September 30, 2019 and 2018, respectively, and (1.1)% and (0.3)% for the nine months ended September 30, 2019 and 2018, respectively. 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 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 February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)" ("Topic 842"), which requires the lessee to recognize most leases on the balance sheet thereby resulting in the recognition of right-of-use ("ROU") assets and lease liabilities for those leases currently classified as operating leases. Lessor accounting remains largely unchanged from current guidance, however, Topic 842 provides improvements that are intended to align lessor accounting with the lessee model and with updated revenue recognition guidance. This standard took effect in the first quarter of 2019, including interim periods within that reporting

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period. The Company adopted Topic 842 as of January 1, 2019 using the modified retrospective method by recognizing the cumulative effect of initially applying the new standard as an adjustment to the opening balances of operating ROU assets and lease liabilities, while prior period amounts are not adjusted and continue to be reported in accordance with the Company's historic accounting under the prior lease accounting rules in ASC 840, "Leases".

The Company elected the package of practical expedients permitted under the transition guidance within the new Topic 842 standard for all asset classes, which among other things, allowed the Company to carryforward the historical lease classification. The Company also elected the hindsight practical expedient to determine the reasonably certain lease term for existing leases. The Company made an accounting policy election to not recognize leases with an initial term of 12 months or less on the balance sheet and instead would recognize those lease payments on a straight-line basis over the lease term in the unaudited condensed consolidated statement of comprehensive income (loss).

The adoption of the standard had a material impact on the Company’s unaudited condensed consolidated balance sheet as a result of the increase of $26.9 million in assets and liabilities from recognition of ROU assets and lease liabilities. The standard did not have a material impact on the Company's unaudited condensed consolidated statement of comprehensive income (loss).

In August 2018, the FASB issued ASU 2018-15, "Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract" ("Subtopic 350-40"). The amendment aligns the requirements for capitalizing implementation costs in a cloud computing arrangement service contract with the requirements for capitalizing implementation costs incurred to develop or obtain an internal-use software. The standard is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2019; early adoption is permitted. The Company early adopted Subtopic 350-40 prospectively effective January 1, 2019 and there was no impact on the Company's unaudited condensed consolidated financial statements as of the adoption date. In addition, the new standard had no significant impact on the unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2019.

Recently issued accounting pronouncements not yet adopted

In January 2017, the FASB issued ASU 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment" ("Topic 350"), 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 after January 1, 2017. The Company is currently assessing the impact of Topic 350 on its unaudited 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 nine months ended September 30, 2019, 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. Deferred Revenue and Performance Obligations

Deferred Revenue

For the three months ended September 30, 2019 and 2018, the Company recognized approximately $45.1 million and $32.4 million, respectively, and for the nine months ended September 30, 2019 and 2018, the Company recognized approximately $86.2 million and $64.4 million, respectively, in each case of revenue that was included in the deferred revenue balances at the beginning of the respective periods and primarily related to subscription services, maintenance and support, and services.

Performance Obligations

As of September 30, 2019, the Company expects to recognize approximately $365.2 million of revenue from remaining performance obligations. The Company expects to recognize revenue on approximately $176.6 million of these performance obligations over the next 12 months, with the balance recognized thereafter.

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4. Disaggregation of Revenue

Revenue by Geography

The geographic information in the table below is presented for the three and nine months ended September 30, 2019 and 2018. The Company categorizes geographic revenues based on the location of the customer's headquarters. Because the Company's contracts are predominately denominated in U.S. dollars, it has limited exposure to foreign currency exchange risk as discussed under "Foreign Currency Exchange Risk" of Part I, Item 3 below.

	Three Months Ended September 30,								Nine Months Ended September 30,
	2019				2018				2019				2018
	Revenue		Percent		Revenue		Percent		Revenue		Percent		Revenue		Percent
United States of America	$	21,631	34	%	$	16,610	34	%	$	62,273	34	%	$	50,538	35	%
Europe	19,279		30	%	15,019		31	%	55,286		30	%	45,110		31	%
The rest of the world	23,240		36	%	17,446		35	%	66,600		36	%	48,763		34	%
Total revenue	$	64,150	100	%	$	49,075	100	%	$	184,159	100	%	$	144,411	100	%

5. Business Combination

On August 14, 2019, the Company acquired Travelaer SAS ("Travelaer"), a privately held company based near Nice, France, for a total cash consideration, net of cash acquired, of approximately $10.5 million. Travelaer is a digital innovator for the travel industry with a focus on improving the customer experience across all phases of travel, and brings an Internet booking engine and NDC (New Distribution Capability) platform to the Company's portfolio. The Company has included the financial results of Travelaer in the unaudited condensed consolidated financial statements from the date of the acquisition, which have not been material to date. The transaction cost associated with the acquisition was $0.2 million for the three and nine months ended September 30, 2019.

The Company accounted for the transaction as a business combination and all of the assets acquired and the liabilities assumed in the transaction have been recognized at their acquisition date fair values. The Company recorded approximately $2 million for developed technology and customer relationships with estimated useful lives of seven years and five years, respectively. The Company recorded approximately $11 million of goodwill which is primarily related to the assembled workforce and expanded market opportunities from integrating Travelaer's technology with the Company's solutions. The goodwill balance is not deductible for U.S. income tax purposes. The Company expects to finalize the valuation as soon as practicable, but no later than one year from the acquisition date.

6. Leases

The Company has operating leases for data centers, computer infrastructure, corporate offices and certain equipment. These leases have remaining lease terms ranging from 1 year to 14 years. Some of these leases include options to extend for up to 15 years, and some include options to terminate within 1 year.

In July 2019, the Company amended its existing agreement with a computing infrastructure vendor, the result of which was an increase in future consideration to be paid by the Company. The Company accounted for this change in consideration as a modification and remeasured the value of the right-of-use asset and related lease liability on such date, which resulted in an increase of $5.7 million to each respectively.

As of September 30, 2019, the Company did not have any finance leases.

The components of operating lease expense were as follows (in thousands):

	Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019
Operating lease cost	$	2,285		$	6,778
Variable lease cost	498			1,389
Sublease income	(99		)	(248		)
Total lease cost	$	2,684		$	7,919

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Supplemental information related to leases was as follows (in thousands):

	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Cash paid for amounts included in the measurement of lease liability:
Operating cash flows from operating leases	$	1,467	$	4,349

	September 30, 2019
Weighted average remaining lease term:
Operating leases	7.0 years
Weighted average discount rate:
Operating leases	7.26	%

As of September 30, 2019, maturities of lease liabilities were as follows (in thousands):

Year Ending December 31,	Amount
Remaining 2019	$	2,327
2020	7,558
2021	10,109
2022	4,542
2023	4,562
2024 and thereafter	38,654
Total operating lease payments	67,752
Less: Imputed interest	(22,945		)
Less: Anticipated lease incentive	(14,207		)
Total operating lease liabilities	$	30,600

As of September 30, 2019, the Company has additional operating leases of approximately $1.5 million that have not yet commenced, as the lessor has not made the underlying assets available for use by the Company. These operating leases will commence in fiscal year 2020 with lease terms of 5 years to 14 years.

As of December 31, 2018, the future minimum lease commitments related to lease agreements under Topic 840, the predecessor of Topic 842, were as follows:

Year Ending December 31,	Amount
2019	$	4,164
2020	1,649
2021	5,115
2022	6,181
2023	5,679
2024 and thereafter	57,365
Total minimum lease payments	$	80,153

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7. Earnings per Share

The following table sets forth the computation of basic and diluted earnings per share for the three and nine months ended September 30, 2019 and 2018:

	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands, except per share data)	2019			2018			2019			2018
Numerator:
Net loss	$	(17,347	)	$	(15,786	)	$	(51,781	)	$	(51,486	)
Denominator:
Weighted average shares (basic)	41,276			35,676			39,438			33,568
Dilutive effect of potential common shares	—			—			—			—
Weighted average shares (diluted)	41,276			35,676			39,438			33,568
Basic loss per share	$	(0.42	)	$	(0.44	)	$	(1.31	)	$	(1.53	)
Diluted loss per share	$	(0.42	)	$	(0.44	)	$	(1.31	)	$	(1.53	)

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 2.1 million and 2.2 million for the three months ended September 30, 2019 and 2018, respectively, and 2.1 million and 2.1 million for the nine months ended September 30, 2019 and 2018, respectively. Potential common shares related to the convertible notes determined to be antidilutive and excluded from diluted weighted average shares outstanding were 3.1 million for the three and nine months ended September 30, 2019.

8. Noncash Share-based Compensation

During the three months ended September 30, 2019, the Company granted 19,625 RSUs with a weighted average grant-date fair value of $69.13 per share. The Company granted no MSUs, options or SARs during this period.

During the nine months ended September 30, 2019, the Company granted 759,084 RSUs (time-based) with a weighted average grant-date fair value of $34.16 per share. The Company also granted 113,919 performance-based RSUs ("PRSUs") with a weighted average grant-date fair value of $33.05 to certain executive employees during the nine months ended September 30, 2019. These PRSUs vest on January 15, 2022 and the actual number of PRSUs that will be eligible to vest is based upon achievement of certain internal performance metrics, as defined by each award's plan documents or individual award agreements. The maximum number of shares issuable upon vesting is 200% of the PRSUs initially granted. The Company did not grant any stock options, SARs or MSUs during the nine months ended September 30, 2019.

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 and nine months ended September 30, 2019 and 2018:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Share-based compensation:
Cost of revenue	$	503	$	445	$	1,535	$	1,325
Operating expenses:
Selling and marketing	1,515		779		4,329		3,347
General and administrative	2,901		2,635		8,521		8,202
Research and development	1,290		1,098		3,849		3,481
Total included in operating expenses	5,706		4,512		16,699		15,030
Total share-based compensation expense	$	6,209	$	4,957	$	18,234	$	16,355

The Company's 2017 Equity Incentive Plan (as amended and restated, the "2017 Stock Plan") was approved by stockholders in May 2017 and reserved an aggregate amount of 2,500,000 shares for issuance. In May 2019, the shareholders

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approved an amendment to the 2017 Stock Plan which increased the aggregate amount of shares for issuance to a total of 4,550,000. As of September 30, 2019, 2,512,077 shares remain available for issuance under the 2017 Stock Plan.

At September 30, 2019, the Company had an estimated $46.7 million of total unrecognized compensation costs related to share-based compensation arrangements. These costs will be recognized over a weighted average period of 2.5 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 and nine months ended September 30, 2019, the Company issued 39,964 and 75,304 shares, respectively, under the ESPP. As of September 30, 2019, 140,251 shares remain authorized and available for issuance under the ESPP. As of September 30, 2019, the Company held approximately $0.8 million on behalf of employees for future purchases under the ESPP, and this amount was recorded in accrued payroll and other employee benefits in the Company's unaudited condensed consolidated balance sheet.

9. Convertible Senior Notes

The following is a summary of the Company's convertible senior notes as of September 30, 2019 (in thousands):

	Date of Issuance	Unpaid Principal Balance		Net Carrying Amount				Contractual Interest Rates
				Current		Noncurrent
2% Convertible Senior Note due in 2019 ("2019 Notes")	December 2014	$	21,606	$	21,415	—		2%
2% Convertible Senior Notes due in 2047 ("2047 Notes")	June 2017	$	24,075	$	20,928	—		2%
1% Convertible Notes due in 2024 ("2024 Notes")	May 2019	$	143,750	$	—	$	109,024	1%

In May 2019, the Company issued the 2024 Notes in an aggregate principal amount of $143.8 million. The interest rate for the 2024 Notes is fixed at 1% per annum. Interest is payable semi-annually in arrears on May 15 and November 15 of each year, commencing on November 15, 2019. The 2024 Notes mature on May 15, 2024, unless redeemed or converted in accordance with their terms prior to such date.

Each $1,000 of principal of the 2024 Notes will initially be convertible into 15.1394 shares of the Company’s common stock, which is equivalent to an initial conversion price of approximately $66.05 per share. The initial conversion price for the 2024 Notes is subject to adjustment upon the occurrence of certain specified events.

On or after February 15, 2024 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 2024 Notes regardless of the contingent conversion conditions described herein. 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 governing the 2024 Notes.

Holders may convert their 2024 Notes at their option at any time prior to the close of business on the business day immediately preceding February 15, 2024 only under the following circumstances:

• during the five consecutive business day period immediately following any five consecutive trading day period (the "Measurement Period") in which the trading price per 2024 Note for each day of that 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 day;

• during any calendar quarter commencing after the calendar quarter ending on June 30, 2019, if the last reported sale price of the common stock for 20 or more trading days (whether or not consecutive) in 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; or

• upon the occurrence of specified corporate events.

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The 2019 Notes, the 2024 Notes and 2047 Notes (collectively, the "Notes") are general unsecured obligations and rank senior in right of payment to all of the Company's indebtedness that is expressly subordinated in right of payment to the Notes, rank equally in right of payment with all of the Company's existing and future liabilities that are not so subordinated, are effectively junior to any of the Company's secured indebtedness to the extent of the value of the assets securing such indebtedness and are structurally subordinated to all indebtedness and other liabilities (including trade payables but excluding intercompany obligations owed to the Company or its subsidiaries).

In accounting for the transaction costs for each of the Notes issuance, the Company allocated the costs incurred to the liability and equity components in proportion to the allocation of the proceeds from issuance to the liability and equity components. Issuance costs attributable to the liability component, totaling $4.3 million for the 2019 Notes, $3.4 million for the 2024 Notes and $2.7 million for the 2047 Notes, are being amortized to expense over the expected life of each notes using the effective interest method. Issuance costs attributable to the equity component related to the conversion option, totaling $1.2 million for the 2019 Notes, $1.1 million for the 2024 Notes and $0.3 million for the 2047 Notes, were netted with the equity component in stockholders' equity.

In May 2019, the Company used a portion of the net proceeds of the offering of the 2024 Notes to exchange and retire $122.1 million in aggregate principal of the 2019 Notes for an aggregate cash consideration of $76.0 million and approximately 2.18 million shares of the Company's common stock (the "Exchange Transactions"). The Company recorded a $2.3 million loss on debt extinguishment related to the Exchange Transactions. The loss on extinguishment is included in the other (expense) income, net in the the accompanying unaudited condensed consolidated statements of comprehensive income (loss).

In August 2019, the Company issued a notice of redemption to the holders of its outstanding 2047 Notes, pursuant to which it will redeem the outstanding 2047 Notes for cash at a price of 92.39% of the principal amount of the 2047 Notes, plus accrued and unpaid interest, if any (the “Redemption”). The Redemption will occur on October 30, 2019, unless earlier converted. Prior to the consummation of the Redemption, the holders of the 2047 Notes are entitled to convert such notes into shares of the Company’s common stock at a rate of 21.2861 shares per $1,000 principal amount of the 2047 Notes, which is equivalent to a conversion price of $46.98 per share. The Company intends to satisfy its conversion obligation with respect to 2047 Notes tendered by delivering shares of its common stock, together with cash in lieu of delivering any fractional shares of common stock (if applicable). As of September 30, 2019, the Company has converted $82.2 million of aggregate principal of the 2047 Notes and delivered approximately 1.7 million shares of its common stock upon conversion. The Company recorded a $2.7 million loss on debt extinguishment related to the Redemption. The loss on extinguishment is included in the other (expense) income, net in the accompanying unaudited condensed consolidated statements of comprehensive income (loss).

As of September 30, 2019, the 2019 and 2024 Notes are not yet convertible and the 2047 Notes are convertible pursuant to the Redemption notice issued by the Company. As of September 30, 2019, the remaining term of the Notes is approximately 2 months, 55 months and 1 month, respectively.

As of September 30, 2019 and December 31, 2018, the fair value of the principal amount of the Notes was $231.0 million and $251.5 million, respectively. The estimated 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 and interest rates, which represents level 2 in the fair value hierarchy.

The Notes consist of the following (in thousands):

	September 30, 2019			December 31, 2018
Liability component:
Principal	$	189,431		$	250,000
Less: debt discount and issuance cost, net of amortization	(38,064		)	(24,810		)
Net carrying amount	$	151,367		$	225,190
Equity component(1)	$	70,443		$	37,560

(1) Recorded within additional paid-in capital in the consolidated balance sheet. As of September 30, 2019, it included $28.7 million, $32.9 million and $8.8 million related to the 2019 Notes, the 2024 Notes and the 2047 Notes, respectively, which was net of $1.2 million, $1.1 million and $0.3 million issuance cost in equity, respectively.

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The following table sets forth total interest expense recognized related to the Notes (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Coupon interest	$	863	$	1,250	$	3,219	$	3,750
Amortization of debt issuance costs	286		357		992		1,058
Amortization of debt discount	2,568		2,659		8,136		7,863
Total	$	3,717	$	4,266	$	12,347	$	12,671

Note Hedge and Warrant Transactions

Concurrently with the offering of the 2019 Notes, the Company entered into separate convertible note hedge (the "Note Hedge") and warrant (the "Warrant") transactions. Taken together, the purchase of the Note Hedge and the sale of the Warrant are intended to offset any actual dilution from the conversion of the 2019 Notes and to effectively increase the overall conversion price of the 2019 Notes from $33.79 to $45.48 per share. The total cost of the Note Hedge transaction was $29.4 million. The Company received $17.1 million in cash proceeds from the sale of the Warrant. The Warrant is not part of the 2019 Notes or Note Hedge. Both the Note Hedge and Warrant have been accounted for as part of additional paid-in capital.

In May 2019, in connection with the Exchange Transactions, the Company entered into certain note hedge termination agreements (the “Note Hedge Termination Agreements”) and warrant termination agreements (the “Warrant Termination Agreements”). The Company received cash proceeds of $64.8 million related to the Note Hedge Termination Agreements and paid $45.2 million related to the Warrant Termination Agreements. The Note Hedge Termination Agreements terminated certain of the Note Hedges that were entered into by the Company in connection with the offering of the 2019 Notes. The Warrant Termination Agreements terminated certain of the Warrants that were entered into by the Company in connection with the offering of the 2019 Notes.

Capped Call Transactions

In May 2019, in connection with the offering of the 2024 Notes, the Company entered into privately negotiated capped call transactions (collectively, the "Capped Call") with certain option counterparties. The Capped Call transactions cover, subject to customary anti-dilution adjustments, the number of shares of the Company’s common stock initially underlying the 2024 Notes, at a strike price that corresponds to the initial conversion price of the 2024 Notes, also subject to adjustment, and are exercisable upon conversion of the 2024 Notes. The Capped Call transactions are intended to reduce potential dilution of the Company's common stock and/or offset any cash payments the Company will be required to make in excess of the principal amount upon any conversion of 2024 Notes, and to effectively increase the overall conversion price of the 2024 Notes from $66.05 to $101.62 per share. As the Capped Call transactions meet certain accounting criteria, they are recorded in stockholders’ equity and are not accounted for as derivatives. The cost of the Capped Call was $16.4 million and was recorded as part of additional paid-in capital.

10. 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.

Purchase commitments

In the ordinary course of business, the Company enters into various purchase commitments for goods and services.

In March 2019, the Company entered in a noncancelable agreement with a computing infrastructure vendor that amended the existing agreement dated June 2017. The amended agreement expires in March 2022. The purchase commitment as of September 30, 2019 was $67.0 million for the remaining period through the expiration of the agreement.

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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 unaudited condensed consolidated financial statements included in Part I, Item 1 ("Interim Condensed Consolidated Financial Statements (Unaudited)"), 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 provides artificial intelligence ("AI") solutions that power commerce in the digital economy by providing fast, frictionless and personalized buying experiences. PROS solutions enable dynamic buying experiences for both B2B and B2C companies across industry verticals. Companies can use our dynamic pricing optimization, sales effectiveness, revenue management and commerce solutions to assess their market environments in real time to deliver customized prices and offers. Our solutions enable buyers to move fluidly across our customers’ direct sales, online, mobile and partner channels with personalized experiences regardless of which channel those customers choose. Our decades of data science and AI expertise are infused into our solutions and are designed to reduce time and complexity through actionable intelligence. We provide standard configurations of our software based on the industries we serve and offer professional services to configure these solutions to meet the specific needs of each customer.

Q3 2019 Financial Overview

In the third quarter of 2019, subscription revenue increased 57% and 51%, respectively, for the three and nine months ended September 30, 2019, as compared to the same periods in 2018. Our continuing shift to a subscription-based revenue model also led to a growth of recurring revenue (which consists of subscription revenue and maintenance and support revenue) of 29% and 26%, respectively, as compared to the first three and nine months of 2018, and accounted for 81% and 79%, respectively, of total revenue for the three and nine months ended September 30, 2019.

Cash used in operating activities was $7.6 million for the nine months ended September 30, 2019, as compared to $9.5 million for the nine months ended September 30, 2018. The decrease in net cash used in operating activities was primarily attributable to changes in working capital partially offset by increased impact of adjustments to net loss primarily driven by loss on debt extinguishment.

Free cash flow is another key metric to assess the strength of our business. We define free cash flow, a non-GAAP financial measure, as net cash provided by (used in) operating activities minus capital expenditures (excluding expenditures for our new headquarters), 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 during the three months ended September 30, 2019 was $3.0 million, compared to free cash flow use of $2.6 million for the three months ended September 30, 2018. Free cash flow used during the nine months ended September 30, 2019 was $11.8 million, compared to $14.6 million for the nine months ended September 30, 2018. This decrease was primarily attributable to a $1.9 million decrease in net cash used in operating activities primarily due to changes in working capital partially offset by increased impact of adjustments to net loss primarily driven by loss on debt extinguishment. The following is a reconciliation of free cash flow to the most comparable GAAP measure, net cash used in operating activities (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Net cash provided by (used in) operating activities	$	4,037		$	(1,175	)	$	(7,607	)	$	(9,485	)
Purchase of property and equipment (excluding new headquarters)	(876		)	(219		)	(3,145		)	(1,406		)
Purchase of intangible assets	—			—			(50		)	—
Capitalized internal-use software development costs	(153		)	(1,202		)	(1,021		)	(3,686		)
Free Cash Flow	$	3,008		$	(2,596	)	$	(11,823	)	$	(14,577	)

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Total deferred revenue was $127.9 million as of September 30, 2019, as compared to $117.2 million as of December 31, 2018, an increase of $10.8 million, or 9%, primarily due to an increase in subscription deferred revenue.

Factors Affecting Our Performance

Key factors and trends that have affected, and we believe will continue to affect, our operating results include:

• Buying Preferences Driving Technology Adoption. Corporate buyers are increasingly demanding the same type of digital buying experience that they enjoy as consumers. For example, buyers increasingly prefer to buy online when they have already decided what to buy, and often prefer not to interact with a sales representative as their primary source of research. In response, we believe that businesses are increasingly looking to modernize their sales process to compete in digital commerce by adopting technologies which provide fast, frictionless, and personalized buying experiences across sales channels. We believe we are uniquely positioned to help power these buying experiences with our AI-powered solutions that enable buyers to move fluidly across our customers’ direct sales, online, mobile and partner channels and have personalized experiences however they choose to buy. 

• Continued Investments. We are focused on creating awareness for our solutions, expanding our customer base and growing our recurring revenues. While we incurred losses in the nine months of 2019, we believe our market is large and underpenetrated and therefore we intend to continue investing to expand our ability to sell and renew our subscription offerings globally through investments in sales, marketing, customer success, cloud support, security, privacy, infrastructure and other long-term initiatives. We also plan to continue to invest in product development to enhance our existing technologies and develop new applications and technologies.

• Cloud Migrations. We expect that over time, additional sales of our cloud-based solutions will result in a decrease in our maintenance and support revenue, particularly as existing customers continue to migrate from our licensed solutions to our cloud solutions.

• Sales Mix Impacts Subscription Revenue Recognition Timing. The mix of subscription services and professional services can create revenue variability in given periods based on the nature and scope of services sold together. Professional services that are deemed to be distinct from the subscription services are accounted for as a separate performance obligation and revenue is recognized as the services are performed. If determined that the professional services are not considered distinct, the professional services and the subscription services are determined to be a single performance obligation and all revenue is recognized over the contractual term of the subscription beginning on the date that subscription services are made available to the customer, resulting in a deferral of revenue and revenue recognized over a shorter period of time, which would have a negative near-term financial impact.

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Results of Operations

The following table sets forth certain items in our unaudited condensed consolidated statements of comprehensive income (loss) as a percentage of total revenues for the three and nine months ended September 30, 2019 and 2018:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Revenue:
Subscription	58	%	49	%	55	%	46	%
Maintenance and support	22		33		24		34
Total subscription, maintenance and support	81		82		79		80
License	2		2		2		2
Services	17		16		19		18
Total revenue	100		100		100		100
Cost of revenue:
Subscription	17		18		17		18
Maintenance and support	4		6		4		6
Total cost of subscription, maintenance and support	21		24		21		24
License	—		—		—		—
Services	20		15		17		16
Total cost of revenue	41		40		38		40
Gross profit	59		60		62		60
Operating Expenses:
Selling and marketing	34		36		36		37
General and administrative	18		21		19		21
Research and development	26		28		27		29
Acquisition-related	—		—		—		—
Total operating expenses	78		84		82		87
Convertible debt interest and amortization	(6	)	(9	)	(7	)	(9	)
Other income net	(2	)	1		—		1
Loss before income tax provision	(27	)	(32	)	(28	)	(36	)
Income tax provision	—		—		—		—
Net loss	(27	)%	(32	)%	(28	)%	(36	)%

Revenue:

	Three Months Ended September 30,				Variance					Nine Months Ended September 30,				Variance
(Dollars in thousands)	2019		2018		$			%		2019		2018		$			%
Subscription	$	37,463	$	23,888	$	13,575		57	%	$	100,958	$	66,876	$	34,082		51	%
Maintenance and support	14,405		16,238		(1,833		)	(11	)%	44,772		49,037		(4,265		)	(9	)%
Total subscription, maintenance and support	51,868		40,126		11,742			29	%	145,730		115,913		29,817			26	%
License	1,129		1,093		36			3	%	3,663		2,854		809			28	%
Services	11,153		7,856		3,297			42	%	34,766		25,644		9,122			36	%
Total revenue	$	64,150	$	49,075	$	15,075		31	%	$	184,159	$	144,411	$	39,748		28	%

Subscription revenue. Subscription revenue for the three and nine months ended September 30, 2019 and 2018 increased primarily due to an increase in the number and size of customer subscriptions as compared to the prior year. We continued to invest in customer programs and initiatives which helped keep our customer attrition rates fairly consistent as compared to the prior year. Our ability to maintain consistent customer attrition rates will directly impact our ability to continue to grow our subscription revenue.

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Maintenance and support revenue. The decrease in maintenance and support revenue was principally a result of customer maintenance churn and migrating existing maintenance contracts to the cloud during the three and nine months ended September 30, 2019. We expect maintenance revenue to continue to decline over time as we sell fewer licenses and related maintenance and support, sell more subscription services and migrate existing maintenance customers to our cloud solutions.

License revenue. License revenue remained relatively unchanged during the three months ended September 30, 2019. License revenue increased during the nine months ended September 30, 2019 primarily due to an increase in license revenue with existing customers recognized upon software delivery.

Services revenue. Services revenue increased primarily as a result of higher sales of professional services related to our subscription sales and add-on professional services revenue from existing customers during the three and nine months ended September 30, 2019, as compared to the same periods in 2018. Services revenue varies 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 contracts and any additional professional services requested by our customers during a particular period.

Cost of revenue and gross profit:

	Three Months Ended September 30,				Variance					Nine Months Ended September 30,				Variance
(Dollars in thousands)	2019		2018		$			%		2019		2018		$			%
Cost of subscription	$	11,039	$	9,053	$	1,986		22	%	$	30,543	$	26,308	$	4,235		16	%
Cost of maintenance and support	2,632		2,852		(220		)	(8	)%	8,269		8,762		(493		)	(6	)%
Total cost of subscription, maintenance and support	13,671		11,905		1,766			15	%	38,812		35,070		3,742			11	%
Cost of license	51		63		(12		)	(19	)%	152		200		(48		)	(24	)%
Cost of services	12,661		7,508		5,153			69	%	31,792		22,451		9,341			42	%
Total cost of revenue	26,383		19,476		6,907			35	%	70,756		57,721		13,035			23	%
Gross profit	$	37,767	$	29,599	$	8,168		28	%	$	113,403	$	86,690	$	26,713		31	%

Cost of subscription. The three and nine-month increase was primarily attributable to increases in infrastructure costs to support our current subscription customer base, increases in personnel cost primarily driven by higher headcount and increased amortization expense associated with our internal-use software. Our subscription gross profit percentage was 71% and 62%, respectively, for the three months ended September 30, 2019 and 2018. Our subscription gross profit percentage was 70% and 61%, respectively, for the nine months ended September 30, 2019 and 2018. The three and nine-month increase in gross profit percentage was primarily attributable to a 57% and 51%, respectively, increase in subscription revenue combined with a smaller increase in cost of subscription driven by efficiencies we are achieving in our cloud infrastructure.

Cost of maintenance and support. The three and nine-month decrease was primarily attributable to a decrease in personnel costs. Maintenance and support gross profit percentage for the three and nine months ended September 30, 2019 and 2018 was 82%.

Cost of license. Cost of license consists of third-party fees for licensed software and remained relatively consistent year-over-year. License gross profit percentages for the three months ended September 30, 2019 and 2018, were 95% and 94%, respectively. License gross profit percentages for the nine months ended September 30, 2019 and 2018, were 96% and 93%, respectively.

Cost of services. The three and nine-month increase was primarily attributable to an increase in personnel costs, primarily driven by higher headcount and third party system integrators to support our current customer implementations, related travel expenses and other facility and overhead expenses. Services gross profit percentage for the three months ended September 30, 2019 and 2018, was (14)% and 4%, respectively. Services gross profit percentage for the nine months ended September 30, 2019 and 2018, was 9% and 12%, respectively. The decrease in services gross profit percentages was primarily attributed to an increase in third party system integrators to support our current customer implementations. Services gross profit percentages vary 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. We plan on increasing headcount in our professional services organization to support our current and anticipated growth in the number of customers purchasing our subscription services.

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Gross profit. The increase in overall gross profit for the three and nine months ended September 30, 2019 was primarily attributable to an increase in total revenue of 31% and 28%, respectively, as compared to the same periods in 2018 mainly due to an increase in our subscription revenue.

Operating expenses:

	Three Months Ended September 30,				Variance				Nine Months Ended September 30,				Variance
(Dollars in thousands)	2019		2018		$		%		2019		2018		$		%
Selling and marketing	$	21,600	$	17,513	$	4,087	23	%	$	66,030	$	53,671	$	12,359	23	%
General and administrative	11,553		10,179		1,374		13	%	35,260		31,013		4,247		14	%
Research and development	16,878		13,773		3,105		23	%	50,132		41,517		8,615		21	%
Acquisition-related	248		—		248		nm		248		95		153		161	%
Total operating expenses	$	50,279	$	41,465	$	8,814	21	%	$	151,670	$	126,296	$	25,374	20	%

Selling and marketing expenses. The three and nine-month increase was primarily attributable to an increase of $4.0 million and $10.3 million, respectively, in personnel cost primarily driven by higher headcount as we continue to focus on adding new customers and increasing penetration within our existing customer base. In addition, there was an increase of $0.1 million and $2.1 million, respectively, in expenses for sales and marketing events and sales related travel.

General and administrative expenses. The three and nine-month increase was primarily attributable to an increase in personnel cost of $0.9 million and $2.2 million, respectively, and an increase of $0.5 million and $2.0 million, respectively, in professional fees and facility expenses.

Research and development expenses. The three and nine-month increase was primarily attributable to an increase of $2.7 million and $6.7 million, respectively, in personnel cost primarily driven by higher headcount. The remaining increase of $0.4 million and $1.9 million was attributable to increases in facility and other overhead expenses.

Acquisition-related expenses. Acquisition-related expenses were $0.2 million for the three and nine months ended September 30, 2019 and consisted primarily of integration costs and professional fees for our acquisition of Travelaer. Acquisition-related expenses were $0.1 million for the nine months ended September 30, 2018 and consisted primarily of integration costs, retention bonuses and professional fees related to our acquisition of PROS Travel Commerce, Inc. (formerly Vayant Travel Technologies, Inc.).

Other (expense) income, net:

	Three Months Ended September 30,						Variance					Nine Months Ended September 30,						Variance
(Dollars in thousands)	2019			2018			$			%		2019			2018			$			%
Convertible debt interest and amortization	$	(3,717	)	$	(4,266	)	$	549		(13	)%	$	(12,347	)	$	(12,671	)	$	324		(3	)%
Other (expense) income, net	$	(1,010	)	$	521		$	(1,531	)	(294	)%	$	(601	)	$	967		$	(1,568	)	(162	)%

Convertible debt interest and amortization. The convertible debt expense for the three and nine months ended September 30, 2019 and 2018 related to coupon interest and amortization of debt discount and issuance costs attributable to our Notes.

Other (expense) income, net. The decrease in other (expense) income, net for the three and nine months ended September 30, 2019, primarily related to a $5.0 million loss on debt extinguishment related to our 2019 and 2047 Notes recognized during the second and third quarter of 2019. This decrease was partially offset by an increase in interest income.

Income tax provision:

	Three Months Ended September 30,						Variance					Nine Months Ended September 30,						Variance
(Dollars in thousands)	2019			2018			$			%		2019			2018			$		%
Effective tax rate	(0.6		)%	(1.1		)%	n/a			n/a		(1.1		)%	(0.3		)%	n/a		n/a
Income tax provision	$	108		$	175		$	(67	)	(38	)%	$	566		$	176		$	390	nm

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Income tax provision. The tax provision for the three and nine months ended September 30, 2019 included both foreign income and withholding taxes. 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 (0.6)% and (1.1)% for the three months ended September 30, 2019 and 2018, respectively. Our effective tax rate was (1.1)% and (0.3)% for the nine months ended September 30, 2019 and 2018, respectively. The income tax rate varies from the 21% federal statutory rate primarily due to the valuation allowances on our deferred tax assets and foreign and state taxes not based on income. While our expected tax rate would be 0% due to the full valuation on the deferred tax assets, the (0.6)% and (1.1)% tax rate for the three months ended September 30, 2019 and 2018, respectively, and the (1.1)% and (0.3)% for the nine months ended September 30, 2019 and 2018, respectively, is 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 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 September 30, 2019, we had $319.2 million of cash and cash equivalents and $174.5 million of working capital as compared to $295.5 million of cash and cash equivalents and $71.4 million of working capital at December 31, 2018.

Our principal sources of liquidity are our cash and cash equivalents, cash flows generated from operations and potential borrowings under our Revolver. We issued the 2019 Notes in December 2014, the 2047 Notes in June 2017, the Secondary Offering in August 2018 and the 2024 Notes in May 2019 to supplement our overall liquidity position. Our material drivers or variants of operating cash flow are net income (loss), 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. 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 in accordance with the invoice terms and conditions.

We believe our existing cash, cash equivalents, including 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 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 nine months ended September 30, 2019 and 2018:

 

	Nine Months Ended September 30,
(Dollars in thousands)	2019			2018
Net cash used in operating activities	$	(7,607	)	$	(9,485	)
Net cash used in investing activities	(15,121		)	(5,092		)
Net cash provided by financing activities	46,806			135,609
Cash and cash equivalents (beginning of period)	295,476			160,505
Cash and cash equivalents (end of period)	$	319,162		$	281,889

Operating Activities

Net cash used in operating activities for the nine months ended September 30, 2019 was $7.6 million. The $1.9 million decrease in cash used as compared to 2018 was primarily attributable to changes in working capital partially offset by increased impact of adjustments to net loss primarily driven by loss on debt extinguishment.

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Investing Activities

Net cash used in investing activities for the nine months ended September 30, 2019 was $15.1 million, which was primarily related to the consideration paid for the acquisition of Travelaer of $10.5 million, capital expenditures of $3.4 million, $1.0 million related to capitalized internal-use software development costs on our subscription service solutions and an investment in equity securities of $0.2 million.

Financing Activities

Net cash provided by financing activities for the nine months ended September 30, 2019 was $46.8 million, which was attributable to proceeds from the issuance of 2024 Notes of $140.2 million, proceeds from bond hedge termination of $64.8 million and proceeds from employee stock plans of $2.0 million, partially offset by a cash convertible debt settlement payment of $76.0 million, $45.2 million paid for termination of warrant, $21.6 million paid for tax withholdings on vesting of employee share-based awards, purchase of capped call of $16.4 million, and payment for convertible debt issuance cost of $0.9 million.

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 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

Other than changes described in Note 10 above, there have been no material changes to our contractual obligations and commitments disclosed in our Annual Report.

Credit facility

There were no outstanding borrowings under the Revolver as of September 30, 2019. As of September 30, 2019, we had $0.1 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 and nine months ended September 30, 2019 and 2018, 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 "Recently adopted accounting pronouncements" in Note 2 above for discussion of recent accounting pronouncements including the respective expected dates of adoption.

Critical accounting policies and estimates

Our consolidated financial statements are prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and related disclosures. Actual results could differ from those estimates. The complexity and judgment required in our estimation process, as well as issues related to the assumptions, risks and uncertainties inherent in determining the nature and timing of satisfaction of performance obligations and determining the standalone selling price of performance obligations, 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, operating lease right-of-use assets and operating lease liabilities, useful lives of assets, depreciation, 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. Our critical accounting policies related to the estimates and judgments are discussed in our Annual Report under management's discussion and analysis of financial condition and results of operations, except for the leases policy which has been updated in result of the adoption of the new lease standard under Topic 842 and is included herein.

29

Leases

We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use ("ROU") assets, current operating lease liabilities and noncurrent operating lease liabilities in the unaudited condensed consolidated balance sheet.

ROU assets represent our right to use an underlying asset over the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. We include any anticipated lease incentives in the determination of lease liability.

We use our estimated incremental borrowing rate, which is derived from information available at the lease commencement date, in determining the present value of lease payments. We give consideration to our recent debt issuances as well as publicly available data for instruments with similar characteristics when calculating our incremental borrowing rates.

Our lease terms include options to extend the lease when it is reasonably certain that we will exercise that option. Leases with a term of 12 months or less are not recorded on the unaudited condensed consolidated balance sheet. Our lease agreements do not contain any residual value guarantees.

30

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Currency Exchange Risk

Although our contracts are predominately denominated in U.S. dollars, we are exposed to foreign currency exchange risk because we also have some contracts denominated in foreign currencies. The effect of a hypothetical 10% adverse change in exchange rates on our foreign denominated receivables as of September 30, 2019 would result in a loss of approximately $0.3 million. We are also exposed to foreign currency risk due to our operating subsidiaries in France, United Kingdom, Canada, Germany, Ireland, Australia, Bulgaria and United Arab Emirates. A hypothetical 10% adverse change in the value of the U.S. dollar in relation to the euro, which is our single most significant foreign currency exposure, would have decreased revenue for the three and nine months ended September 30, 2019 by approximately $0.2 million and $0.7 million, respectively. However, due to the relatively low volume of payments made and received 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

We are exposed to market risk for changes in interest rates related to the variable interest rate on borrowings under the Revolver. As of September 30, 2019, we had no borrowings under the Revolver.

As of September 30, 2019, we had outstanding principal amounts of $21.6 million, $143.8 million and $24.1 million respectively, of the 2019 Notes, the 2024 Notes and the 2047 Notes which are fixed rate instruments. Therefore, our results of operations are not subject to fluctuations in interest rates. The fair value of the Notes may change when the market price of our stock fluctuates.

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.

ITEM 4. CONTROLS AND PROCEDURES

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) as of September 30, 2019. Based on our evaluation of our disclosure controls and procedures as of September 30, 2019, 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

In August 2019, we acquired Travelaer, in an all-cash transaction. See Note 5, "Business Combinations" to the unaudited interim consolidated financial statements included in this Quarterly Report on Form 10-Q for a discussion of this acquisition and related financial data. Management has considered this acquisition immaterial to the results of operations, cash flows and financial position from the date of the acquisition through September 30, 2019. In accordance with SEC guidance, management plans to exclude Travelaer from management’s assessment of, and report on, internal controls over financial reporting from the date of the acquisition through December 31, 2019. We are in the process of reviewing the operations of Travelaer and evaluating the impact of the acquisition on our internal controls over financial reporting. Excluding this acquisition, there have been no changes in our internal control over financial reporting during the three months ended September 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We implemented internal controls to ensure we adequately evaluated our lease contracts and properly assessed the impact of our adoption of Topic 842 on January 1, 2019. There were no significant changes to our internal control over financial reporting due to the adoption of Topic 842.

31

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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.

ITEM 1A. RISK FACTORS

There have been no material changes in the Company's risk factors from those disclosed in Part I, Item 1A, of our Annual Report with the exception of the following revised and updated risk factor.

We incurred indebtedness by issuing convertible notes, and our debt repayment obligations may adversely affect our financial condition and cash flows from operations in the future.

In May 2019, we issued $143.8 million principal amount of 1.0% convertible senior notes (“2024 Notes”) due May 15, 2024, unless earlier redeemed, purchased or converted in accordance with their terms prior to such date. Interest is payable semi-annually in arrears on May 15 and November 15 of each year. As of September 30, 2019, the entire $143.8 million of aggregate principal amount of 2024 Notes are outstanding.

In June 2017, we issued $106.3 million principal amount of 2.0% convertible senior notes ("2047 Notes") due June 1, 2047, unless earlier redeemed, purchased or converted in accordance with their terms prior to such date. Interest is payable semi-annually in arrears on June 1 and December 1 of each year. In 2019, we issued a notice of redemption and subsequently converted and extinguished a portion of the 2047 Notes. As of September 30, 2019, $24.1 million of aggregate principal amount of 2047 Notes are outstanding.

In December 2014, we issued $143.8 million principal amount of 2.0% convertible senior notes ("2019 Notes") due December 1, 2019, unless earlier purchased or converted. Interest is payable semi-annually in arrears on June 1 and December 1 of each year. We retired a portion of the 2019 Notes in 2019. As of September 30, 2019, $21.6 million of aggregate principal amount of 2019 Notes are outstanding.

Our indebtedness could have important consequences because it may impair our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions and general corporate or other purposes, and a portion of our cash flows from operations may have to be dedicated to repaying the principal beginning in 2019. Our ability to meet our debt obligations will depend on our future performance, which will be affected by financial, business, economic, regulatory and other factors. We cannot control many of these factors. Our future operations may not generate sufficient cash to enable us to repay our debt. If we fail to make a payment on our debt, we could be in default on such debt. If we are at any time unable to pay our indebtedness when due, we may be required to renegotiate the terms of the indebtedness, seek to refinance all or a portion of the indebtedness or obtain additional financing. There can be no assurance that, in the future, we will be able to successfully renegotiate such terms, that any such refinancing would be possible or that any additional financing could be obtained on terms that are favorable or acceptable to us.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

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 September 30, 2019, $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 September 30, 2019.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURE

None.

ITEM 5. OTHER INFORMATION

None.

32

ITEM 6. EXHIBITS

Index to Exhibits
		Provided	Incorporated by Reference
Exhibit No.	Description	Herewith	Form	Filing Date
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.

*	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.
+	Indicates a management contract or compensatory plan or arrangement.

33

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.
October 24, 2019	By:	/s/ Andres Reiner
		Andres Reiner
		President and Chief Executive Officer (Principal Executive Officer)
October 24, 2019	By:	/s/ Stefan Schulz
		Stefan Schulz
		Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

34

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Andres Reiner, certify that:

1. I have reviewed this quarterly report on Form 10-Q of PROS Holdings, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

October 24, 2019	/s/ Andres Reiner
	Andres Reiner
	President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Stefan Schulz, certify that:

1. I have reviewed this quarterly report on Form 10-Q of PROS Holdings, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

October 24, 2019	/s/ Stefan Schulz
	Stefan Schulz
	Executive Vice President and Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Andres Reiner, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the quarterly report of PROS Holdings, Inc., on Form 10-Q for the period ended September 30, 2019 fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and the information contained in such Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of PROS Holdings, Inc.

October 24, 2019	/s/ Andres Reiner
	Andres Reiner
	President and Chief Executive Officer

I, Stefan Schulz, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the quarterly report of PROS Holdings, Inc., on Form 10-Q for the period ended September 30, 2019 fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and the information contained in such Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of PROS Holdings, Inc. 

October 24, 2019	/s/ Stefan Schulz
	Stefan Schulz
	Executive Vice President and Chief Financial Officer

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to PROS Holdings, Inc. and will be retained by PROS Holdings, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. This certification "accompanies" the Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.

XML

Condensed Consolidated Balance Sheets (Unaudited) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Current assets:
Cash and cash equivalents	$ 319,162	$ 295,476
Trade and other receivables, net of allowance of $968 and $978, respectively	55,986	41,822
Deferred Costs, Current	5,415	4,089
Prepaid and other current assets	8,764	4,756
Total current assets	389,327	346,143
Property and equipment, net	13,972	14,676
Operating Lease, Right-of-Use Asset	28,548	0
Deferred Costs, Noncurrent	15,172	13,373
Intangible Assets, Net (Excluding Goodwill)	16,191	19,354
Goodwill	48,878	38,231
Other long term assets, net	6,650	5,190
Total assets	518,738	436,967
Current liabilities:
Accounts payable	7,003	6,934
Accrued liabilities	17,433	9,506
Accrued payroll and other employee benefits	27,420	22,519
Operating Lease, Liability, Current	7,222	0
Deferred Revenue, Current	113,430	99,262
Convertible Debt, Current	42,343	136,529
Total current liabilities	214,851	274,750
Long-term deferred revenue	14,502	17,903
Convertible Debt, Noncurrent	109,024	88,661
Operating Lease, Liability, Noncurrent	23,377	0
Other Liabilities, Noncurrent	1,032	754
Total liabilities	362,786	382,068
Commitments and contingencies (see Note 10)
Stockholders' equity:
Preferred stock, $0.001 par value, 5,000,000 shares authorized; none issued	0	0
Common stock, $0.001 par value, 75,000,000 shares authorized; 46,460,212 and 41,573,491 shares issued, respectively; 42,042,627 and 37,155,906 shares outstanding, respectively	47	42
Additional paid-in capital	518,456	364,877
Treasury stock, 4,417,585 common shares, at cost	(13,938)	(13,938)
Retained Earnings (Accumulated Deficit)	(344,489)	(292,708)
Accumulated Other Comprehensive Income (Loss), Net of Tax	(4,124)	(3,374)
Total stockholders' equity	155,952	54,899
Total liabilities and stockholders' equity	$ 518,738	$ 436,967

XML

Disaggregation of Revenue (Tables)

9 Months Ended

Sep. 30, 2019

Revenue by Geography [Abstract]

Schedule of Disaggregation Of Revenue [Table Text Block]

The geographic information in the table below is presented for the three and nine months ended September 30, 2019 and 2018. The Company categorizes geographic revenues based on the location of the customer's headquarters. Because the Company's contracts are predominately denominated in U.S. dollars, it has limited exposure to foreign currency exchange risk as discussed under "Foreign Currency Exchange Risk" of Part I, Item 3 below.

	Three Months Ended September 30,								Nine Months Ended September 30,
	2019				2018				2019				2018
	Revenue		Percent		Revenue		Percent		Revenue		Percent		Revenue		Percent
United States of America	$	21,631	34	%	$	16,610	34	%	$	62,273	34	%	$	50,538	35	%
Europe	19,279		30	%	15,019		31	%	55,286		30	%	45,110		31	%
The rest of the world	23,240		36	%	17,446		35	%	66,600		36	%	48,763		34	%
Total revenue	$	64,150	100	%	$	49,075	100	%	$	184,159	100	%	$	144,411	100	%

XML

Condensed Consolidated Statement of Stockholders' Equity Statement - USD ($) $ in Thousands	Total	Common Stock [Member]	Additional Paid-in Capital [Member]	Treasury Stock [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Income, net of tax [Member]
Common Stock, Shares, Outstanding, Beginning Balance at Dec. 31, 2017		31,939,175
Stockholders' Equity Attributable to Parent at Dec. 31, 2017	$ (46,979)	$ 36	$ 207,924	$ (13,938)	$ (238,185)	$ (2,816)
Treasury Stock, Shares - Beginning Balance at Dec. 31, 2017				4,417,585
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Stock Issued During Period, Shares, New Issues		161,997
Stock Issued During Period, Value, Stock Options Exercised		$ 1
Proceeds from Stock Options Exercised	(1,142)		(1,141)
Stock Issued During Period, Shares, Restricted Stock Award, Net of Forfeitures		592,317
Stock Issued During Period, Value, Restricted Stock Award, Gross	(9,153)	$ 1	(9,154)
Stock Issued During Period, Shares, Employee Stock Purchase Plans		75,546
Proceeds from Stock Plans	1,720		1,720
Stock Issued During Period, Shares, Secondary Offering		4,370,000
Stock Issued During Period, Value, Secondary Offering		$ 4	141,950
Adjustments to Additional Paid in Capital, Equity Component of Convertible Debt	141,954
APIC, Share-based Payment Arrangement, Increase for Cost Recognition	16,440		16,440
Cumulative effect of adoption of section 606	9,723				9,723
Other Comprehensive Income (Loss), Net of Tax	(350)					(350)
Net Income (Loss) Attributable to Parent	(51,486)				(51,486)
Treasury Stock, Shares - Enging Balance at Sep. 30, 2018				4,417,585
Stockholders' Equity Attributable to Parent at Sep. 30, 2018	63,011	$ 42	360,021	$ (13,938)	(279,948)	(3,166)
Common Stock, Shares, Outstanding, Ending Balance at Sep. 30, 2018		37,139,035
Common Stock, Shares, Outstanding, Beginning Balance at Jun. 30, 2018		32,711,339
Stockholders' Equity Attributable to Parent at Jun. 30, 2018	(68,659)	$ 37	212,481	$ (13,938)	(264,161)	(3,078)
Treasury Stock, Shares - Beginning Balance at Jun. 30, 2018				4,417,585
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Stock Issued During Period, Shares, New Issues		2,440
Stock Issued During Period, Value, Stock Options Exercised		$ 1
Proceeds from Stock Options Exercised	(59)		60
Stock Issued During Period, Shares, Restricted Stock Award, Net of Forfeitures		16,825
Stock Issued During Period, Value, Restricted Stock Award, Gross	(185)		(185)
Stock Issued During Period, Shares, Employee Stock Purchase Plans		38,431
Proceeds from Stock Plans	886		886
Stock Issued During Period, Shares, Secondary Offering		4,370,000
Stock Issued During Period, Value, Secondary Offering		$ 4	141,950
Adjustments to Additional Paid in Capital, Equity Component of Convertible Debt	141,954
APIC, Share-based Payment Arrangement, Increase for Cost Recognition	4,949		4,949
Cumulative effect of adoption of section 606	(1)				(1)
Other Comprehensive Income (Loss), Net of Tax	(88)					(88)
Net Income (Loss) Attributable to Parent	(15,786)				(15,786)
Treasury Stock, Shares - Enging Balance at Sep. 30, 2018				4,417,585
Stockholders' Equity Attributable to Parent at Sep. 30, 2018	$ 63,011	$ 42	360,021	$ (13,938)	(279,948)	(3,166)
Common Stock, Shares, Outstanding, Ending Balance at Sep. 30, 2018		37,139,035
Common Stock, Shares, Outstanding, Beginning Balance at Dec. 31, 2018	37,155,906	37,155,906
Stockholders' Equity Attributable to Parent at Dec. 31, 2018	$ 54,899	$ 42	364,877	$ (13,938)	(292,708)	(3,374)
Treasury Stock, Shares - Beginning Balance at Dec. 31, 2018	4,417,585			4,417,585
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Proceeds from Stock Options Exercised	$ 0
Stock Issued During Period, Shares, Restricted Stock Award, Net of Forfeitures		885,740
Stock Issued During Period, Value, Restricted Stock Award, Gross	$ (21,598)	$ 1	(21,599)
Stock Issued During Period, Shares, Employee Stock Purchase Plans	75,304	75,304
Proceeds from Stock Plans	$ 1,995		1,995
Stock Issued During Period, Shares, Conversion of Convertible Securities		3,925,677
Stock Issued During Period, Value, Conversion of Convertible Securities	118,989	$ 4	118,985
Adjustment to additional paid in capital, termination of bond hedge and warrant	64,819		64,819
Adjustment to additional paid in capital, termination of warrant	(45,243)		(45,243)
Adjustments to Additional Paid in Capital, Equity Component of Convertible Debt	32,883		32,883
Adjustments to Additional Paid in Capital, Other	(16,445)		(16,445)
APIC, Share-based Payment Arrangement, Increase for Cost Recognition	18,184		18,184
Other Comprehensive Income (Loss), Net of Tax	(750)					(750)
Net Income (Loss) Attributable to Parent	$ (51,781)				(51,781)
Treasury Stock, Shares - Enging Balance at Sep. 30, 2019	4,417,585			4,417,585
Stockholders' Equity Attributable to Parent at Sep. 30, 2019	$ 155,952	$ 47	518,456	$ (13,938)	(344,489)	(4,124)
Common Stock, Shares, Outstanding, Ending Balance at Sep. 30, 2019	42,042,627	42,042,627
Common Stock, Shares, Outstanding, Beginning Balance at Jun. 30, 2019		40,183,723
Stockholders' Equity Attributable to Parent at Jun. 30, 2019	$ 95,494	$ 45	439,995	$ (13,938)	(327,142)	(3,466)
Treasury Stock, Shares - Beginning Balance at Jun. 30, 2019				4,417,585
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Stock Issued During Period, Shares, Restricted Stock Award, Net of Forfeitures		69,764
Stock Issued During Period, Value, Restricted Stock Award, Gross	$ (2,956)	$ 0	(2,956)
Stock Issued During Period, Shares, Employee Stock Purchase Plans	39,964	39,964
Proceeds from Stock Plans	$ 1,052		1,052
Stock Issued During Period, Shares, Conversion of Convertible Securities		1,749,176
Stock Issued During Period, Value, Conversion of Convertible Securities	74,178	$ 2	74,176
APIC, Share-based Payment Arrangement, Increase for Cost Recognition	6,189		6,189
Other Comprehensive Income (Loss), Net of Tax	(658)					(658)
Net Income (Loss) Attributable to Parent	$ (17,347)				(17,347)
Treasury Stock, Shares - Enging Balance at Sep. 30, 2019	4,417,585			4,417,585
Stockholders' Equity Attributable to Parent at Sep. 30, 2019	$ 155,952	$ 47	$ 518,456	$ (13,938)	$ (344,489)	$ (4,124)
Common Stock, Shares, Outstanding, Ending Balance at Sep. 30, 2019	42,042,627	42,042,627

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Convertible debt (Notes)

9 Months Ended

Sep. 30, 2019

Debt Disclosure [Abstract]

Long-term Debt [Text Block]

Convertible Senior Notes

The following is a summary of the Company's convertible senior notes as of September 30, 2019 (in thousands):

	Date of Issuance	Unpaid Principal Balance		Net Carrying Amount				Contractual Interest Rates
				Current		Noncurrent
2% Convertible Senior Note due in 2019 ("2019 Notes")	December 2014	$	21,606	$	21,415	—		2%
2% Convertible Senior Notes due in 2047 ("2047 Notes")	June 2017	$	24,075	$	20,928	—		2%
1% Convertible Notes due in 2024 ("2024 Notes")	May 2019	$	143,750	$	—	$	109,024	1%

In May 2019, the Company issued the 2024 Notes in an aggregate principal amount of $143.8 million. The interest rate for the 2024 Notes is fixed at 1% per annum. Interest is payable semi-annually in arrears on May 15 and November 15 of each year, commencing on November 15, 2019. The 2024 Notes mature on May 15, 2024, unless redeemed or converted in accordance with their terms prior to such date.

Each $1,000 of principal of the 2024 Notes will initially be convertible into 15.1394 shares of the Company’s common stock, which is equivalent to an initial conversion price of approximately $66.05 per share. The initial conversion price for the 2024 Notes is subject to adjustment upon the occurrence of certain specified events.

On or after February 15, 2024 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 2024 Notes regardless of the contingent conversion conditions described herein. 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 governing the 2024 Notes.

Holders may convert their 2024 Notes at their option at any time prior to the close of business on the business day immediately preceding February 15, 2024 only under the following circumstances:

• during the five consecutive business day period immediately following any five consecutive trading day period (the "Measurement Period") in which the trading price per 2024 Note for each day of that 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 day;

• during any calendar quarter commencing after the calendar quarter ending on June 30, 2019, if the last reported sale price of the common stock for 20 or more trading days (whether or not consecutive) in 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; or

• upon the occurrence of specified corporate events.

The 2019 Notes, the 2024 Notes and 2047 Notes (collectively, the "Notes") are general unsecured obligations and rank senior in right of payment to all of the Company's indebtedness that is expressly subordinated in right of payment to the Notes, rank equally in right of payment with all of the Company's existing and future liabilities that are not so subordinated, are effectively junior to any of the Company's secured indebtedness to the extent of the value of the assets securing such indebtedness and are structurally subordinated to all indebtedness and other liabilities (including trade payables but excluding intercompany obligations owed to the Company or its subsidiaries).

In accounting for the transaction costs for each of the Notes issuance, the Company allocated the costs incurred to the liability and equity components in proportion to the allocation of the proceeds from issuance to the liability and equity components. Issuance costs attributable to the liability component, totaling $4.3 million for the 2019 Notes, $3.4 million for the 2024 Notes and $2.7 million for the 2047 Notes, are being amortized to expense over the expected life of each notes using the effective interest method. Issuance costs attributable to the equity component related to the conversion option, totaling $1.2 million for the 2019 Notes, $1.1 million for the 2024 Notes and $0.3 million for the 2047 Notes, were netted with the equity component in stockholders' equity.

In May 2019, the Company used a portion of the net proceeds of the offering of the 2024 Notes to exchange and retire $122.1 million in aggregate principal of the 2019 Notes for an aggregate cash consideration of $76.0 million and approximately 2.18 million shares of the Company's common stock (the "Exchange Transactions"). The Company recorded a $2.3 million loss on debt extinguishment related to the Exchange Transactions. The loss on extinguishment is included in the other (expense) income, net in the the accompanying unaudited condensed consolidated statements of comprehensive income (loss).

In August 2019, the Company issued a notice of redemption to the holders of its outstanding 2047 Notes, pursuant to which it will redeem the outstanding 2047 Notes for cash at a price of 92.39% of the principal amount of the 2047 Notes, plus accrued and unpaid interest, if any (the “Redemption”). The Redemption will occur on October 30, 2019, unless earlier converted. Prior to the consummation of the Redemption, the holders of the 2047 Notes are entitled to convert such notes into shares of the Company’s common stock at a rate of 21.2861 shares per $1,000 principal amount of the 2047 Notes, which is equivalent to a conversion price of $46.98 per share. The Company intends to satisfy its conversion obligation with respect to 2047 Notes tendered by delivering shares of its common stock, together with cash in lieu of delivering any fractional shares of common stock (if applicable). As of September 30, 2019, the Company has converted $82.2 million of aggregate principal of the 2047 Notes and delivered approximately 1.7 million shares of its common stock upon conversion. The Company recorded a $2.7 million loss on debt extinguishment related to the Redemption. The loss on extinguishment is included in the other (expense) income, net in the accompanying unaudited condensed consolidated statements of comprehensive income (loss).

As of September 30, 2019, the 2019 and 2024 Notes are not yet convertible and the 2047 Notes are convertible pursuant to the Redemption notice issued by the Company. As of September 30, 2019, the remaining term of the Notes is approximately 2 months, 55 months and 1 month, respectively.

As of September 30, 2019 and December 31, 2018, the fair value of the principal amount of the Notes was $231.0 million and $251.5 million, respectively. The estimated 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 and interest rates, which represents level 2 in the fair value hierarchy.

The Notes consist of the following (in thousands):

	September 30, 2019			December 31, 2018
Liability component:
Principal	$	189,431		$	250,000
Less: debt discount and issuance cost, net of amortization	(38,064		)	(24,810		)
Net carrying amount	$	151,367		$	225,190
Equity component(1)	$	70,443		$	37,560

(1) Recorded within additional paid-in capital in the consolidated balance sheet. As of September 30, 2019, it included $28.7 million, $32.9 million and $8.8 million related to the 2019 Notes, the 2024 Notes and the 2047 Notes, respectively, which was net of $1.2 million, $1.1 million and $0.3 million issuance cost in equity, respectively.

The following table sets forth total interest expense recognized related to the Notes (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Coupon interest	$	863	$	1,250	$	3,219	$	3,750
Amortization of debt issuance costs	286		357		992		1,058
Amortization of debt discount	2,568		2,659		8,136		7,863
Total	$	3,717	$	4,266	$	12,347	$	12,671

Note Hedge and Warrant Transactions

Concurrently with the offering of the 2019 Notes, the Company entered into separate convertible note hedge (the "Note Hedge") and warrant (the "Warrant") transactions. Taken together, the purchase of the Note Hedge and the sale of the Warrant are intended to offset any actual dilution from the conversion of the 2019 Notes and to effectively increase the overall conversion price of the 2019 Notes from $33.79 to $45.48 per share. The total cost of the Note Hedge transaction was $29.4 million. The Company received $17.1 million in cash proceeds from the sale of the Warrant. The Warrant is not part of the 2019 Notes or Note Hedge. Both the Note Hedge and Warrant have been accounted for as part of additional paid-in capital.

In May 2019, in connection with the Exchange Transactions, the Company entered into certain note hedge termination agreements (the “Note Hedge Termination Agreements”) and warrant termination agreements (the “Warrant Termination Agreements”). The Company received cash proceeds of $64.8 million related to the Note Hedge Termination Agreements and paid $45.2 million related to the Warrant Termination Agreements. The Note Hedge Termination Agreements terminated certain of the Note Hedges that were entered into by the Company in connection with the offering of the 2019 Notes. The Warrant Termination Agreements terminated certain of the Warrants that were entered into by the Company in connection with the offering of the 2019 Notes.

Capped Call Transactions

In May 2019, in connection with the offering of the 2024 Notes, the Company entered into privately negotiated capped call transactions (collectively, the "Capped Call") with certain option counterparties. The Capped Call transactions cover, subject to customary anti-dilution adjustments, the number of shares of the Company’s common stock initially underlying the 2024 Notes, at a strike price that corresponds to the initial conversion price of the 2024 Notes, also subject to adjustment, and are exercisable upon conversion of the 2024 Notes. The Capped Call transactions are intended to reduce potential dilution of the Company's common stock and/or offset any cash payments the Company will be required to make in excess of the principal amount upon any conversion of 2024 Notes, and to effectively increase the overall conversion price of the 2024 Notes from $66.05 to $101.62 per share. As the Capped Call transactions meet certain accounting criteria, they are recorded in stockholders’ equity and are not accounted for as derivatives. The cost of the Capped Call was $16.4 million and was recorded as part of additional paid-in capital.

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Business Combinations (Notes)

9 Months Ended

Sep. 30, 2019

Business Combinations [Abstract]

Business Combination Disclosure [Text Block]

Business Combination

On August 14, 2019, the Company acquired Travelaer SAS ("Travelaer"), a privately held company based near Nice, France, for a total cash consideration, net of cash acquired, of approximately $10.5 million. Travelaer is a digital innovator for the travel industry with a focus on improving the customer experience across all phases of travel, and brings an Internet booking engine and NDC (New Distribution Capability) platform to the Company's portfolio. The Company has included the financial results of Travelaer in the unaudited condensed consolidated financial statements from the date of the acquisition, which have not been material to date. The transaction cost associated with the acquisition was $0.2 million for the three and nine months ended September 30, 2019.

The Company accounted for the transaction as a business combination and all of the assets acquired and the liabilities assumed in the transaction have been recognized at their acquisition date fair values. The Company recorded approximately $2 million for developed technology and customer relationships with estimated useful lives of seven years and five years, respectively. The Company recorded approximately $11 million of goodwill which is primarily related to the assembled workforce and expanded market opportunities from integrating Travelaer's technology with the Company's solutions. The goodwill balance is not deductible for U.S. income tax purposes. The Company expects to finalize the valuation as soon as practicable, but no later than one year from the acquisition date.

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Earnings per Share Basis and Diluted (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Numerator
Net income (loss)	$ (17,347)	$ (15,786)	$ (51,781)	$ (51,486)
Denominator
Weighted average shares (basic)	41,276,000	35,676,000	39,438,000	33,568,000
Dilutive effect of potential common shares	0	0	0	0
Weighted average shares (diluted)	41,276,000	35,676,000	39,438,000	33,568,000
Basic Earnings Per Share	$ (0.42)	$ (0.44)	$ (1.31)	$ (1.53)
Diluted earnings per share	$ (0.42)	$ (0.44)	$ (1.31)	$ (1.53)

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Commitments and Contingencies Purchase commitments (Details) $ in Millions	Sep. 30, 2019 USD ($)
Long-term Purchase Commitment [Line Items]
Purchase Obligation	$ 67.0

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Disaggregation of Revenue Revenue by Geography (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Revenues	$ 64,150	$ 49,075	$ 184,159	$ 144,411
Percentage of total revenue	100.00%	100.00%	100.00%	100.00%
UNITED STATES
Revenues	$ 21,631	$ 16,610	$ 62,273	$ 50,538
Percentage of total revenue	34.00%	34.00%	34.00%	35.00%
Europe [Member]
Revenues	$ 19,279	$ 15,019	$ 55,286	$ 45,110
Percentage of total revenue	30.00%	31.00%	30.00%	31.00%
The rest of the world [Member]
Revenues	$ 23,240	$ 17,446	$ 66,600	$ 48,763
Percentage of total revenue	36.00%	35.00%	36.00%	34.00%

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Convertible debt (Tables)

9 Months Ended

Sep. 30, 2019

Debt Disclosure [Abstract]

Schedule of Debt [Table Text Block]

The following is a summary of the Company's convertible senior notes as of September 30, 2019 (in thousands):

	Date of Issuance	Unpaid Principal Balance		Net Carrying Amount				Contractual Interest Rates
				Current		Noncurrent
2% Convertible Senior Note due in 2019 ("2019 Notes")	December 2014	$	21,606	$	21,415	—		2%
2% Convertible Senior Notes due in 2047 ("2047 Notes")	June 2017	$	24,075	$	20,928	—		2%
1% Convertible Notes due in 2024 ("2024 Notes")	May 2019	$	143,750	$	—	$	109,024	1%

Convertible Debt [Table Text Block]

The Notes consist of the following (in thousands):

	September 30, 2019			December 31, 2018
Liability component:
Principal	$	189,431		$	250,000
Less: debt discount and issuance cost, net of amortization	(38,064		)	(24,810		)
Net carrying amount	$	151,367		$	225,190
Equity component(1)	$	70,443		$	37,560

(1) Recorded within additional paid-in capital in the consolidated balance sheet. As of September 30, 2019, it included $28.7 million, $32.9 million and $8.8 million related to the 2019 Notes, the 2024 Notes and the 2047 Notes, respectively, which was net of $1.2 million, $1.1 million and $0.3 million issuance cost in equity, respectively.

The following table sets forth total interest expense recognized related to the Notes (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Coupon interest	$	863	$	1,250	$	3,219	$	3,750
Amortization of debt issuance costs	286		357		992		1,058
Amortization of debt discount	2,568		2,659		8,136		7,863
Total	$	3,717	$	4,266	$	12,347	$	12,671

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Deferred Revenue and Performance Obligation (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Deferred Revenue and Performance Obligation [Abstract]
Deferred Revenue, Revenue Recognized	$ 45.1	$ 32.4	$ 86.2	$ 64.4
Revenue, Remaining Performance Obligation, Amount	365.2		365.2
Revenue Remaining Performance Obligation, to be recognized within 12 months	$ 176.6		$ 176.6

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Noncash Share-based Compensation (Tables)

9 Months Ended

Sep. 30, 2019

Noncash Share-based Compensation [Abstract]

Schedule of Share-based Compensation Expense

The following table summarizes share-based compensation expense included in the Company's unaudited condensed consolidated statements of comprehensive income (loss) for the three and nine months ended September 30, 2019 and 2018:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Share-based compensation:
Cost of revenue	$	503	$	445	$	1,535	$	1,325
Operating expenses:
Selling and marketing	1,515		779		4,329		3,347
General and administrative	2,901		2,635		8,521		8,202
Research and development	1,290		1,098		3,849		3,481
Total included in operating expenses	5,706		4,512		16,699		15,030
Total share-based compensation expense	$	6,209	$	4,957	$	18,234	$	16,355

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Noncash Share-based Compensation (Note)

9 Months Ended

Sep. 30, 2019

Noncash Share-based Compensation [Abstract]

Noncash Share-based Compensation

Noncash Share-based Compensation

During the three months ended September 30, 2019, the Company granted 19,625 RSUs with a weighted average grant-date fair value of $69.13 per share. The Company granted no MSUs, options or SARs during this period.

During the nine months ended September 30, 2019, the Company granted 759,084 RSUs (time-based) with a weighted average grant-date fair value of $34.16 per share. The Company also granted 113,919 performance-based RSUs ("PRSUs") with a weighted average grant-date fair value of $33.05 to certain executive employees during the nine months ended September 30, 2019. These PRSUs vest on January 15, 2022 and the actual number of PRSUs that will be eligible to vest is based upon achievement of certain internal performance metrics, as defined by each award's plan documents or individual award agreements. The maximum number of shares issuable upon vesting is 200% of the PRSUs initially granted. The Company did not grant any stock options, SARs or MSUs during the nine months ended September 30, 2019.

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 and nine months ended September 30, 2019 and 2018:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Share-based compensation:
Cost of revenue	$	503	$	445	$	1,535	$	1,325
Operating expenses:
Selling and marketing	1,515		779		4,329		3,347
General and administrative	2,901		2,635		8,521		8,202
Research and development	1,290		1,098		3,849		3,481
Total included in operating expenses	5,706		4,512		16,699		15,030
Total share-based compensation expense	$	6,209	$	4,957	$	18,234	$	16,355

The Company's 2017 Equity Incentive Plan (as amended and restated, the "2017 Stock Plan") was approved by stockholders in May 2017 and reserved an aggregate amount of 2,500,000 shares for issuance. In May 2019, the shareholders

approved an amendment to the 2017 Stock Plan which increased the aggregate amount of shares for issuance to a total of 4,550,000. As of September 30, 2019, 2,512,077 shares remain available for issuance under the 2017 Stock Plan.

At September 30, 2019, the Company had an estimated $46.7 million of total unrecognized compensation costs related to share-based compensation arrangements. These costs will be recognized over a weighted average period of 2.5 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 and nine months ended September 30, 2019, the Company issued 39,964 and 75,304 shares, respectively, under the ESPP. As of September 30, 2019, 140,251 shares remain authorized and available for issuance under the ESPP. As of September 30, 2019, the Company held approximately $0.8 million on behalf of employees for future purchases under the ESPP, and this amount was recorded in accrued payroll and other employee benefits in the Company's unaudited condensed consolidated balance sheet.

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Disaggregation of Revenue (Notes)

9 Months Ended

Sep. 30, 2019

Disaggregation of Revenue [Abstract]

Disaggregation of Revenue [Text Block]

Disaggregation of Revenue

Revenue by Geography

The geographic information in the table below is presented for the three and nine months ended September 30, 2019 and 2018. The Company categorizes geographic revenues based on the location of the customer's headquarters. Because the Company's contracts are predominately denominated in U.S. dollars, it has limited exposure to foreign currency exchange risk as discussed under "Foreign Currency Exchange Risk" of Part I, Item 3 below.

	Three Months Ended September 30,								Nine Months Ended September 30,
	2019				2018				2019				2018
	Revenue		Percent		Revenue		Percent		Revenue		Percent		Revenue		Percent
United States of America	$	21,631	34	%	$	16,610	34	%	$	62,273	34	%	$	50,538	35	%
Europe	19,279		30	%	15,019		31	%	55,286		30	%	45,110		31	%
The rest of the world	23,240		36	%	17,446		35	%	66,600		36	%	48,763		34	%
Total revenue	$	64,150	100	%	$	49,075	100	%	$	184,159	100	%	$	144,411	100	%

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Summary of Significant Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2019

Accounting Policies [Abstract]

Awards outstanding [Table Text Block]

The following table presents the number of shares or units outstanding for each award type as of September 30, 2019 and December 31, 2018, respectively, (in thousands): 

Award type	September 30, 2019	December 31, 2018
Restricted stock units (time-based)	1,876	1,969
Restricted stock units (performance-based)	114	—
Restricted stock units (market-based)	—	215
Stock appreciation rights	165	287
Market stock units	267	419

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Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Allowance for bad debts	$ 968	$ 978
Preferred stock - par value	$ 0.001	$ 0.001
Preferred stock - shares authorized	5,000,000	5,000,000
Preferred stock - shares issued	0	0
Common stock - par value	$ 0.001	$ 0.001
Common stock - shares authorized	75,000,000	75,000,000
Common stock - shares issued	46,460,212	41,573,491
Common stock - shares outstanding	42,042,627	37,155,906
Treasury stock - shares	4,417,585	4,417,585

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Organization and Nature of Operations

9 Months Ended

Sep. 30, 2019

Organization and Nature of Operations [Abstract]

Organization and nature of operations

Organization and Nature of Operations

PROS Holdings, Inc., a Delaware corporation, through its operating subsidiaries (collectively, the "Company"), provides artificial intelligence ("AI") solutions that power commerce in the digital economy by providing fast, frictionless and personalized buying experiences. PROS solutions enable dynamic buying experiences for both business-to-business ("B2B") and business-to-consumer ("B2C") companies across industry verticals. Companies can use the Company's dynamic pricing optimization, sales effectiveness, revenue management and commerce solutions to assess their market environments in real time to deliver customized prices and offers. The Company's solutions enable buyers to move fluidly across its customers’ direct sales, online, mobile and partner channels with personalized experiences regardless of which channel those customers choose. The Company's decades of data science and AI expertise are infused into its solutions and are designed to reduce time and complexity through actionable intelligence. The Company provides standard configurations of its software based on the industries it serves and offers professional services to configure these solutions to meet the specific needs of each customer.

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Noncash Share-based Compensation (Details)	3 Months Ended	9 Months Ended
	Sep. 30, 2019 USD ($) $ / shares shares	Sep. 30, 2019 USD ($) $ / shares shares
Noncash Share-based Compensation (Narrative) [Line Items]
Unrecognized compensation cost related to share-based compensation | $	$ 46,700,000	$ 46,700,000
Weighted average period to recognize cost, in years		2 years 6 months
Share-based compensation arrangement by share-based payment, Minimum Employee Subscription rate	1.00%	1.00%
Share-based Compensation Arrangement by Share-based Payment Award, Maximum Employee Subscription Rate	10.00%	10.00%
Share-based Compensation Arrangement by Share-based Payment Award, Discount from Market Price, Offering Date		15.00%
Maximum Amount Contributable by employees under ESPP- Half yearly | $		$ 5,000
Maximum Amount Contributable By Employees Under ESPP- Annually | $		$ 10,000
Stock Issued During Period, Shares, Employee Stock Purchase Plans	39,964	75,304
ESPP contributions by Employees | $		$ 800,000
RSUs
Noncash Share-based Compensation (Narrative) [Line Items]
Awards, other than options, granted in period	19,625	759,084
Weighted average grant date fair value, per share, of awards granted in period | $ / shares	$ 69.13	$ 34.16
MSUs
Noncash Share-based Compensation (Narrative) [Line Items]
Awards, other than options, granted in period		113,919
Weighted average grant date fair value, per share, of awards granted in period | $ / shares		$ 33.05
Employee Stock [Member]
Noncash Share-based Compensation (Narrative) [Line Items]
Shares available for future grants	140,251	140,251
2017 Equity Incentive Plan [Member] [Member]
Noncash Share-based Compensation (Narrative) [Line Items]
Shares reserved for issuance under Plan	2,500,000	2,500,000
Shares available for future grants	2,512,077	2,512,077
2017 Amended Equity Incentive Plan [Member]
Noncash Share-based Compensation (Narrative) [Line Items]
Shares reserved for issuance under Plan	4,550,000	4,550,000
Share-based Payment Arrangement, Tranche One [Member]
Noncash Share-based Compensation (Narrative) [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Percentage of Awards vesting upon Price Target	25.00%	25.00%
Share Price Target | $ / shares	$ 27	$ 27
Share-based Payment Arrangement, Tranche Two [Member]
Noncash Share-based Compensation (Narrative) [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Percentage of Awards vesting upon Price Target	25.00%	25.00%
Share Price Target | $ / shares	$ 33	$ 33
Share-based Payment Arrangement, Tranche Three [Member]
Noncash Share-based Compensation (Narrative) [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Percentage of Awards vesting upon Price Target	50.00%	50.00%
Share Price Target | $ / shares	$ 41	$ 41

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Business Combinations (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Business Acquisition [Line Items]
Payments to Acquire Businesses, Net of Cash Acquired			$ (10,510)	$ 0
Business Combination, Acquisition Related Costs	$ 248	$ 0	248	$ 95
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Finite-Lived Intangibles	$ 2,000		2,000
Goodwill, Acquired During Period			$ 11,000
Customer Relationships [Member]
Business Acquisition [Line Items]
Acquired Finite-lived Intangible Assets, Weighted Average Useful Life			5 years
Developed Technology Rights [Member]
Business Acquisition [Line Items]
Acquired Finite-lived Intangible Assets, Weighted Average Useful Life			7 years

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Summary of Significant Accounting Policies Significant Accounting Policies (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Jan. 01, 2019	Dec. 31, 2018
Summary of Significant Accounting Policies [Line Items]
Internal-use software development costs capitalized			$ 1,021,000	$ 3,686,000
Capitalized Computer Software, Amortization	$ 800,000	$ 300,000	2,000,000.0	700,000
Tangible Asset Impairment Charges			0
Treasury money market funds, at fair value	289,800,000		289,800,000			$ 268,600,000
Cost Method Investments, Fair Value Disclosure	2,200,000		2,200,000			2,000,000.0
Deferred Costs	20,600,000		20,600,000			17,500,000
Amortization of Deferred Charges	1,300,000	800,000	3,500,000	2,100,000
Capitalized Contract Cost, Net	4,800,000		4,800,000			3,900,000
Capitalized Contract Cost, Amortization	400,000	100,000	1,000,000.0	400,000
Line of Credit Facility, Amount Outstanding	0		0
Line of Credit Facility, Maximum Borrowing Capacity	50,000,000.0		50,000,000.0
Unamortized Debt Issuance Expense	100,000		100,000
Income Tax Expense (Benefit)	$ 108,000	$ 175,000	$ 566,000	$ 176,000
Effective income tax rate	(0.60%)	(1.10%)	(1.10%)	(0.30%)
Operating Lease, Right-of-Use Asset	$ 28,548,000		$ 28,548,000			$ 0
Cloud-based product offerings [Member]
Summary of Significant Accounting Policies [Line Items]
Internal-use software development costs capitalized	$ 200,000	$ 1,200,000	$ 1,000,000.0	$ 3,700,000
Minimum [Member]
Summary of Significant Accounting Policies [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period			1 year
Share-based Compensation Arrangement by Share-based Payment Award, Award Requisite Service Period			1 year 3 days
Maximum [Member]
Summary of Significant Accounting Policies [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period			4 years
Share-based Compensation Arrangement by Share-based Payment Award, Award Requisite Service Period			1 year 11 months 23 days
Share-based Payment Arrangement, Tranche One [Member]
Summary of Significant Accounting Policies [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Percentage of Awards vesting upon Price Target	25.00%		25.00%
Share Price Target	$ 27		$ 27
Share-based Payment Arrangement, Tranche Two [Member]
Summary of Significant Accounting Policies [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Percentage of Awards vesting upon Price Target	25.00%		25.00%
Share Price Target	$ 33		$ 33
Share-based Payment Arrangement, Tranche Three [Member]
Summary of Significant Accounting Policies [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Percentage of Awards vesting upon Price Target	50.00%		50.00%
Share Price Target	$ 41		$ 41
Accounting Standards Update 2016-02 [Member]
Summary of Significant Accounting Policies [Line Items]
Operating Lease, Right-of-Use Asset					$ 26,900,000

XML

Leases (Tables)

9 Months Ended

Sep. 30, 2019

Leases [Abstract]

Lease, Cost [Table Text Block]

	Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019
Operating lease cost	$	2,285		$	6,778
Variable lease cost	498			1,389
Sublease income	(99		)	(248		)
Total lease cost	$	2,684		$	7,919

Supplemental Lease Information [Table Text Block]

Supplemental information related to leases was as follows (in thousands):

	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Cash paid for amounts included in the measurement of lease liability:
Operating cash flows from operating leases	$	1,467	$	4,349

Supplemental Balance Sheet Information Related to Leases [Table Text Block]

	September 30, 2019
Weighted average remaining lease term:
Operating leases	7.0 years
Weighted average discount rate:
Operating leases	7.26	%

Lessee, Operating Lease, Liability, Maturity [Table Text Block]

As of September 30, 2019, maturities of lease liabilities were as follows (in thousands):

Year Ending December 31,	Amount
Remaining 2019	$	2,327
2020	7,558
2021	10,109
2022	4,542
2023	4,562
2024 and thereafter	38,654
Total operating lease payments	67,752
Less: Imputed interest	(22,945		)
Less: Anticipated lease incentive	(14,207		)
Total operating lease liabilities	$	30,600

Schedule of Future Minimum Rental Payments for Operating Leases [Table Text Block]

As of December 31, 2018, the future minimum lease commitments related to lease agreements under Topic 840, the predecessor of Topic 842, were as follows:

Year Ending December 31,	Amount
2019	$	4,164
2020	1,649
2021	5,115
2022	6,181
2023	5,679
2024 and thereafter	57,365
Total minimum lease payments	$	80,153

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Earnings per Share (Details) - shares shares in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Share-based Payment Arrangement [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive potential common shares excluded from computation of earnings per share	2.1	2.2	2.1	2.1
Convertible Debt Securities [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive potential common shares excluded from computation of earnings per share			3.1

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Convertible debt (Details) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019 USD ($) $ / shares	Sep. 30, 2018 USD ($)	Sep. 30, 2019 USD ($) $ / shares shares	Sep. 30, 2018 USD ($)	Dec. 31, 2018 USD ($)
Debt Instrument [Line Items]
Payment for Debt Extinguishment or Debt Prepayment Cost			$ (76,018)	$ 0
Gain (Loss) on Extinguishment of Debt			$ (5,000)	0
Long-term Debt, Percentage Bearing Fixed Interest, Percentage Rate	2.00%		2.00%
Debt Instrument, Face Amount	$ 189,431		$ 189,431		$ 250,000
Convertible Debt, Current	42,343		42,343		136,529
Convertible Debt, Noncurrent	109,024		109,024		88,661
Debt Instrument, Unamortized Discount (Premium) and Debt Issuance Costs, Net	38,064		38,064		24,810
Convertible Debt	151,367		151,367		225,190
Debt Instrument, Convertible, Carrying Amount of Equity Component	70,443		70,443		37,560
Debt Instrument, Periodic Payment, Interest	863	$ 1,250	3,219	3,750
Amortization of Financing Costs	286	357	992	1,058
Amortization of Debt Discount (Premium)	2,568	2,659	8,136	7,863
Interest Expense, Debt	3,717	$ 4,266	12,347	12,671
Debt Instrument, Fair Value Disclosure	231,000		231,000		$ 251,500
Purchase of convertible bond hedge			(16,445)	0
Proceeds from bond hedge termination			64,819	0
Payment for warrant termination			(45,243)	$ 0
Notes due 2047 [Member]
Debt Instrument [Line Items]
Gain (Loss) on Extinguishment of Debt			$ (2,700)
Debt Instrument, Redemption Price, Percentage			92.39%
Debt Conversion, Converted Instrument, Amount			$ 82,200
Conversion of Stock, Shares Issued | shares			1,700
Debt Issuance Cost	$ 2,700		$ 2,700
Convertible debt, issuance cost, equity component			$ 300
Debt Instrument, Convertible, Conversion Ratio			21.2861
Debt Instrument, Convertible, Conversion Price | $ / shares	$ 46.98		$ 46.98
Debt Instrument, Face Amount	$ 24,075		$ 24,075
Convertible Debt, Current	20,928		20,928
Convertible Debt, Noncurrent	0		0
Debt Instrument, Convertible, Carrying Amount of Equity Component	8,800		$ 8,800
Debt Instrument, Convertible, Remaining Discount Amortization Period			1 month
Notes due 2019 [Member]
Debt Instrument [Line Items]
Payment for Debt Extinguishment or Debt Prepayment Cost			$ (76,000)
Stock Issued During Period, Shares, Conversion of Convertible Securities | shares			2,180
Gain (Loss) on Extinguishment of Debt			$ 2,300
Debt Issuance Cost	4,300		4,300
Convertible debt, issuance cost, equity component			$ 1,200
Debt Instrument, Convertible, Stock Price Trigger | $ / shares			$ 33.79
Partial Extinguishment of Debt, Principal Amount			$ 122,100
Debt Instrument, Face Amount	21,606		21,606
Convertible Debt, Current	21,415		21,415
Convertible Debt, Noncurrent	0		0
Debt Instrument, Convertible, Carrying Amount of Equity Component	$ 28,700		$ 28,700
Debt Instrument, Convertible, Remaining Discount Amortization Period			2 months
Purchase of convertible bond hedge			$ 29,400
Investment Warrants, Exercise Price | $ / shares	$ 45.48		$ 45.48
Proceeds from Issuance of Warrants			$ 17,100
Notes due 2024 [Member]
Debt Instrument [Line Items]
Debt Issuance Cost	$ 3,400		3,400
Convertible debt, issuance cost, equity component			$ 1,100
Long-term Debt, Percentage Bearing Fixed Interest, Percentage Rate	1.00%		1.00%
Debt Instrument, Convertible, Conversion Ratio			15.1394
Debt Instrument, Convertible, Stock Price Trigger | $ / shares			$ 66.05
Debt Instrument, Convertible, Conversion Price | $ / shares	$ 101.62		$ 101.62
Debt Instrument, Face Amount	$ 143,750		$ 143,750
Convertible Debt, Current	0		0
Convertible Debt, Noncurrent	109,024		109,024
Debt Instrument, Convertible, Carrying Amount of Equity Component	$ 32,900		$ 32,900
Debt Instrument, Convertible, Remaining Discount Amortization Period			55 months

XML

Commitments and Contingencies

9 Months Ended

Sep. 30, 2019

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

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.

Purchase commitments

In the ordinary course of business, the Company enters into various purchase commitments for goods and services.

In March 2019, the Company entered in a noncancelable agreement with a computing infrastructure vendor that amended the existing agreement dated June 2017. The amended agreement expires in March 2022. The purchase commitment as of September 30, 2019 was $67.0 million for the remaining period through the expiration of the agreement.

XML

Leases (Notes)

9 Months Ended

Sep. 30, 2019

Leases [Abstract]

Lessee, Operating Leases [Text Block]

Leases

The Company has operating leases for data centers, computer infrastructure, corporate offices and certain equipment. These leases have remaining lease terms ranging from 1 year to 14 years. Some of these leases include options to extend for up to 15 years, and some include options to terminate within 1 year.

In July 2019, the Company amended its existing agreement with a computing infrastructure vendor, the result of which was an increase in future consideration to be paid by the Company. The Company accounted for this change in consideration as a modification and remeasured the value of the right-of-use asset and related lease liability on such date, which resulted in an increase of $5.7 million to each respectively.

As of September 30, 2019, the Company did not have any finance leases.

The components of operating lease expense were as follows (in thousands):

	Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019
Operating lease cost	$	2,285		$	6,778
Variable lease cost	498			1,389
Sublease income	(99		)	(248		)
Total lease cost	$	2,684		$	7,919

Supplemental information related to leases was as follows (in thousands):

	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Cash paid for amounts included in the measurement of lease liability:
Operating cash flows from operating leases	$	1,467	$	4,349

	September 30, 2019
Weighted average remaining lease term:
Operating leases	7.0 years
Weighted average discount rate:
Operating leases	7.26	%

As of September 30, 2019, maturities of lease liabilities were as follows (in thousands):

Year Ending December 31,	Amount
Remaining 2019	$	2,327
2020	7,558
2021	10,109
2022	4,542
2023	4,562
2024 and thereafter	38,654
Total operating lease payments	67,752
Less: Imputed interest	(22,945		)
Less: Anticipated lease incentive	(14,207		)
Total operating lease liabilities	$	30,600

As of September 30, 2019, the Company has additional operating leases of approximately $1.5 million that have not yet commenced, as the lessor has not made the underlying assets available for use by the Company. These operating leases will commence in fiscal year 2020 with lease terms of 5 years to 14 years.

As of December 31, 2018, the future minimum lease commitments related to lease agreements under Topic 840, the predecessor of Topic 842, were as follows:

Year Ending December 31,	Amount
2019	$	4,164
2020	1,649
2021	5,115
2022	6,181
2023	5,679
2024 and thereafter	57,365
Total minimum lease payments	$	80,153

XML

Deferred Revenue and Performance Obligation (Notes)

9 Months Ended

Sep. 30, 2019

Deferred Revenue and Performance Obligation [Abstract]

Deferred revenue and performance obligation [Text Block]

Deferred Revenue and Performance Obligations

Deferred Revenue

For the three months ended September 30, 2019 and 2018, the Company recognized approximately $45.1 million and $32.4 million, respectively, and for the nine months ended September 30, 2019 and 2018, the Company recognized approximately $86.2 million and $64.4 million, respectively, in each case of revenue that was included in the deferred revenue balances at the beginning of the respective periods and primarily related to subscription services, maintenance and support, and services.

Performance Obligations

As of September 30, 2019, the Company expects to recognize approximately $365.2 million of revenue from remaining performance obligations. The Company expects to recognize revenue on approximately $176.6 million of these performance obligations over the next 12 months, with the balance recognized thereafter.

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2019	Oct. 21, 2019
Entity Information [Line Items]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Sep. 30, 2019
Document Transition Report	false
Entity File Number	001-33554
Entity Registrant Name	PROS HOLDINGS, INC.
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	76-0168604
Entity Address, Address Line One	3100 Main Street, Suite 900
Entity Address, City or Town	Houston
Entity Address, State or Province	TX
Entity Address, Postal Zip Code	77002
City Area Code	(713)
Local Phone Number	335-5151
Title of 12(b) Security	Common stock
Trading Symbol	PRO
Security Exchange Name	NYSE
Entity Central Index Key	0001392972
Amendment Flag	false
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q3
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		42,076,535

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018
Operating activities:
Net income (loss)	$ (51,781)	$ (51,486)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, Depletion and Amortization	10,264	9,785
Amortization of Financing Costs and Discounts	9,159	8,958
Share-based compensation	18,234	16,355
Deferred Income Tax Expense (Benefit)	0	(252)
Provision for doubtful accounts	0	215
Loss on Disposition of Assets	0	37
Gain (Loss) on Extinguishment of Debt	5,000	0
Changes in operating assets and liabilities:
Accounts and unbilled receivables	(13,888)	(13,898)
Increase (Decrease) in Deferred Costs	(3,124)	(1,517)
Prepaid expenses and other assets	(4,582)	(1,884)
Accounts payable	(492)	2,569
Accrued liabilities	9,877	(533)
Accrued payroll and other employee benefits	2,717	(342)
Deferred revenue	11,009	22,508
Net cash provided by (used in) operating activities	(7,607)	(9,485)
Investing activities:
Purchases of property and equipment	(3,360)	(1,406)
Payments to Acquire Businesses, Net of Cash Acquired	(10,510)	0
Internal-use software development costs capitalized	(1,021)	(3,686)
Payments to Acquire Other Investments	180	0
Payments to Acquire Intangible Assets	50	0
Net cash provided by (used in) investing activities	(15,121)	(5,092)
Financing activities:
Exercise of stock options	0	1,142
Proceeds from Stock Plans	1,995	1,720
Tax withholding related to net share settlement of restricted stock units	(21,598)	(9,153)
Proceeds from Issuance of Common Stock, Net	0	141,954
Repayments of Notes Payable	0	(54)
Proceeds from Convertible Debt	140,156	0
Payments of Debt Issuance Costs	(860)	0
Purchase of capped call	(16,445)	0
Payment for Debt Extinguishment or Debt Prepayment Cost	(76,018)	0
Proceeds from bond hedge termination	64,819	0
Payment for warrant termination	(45,243)	0
Net cash provided by (used in) financing activities	46,806	135,609
Effect of Exchange Rate on Cash and Cash Equivalents	(392)	352
Net change in cash and cash equivalents	23,686	121,384
Cash and cash equivalents:
Beginning of period	295,476	160,505
End of period	319,162	281,889
Capital Expenditures Incurred but Not yet Paid	$ 422	$ 8

XML

Leases Schedule of lease liability maturities (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Lessee, Operating Lease, Liability, Payment, Due [Abstract]
Remaining 2019	$ 2,327
2020	7,558
2021	10,109
2022	4,542
2023	4,562
2024 and thereafter	38,654
Operating Leases, Payments Due	67,752
Lessee, Operating Lease, Liability, Undiscounted Excess Amount	(22,945)
Lessee, Operating Lease, Anticipated Incentives	(14,207)
Operating Lease, Liability	$ 30,600
Operating Leases, Future Minimum Payments Due, Fiscal Year Maturity (ASC 840) [Abstract]
Operating Leases, Future Minimum Payments Due, Next Twelve Months		$ 4,164
Operating Leases, Future Minimum Payments, Due in Two Years		1,649
Operating Leases, Future Minimum Payments, Due in Three Years		5,115
Operating Leases, Future Minimum Payments, Due in Four Years		6,181
Operating Leases, Future Minimum Payments, Due in Five Years		5,679
Operating Leases, Future Minimum Payments, Due Thereafter		57,365
Operating Leases, Future Minimum Payments Due		$ 80,153

XML

Noncash Share-based Compensation Expense (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Share-based compensation expense	$ 6,209	$ 4,957	$ 18,234	$ 16,355
Cost of Sales [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Share-based compensation expense	503	445	1,535	1,325
Selling and Marketing Expense [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Share-based compensation expense	1,515	779	4,329	3,347
General and Administrative Expense [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Share-based compensation expense	2,901	2,635	8,521	8,202
Research and development
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Share-based compensation expense	1,290	1,098	3,849	3,481
Operating Expense [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Share-based compensation expense	$ 5,706	$ 4,512	$ 16,699	$ 15,030

XML

Condensed Consolidated Statements of Comprehensive Income (Unaudited) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Total subscription, maintenance and support revenue	$ 51,868	$ 40,126	$ 145,730	$ 115,913
Total revenue	64,150	49,075	184,159	144,411
Cost of Goods and Services Sold	26,383	19,476	70,756	57,721
Cost of subscription, maintenance and support	13,671	11,905	38,812	35,070
Gross profit	37,767	29,599	113,403	86,690
Operating Expenses
Selling and Marketing Expense	21,600	17,513	66,030	53,671
General and Administrative Expense	11,553	10,179	35,260	31,013
Research and development	16,878	13,773	50,132	41,517
Business Combination, Acquisition Related Costs	248	0	248	95
Income from operations	(12,512)	(11,866)	(38,267)	(39,606)
Other income (expense):
Convertible debt interest and amortization	(3,717)	(4,266)	(12,347)	(12,671)
Other Nonoperating Income (Expense)	(1,010)	521	(601)	967
Loss before income tax provision	(17,239)	(15,611)	(51,215)	(51,310)
Income tax provision (benefit)	108	175	566	176
Net income (loss)	$ (17,347)	$ (15,786)	$ (51,781)	$ (51,486)
Earnings Per Share, Basic	$ (0.42)	$ (0.44)	$ (1.31)	$ (1.53)
Net earnings (loss) per share:
Earnings Per Share, Basic and Diluted	(0.42)	(0.44)	(1.31)	(1.53)
Earnings Per Share, Diluted	$ (0.42)	$ (0.44)	$ (1.31)	$ (1.53)
Weighted average number of shares:
Weighted Average Number of Shares Outstanding, Basic and Diluted	41,276	35,676	39,438	33,568
Weighted Average Number of Shares Outstanding, Basic	41,276	35,676	39,438	33,568
Other comprehensive income, net of tax:
Other Comprehensive Income (Loss), Foreign Currency Transaction and Translation Adjustment, Net of Tax	$ (658)	$ (88)	$ (750)	$ (350)
Other comprehensive income	(658)	(88)	(750)	(350)
Comprehensive income (loss)	(18,005)	(15,874)	(52,531)	(51,836)
Subscription and Circulation [Member]
Revenue from Contract with Customer, Including Assessed Tax	37,463	23,888	100,958	66,876
Cost of Goods and Services Sold	11,039	9,053	30,543	26,308
Maintenance [Member]
Revenue from Contract with Customer, Including Assessed Tax	14,405	16,238	44,772	49,037
Cost of Goods and Services Sold	2,632	2,852	8,269	8,762
License [Member]
Revenue from Contract with Customer, Including Assessed Tax	1,129	1,093	3,663	2,854
Cost of Goods and Services Sold	51	63	152	200
Service [Member]
Revenue from Contract with Customer, Including Assessed Tax	11,153	7,856	34,766	25,644
Cost of Goods and Services Sold	$ 12,661	$ 7,508	$ 31,792	$ 22,451

XML

Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2019

Accounting Policies [Abstract]

Basis of presentation

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 September 30, 2019, the results of operations for the three and nine months ended September 30, 2019 and 2018, cash flows for the nine months ended September 30, 2019 and 2018, and stockholders' equity for the three and nine months ended September 30, 2019 and 2018.

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, 2018 ("Annual Report") filed with the SEC. The unaudited condensed consolidated balance sheet as of December 31, 2018 was derived from the Company's audited consolidated financial statements but does not include all disclosures required under GAAP.

Accounting Changes [Text Block]

Changes in accounting policies

The Company has consistently applied these accounting policies to all periods presented in these consolidated financial statements, except for the Company's adoption of certain accounting standards described in more detail under "Recently adopted accounting pronouncements" in this Note 2 below.

Basis of consolidation

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 ("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

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

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 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 determining the nature and timing of satisfaction of performance obligations and determining the standalone selling price of performance obligations, 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, operating lease right-of-use assets and operating lease liabilities, 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 estimates and judgments are discussed in the Annual Report under management's discussion and analysis of financial condition and results of operations and are also discussed under Item 2 "Management's discussion and analysis of financial condition and results of operations".

Revenue recognition

Revenue recognition

The Company derives its revenues primarily from subscription services, professional services, perpetual licensing of its software products and associated software maintenance and support services.

The Company determines revenue recognition through the following steps:

• Identification of the contract, or contracts, with a customer;

• Identification of the performance obligations in the customer contract(s);

• Determination of the transaction price;

• Allocation of the transaction price to each performance obligation in the customer contract(s); and

• Recognition of revenue when, or as, the Company satisfies a performance obligation.

Subscription services revenue

Subscription services primarily include customer access to one or more of the Company's cloud applications and associated customer support. Subscription services revenue is generally recognized ratably over the contractual subscription term, beginning on the date that the Company's subscription service is made available to the customer. The Company's subscription contracts do not provide customers with the right to take possession of the software supporting the service and, as a result, are accounted for as service contracts. The Company's subscription contracts are generally two to five years in length, billed annually in advance, and non-cancelable.

Maintenance and support revenue

Maintenance and support revenue includes post-implementation customer support for on-premise licenses and the right to unspecified software updates and enhancements. The Company recognizes revenue from maintenance and support arrangements ratably over the period in which the services are provided. The Company's maintenance and support contracts are generally one to three years in length, billed annually in advance, and non-cancelable.

License revenue

Licenses to on-premise software provide the customer with a right to use, in the customer's environment, the Company's software as it exists when made available to the customer. License revenue from customer contracts with distinct on-premises licenses is recognized at the point in time when the software is made available to the customer. For customer contracts that contain license and professional services that are not considered distinct, both the license and professional services are determined to be a single performance obligation and the revenue is recognized over time based upon the Company's efforts to satisfy the performance obligation.

Professional services revenue

Professional services revenue primarily consists of fees for deployment and configuration services, as well as training services. Professional services revenues are generally recognized as the services are rendered for time and material contracts, or on a proportional performance basis for fixed fee contracts. The majority of the Company's professional services contracts are on a fixed fee basis. Training revenues are recognized as the services are rendered.

Significant judgment is required in determining whether professional services contained in a customer subscription services contract are capable of being distinct and are separately identifiable in the customer contract. Professional services determined to be distinct are accounted for as a separate performance obligation and revenue is recognized as the services are performed. If the professional services are not determined to be distinct, the professional services and the subscription services are accounted for as a single performance obligation and revenue is recognized over the contractual term of the subscription beginning on the date that subscription services are made available to the customer.

Customer contracts with multiple performance obligations

A portion of the Company's customer contracts contain multiple performance obligations. Significant judgment is required in determining whether multiple performance obligations contained in a single customer contract are capable of being distinct and are separately identifiable. An obligation determined to be distinct is accounted for as a separate performance obligation and revenue for that separate performance obligation is recognized when, or as, the Company satisfies the performance obligation. If obligations are not determined to be distinct, those obligations are accounted for as a single, combined performance obligation. The transaction price is allocated to each performance obligation on a relative standalone selling price basis.

Lessee, Leases [Policy Text Block]

Leases

The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use ("ROU") assets, current operating lease liabilities and noncurrent operating lease liabilities in the Company's unaudited condensed consolidated balance sheet.

ROU assets represent the Company’s right to use an underlying asset over the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. The Company includes any anticipated lease incentives in the determination of lease liability.

The Company uses its estimated incremental borrowing rate, which is derived from information available at the lease commencement date, in determining the present value of lease payments. The Company gives consideration to its recent debt issuances as well as publicly available data for instruments with similar characteristics when determining its incremental borrowing rates.

The Company’s lease terms will include options to extend the lease when it is reasonably certain that the Company will exercise that option. Leases with a term of 12 months or less are not recorded on the Company's unaudited condensed consolidated balance sheet. The Company’s lease agreements do not contain any residual value guarantees.

Internal-use software

Internal-use software

Costs incurred to develop internal-use software during the development stage are capitalized, stated at cost, and amortized 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 September 30, 2019 and 2018, the Company capitalized $0.2 million and $1.2 million, respectively, of internal-use software development costs related to cloud-based offerings, and for the nine months ended September 30, 2019 and 2018, the Company capitalized $1.0 million and $3.7 million, 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 September 30, 2019 and 2018, the Company amortized $0.8 million and $0.3 million, respectively, and for the nine months ended September 30, 2019 and 2018, the Company amortized $2.0 million and $0.7 million, respectively, of 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, once it commences, is included in cost of subscription and cost of services revenues in the accompanying unaudited condensed consolidated statements of comprehensive income (loss).

Impairment or Disposal of Long-Lived Assets, Including Intangible Assets, Policy [Policy Text Block]

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 and nine months ended September 30, 2019 and 2018.

Noncash share-based compensation

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, (ii) performance-based awards in which the number of shares that vest are based upon achievement of certain internal performance metrics set by the Company, and (iii) 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 September 30, 2019 and December 31, 2018, respectively, (in thousands): 

Award type	September 30, 2019	December 31, 2018
Restricted stock units (time-based)	1,876	1,969
Restricted stock units (performance-based)	114	—
Restricted stock units (market-based)	—	215
Stock appreciation rights	165	287
Market stock units	267	419

Stock options, time-based RSUs and SARs vest ratably between one and 4 years. Performance-based RSUs vest on the third anniversary of the grant and the maximum number of shares issuable upon vesting is 200% of the initially granted shares based upon achievement of certain internal performance metrics set by the Company, as defined by each award's plan documents or individual award agreements. 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, SARs or MSUs during the three and nine months ended September 30, 2019 or 2018.

The fair value of the time-based and performance-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.

Earnings per share

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 giving effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible notes using the if-converted method. Dilutive potential common shares consist of shares issuable upon the exercise of stock options, shares of unvested restricted stock units and market 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, restricted stock units, market stock units and convertible notes 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.

Cost Method Investments, Policy [Policy Text Block]

Equity 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 at cost, less impairment and adjusted for subsequent observable price changes obtained from orderly transactions for identical or similar investments issued by the same investee.  Adjustments resulting from impairment, fair value, or observable price changes are accounted for in the unaudited condensed consolidated statements of comprehensive income (loss).

As of September 30, 2019 and December 31, 2018, the Company held $2.2 million and $2.0 million, respectively, of equity securities in a privately held company. This investment is accounted for at cost, less impairment and adjusted for subsequent observable price changes obtained from orderly transactions for identical or similar investments issued by the same investee. The Company estimates fair value of its equity 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 defined by Accounting Standard Codification ("ASC") 820, "Fair Value Measurement and Disclosure" ("ASC 820"). As of September 30, 2019 and December 31, 2018, the Company determined there were no other-than-temporary impairments on its equity investment. 

Fair value measurement

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 $289.8 million and $268.6 million at September 30, 2019 and December 31, 2018, respectively, and were invested in treasury money market funds. 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 ASC 820.

Trade and Other Accounts Receivable, Unbilled Receivables, Policy [Policy Text Block]

Trade and other receivables

Trade and other receivables are primarily comprised of trade receivables, net of allowance for doubtful accounts, contract assets and unbilled receivables. The Company records trade accounts receivable for its unconditional rights to consideration arising from the Company's performance under contracts with customers. The Company's standard billing terms are that payment is due upon receipt of invoice, payable generally within thirty to sixty days. The carrying value of such receivables, net of the allowance for doubtful accounts, represents their estimated net realizable value. The Company estimates its allowance for doubtful accounts for specific trade receivable balances based on historical collection trends, the age of outstanding trade receivables, existing economic conditions, and any financial security associated with the receivables.

Contract assets represent conditional rights to consideration that have been recognized as revenue in advance of billing the customer. Unbilled receivables represent unconditional rights to consideration arising from contingent revenue that have been recognized as revenue in advance of billing the customer.

Revenue Recognition, Customer Acquisitions [Policy Text Block]

Deferred costs

Sales commissions earned by the Company's sales representatives are considered incremental and recoverable costs of obtaining a customer contract. Sales commissions are deferred and amortized on a straight-line basis over the period of benefit, which the Company has determined to be five to eight years. The Company determined the period of benefit by taking into consideration its customer contracts, expected renewals of those customer contracts (as the Company currently does not pay an

incremental sales commission), the Company's technology and other factors. The Company also defers amounts earned by employees other than sales representatives who earn incentive payments under compensation plans that are also tied to the value of customer contracts acquired. Deferred costs were $20.6 million and $17.5 million as of September 30, 2019 and December 31, 2018, respectively. Amortization expense for the deferred costs was $1.3 million and $0.8 million for the three months ended September 30, 2019 and 2018, respectively, and $3.5 million and $2.1 million for the nine months ended September 30, 2019 and 2018, respectively.

Deferred Charges, Policy [Policy Text Block]

Deferred implementation costs

The Company capitalizes certain contract fulfillment costs, including personnel and other costs (such as hosting, employee salaries, benefits and payroll taxes), that are associated with arrangements where professional services are not distinct from other undelivered obligations in its customer contracts. The Company analyzes implementation costs and capitalizes those costs that are directly related to customer contracts, that are expected to be recoverable, and that enhance the resources which will be used to satisfy the undelivered performance obligations in those contracts. Deferred implementation costs are amortized ratably over the remaining contract term once the revenue recognition criteria for the respective performance obligation has been met and revenue recognition commences. Deferred implementation costs were $4.8 million and $3.9 million as of September 30, 2019 and December 31, 2018, respectively. Amortization expense for the deferred implementation costs was $0.4 million and $0.1 million for the three months ended September 30, 2019 and 2018, respectively, and $1.0 million and $0.4 million for the nine months ended September 30, 2019 and 2018, respectively. Deferred implementation costs are included in prepaid and other current assets and other assets, noncurrent in the unaudited condensed consolidated balance sheets. Amortization of deferred implementation costs is included in cost of subscription and cost of services revenues in the accompanying unaudited condensed consolidated statements of comprehensive income (loss).

Revenue Recognition, Deferred Revenue [Policy Text Block]

Deferred revenue

Deferred revenue primarily consists of customer invoicing in advance of revenues being recognized. The Company generally invoices its customers annually in advance for subscription services and maintenance and support services. Deferred revenue that is anticipated to be recognized during the next twelve-month period is recorded as current deferred revenue and the remaining portion is recorded as long-term.

Credit Facility

Credit facility

As of September 30, 2019, the Company had no outstanding borrowings under its $50.0 million secured Credit Agreement ("Revolver") with the lenders party thereto and Wells Fargo Bank, National Association as agent for the lenders party thereto. The Company included $0.1 million of unamortized debt issuance costs related to the Revolver in prepaid and other current assets and other assets, noncurrent in the unaudited condensed consolidated balance sheets. For the three and nine months ended September 30, 2019 and 2018, the Company recorded an immaterial amount of amortization of debt issuance cost which is included in other income (expense), net in the unaudited condensed consolidated statements of comprehensive income (loss).

Income taxes

Income taxes

The Company recorded an income tax provision of $0.1 million and $0.2 million for the three months ended September 30, 2019 and 2018, respectively, and $0.6 million and $0.2 million for the nine months ended September 30, 2019 and 2018, respectively, primarily related to foreign income taxes and withholding taxes. The effective tax rate was (0.6)% and (1.1)% for the three months ended September 30, 2019 and 2018, respectively, and (1.1)% and (0.3)% for the nine months ended September 30, 2019 and 2018, respectively. 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 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.

New Accounting Pronouncements, Policy [Policy Text Block]

Recently adopted accounting pronouncements

In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)" ("Topic 842"), which requires the lessee to recognize most leases on the balance sheet thereby resulting in the recognition of right-of-use ("ROU") assets and lease liabilities for those leases currently classified as operating leases. Lessor accounting remains largely unchanged from current guidance, however, Topic 842 provides improvements that are intended to align lessor accounting with the lessee model and with updated revenue recognition guidance. This standard took effect in the first quarter of 2019, including interim periods within that reporting

period. The Company adopted Topic 842 as of January 1, 2019 using the modified retrospective method by recognizing the cumulative effect of initially applying the new standard as an adjustment to the opening balances of operating ROU assets and lease liabilities, while prior period amounts are not adjusted and continue to be reported in accordance with the Company's historic accounting under the prior lease accounting rules in ASC 840, "Leases".

The Company elected the package of practical expedients permitted under the transition guidance within the new Topic 842 standard for all asset classes, which among other things, allowed the Company to carryforward the historical lease classification. The Company also elected the hindsight practical expedient to determine the reasonably certain lease term for existing leases. The Company made an accounting policy election to not recognize leases with an initial term of 12 months or less on the balance sheet and instead would recognize those lease payments on a straight-line basis over the lease term in the unaudited condensed consolidated statement of comprehensive income (loss).

The adoption of the standard had a material impact on the Company’s unaudited condensed consolidated balance sheet as a result of the increase of $26.9 million in assets and liabilities from recognition of ROU assets and lease liabilities. The standard did not have a material impact on the Company's unaudited condensed consolidated statement of comprehensive income (loss).

In August 2018, the FASB issued ASU 2018-15, "Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract" ("Subtopic 350-40"). The amendment aligns the requirements for capitalizing implementation costs in a cloud computing arrangement service contract with the requirements for capitalizing implementation costs incurred to develop or obtain an internal-use software. The standard is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2019; early adoption is permitted. The Company early adopted Subtopic 350-40 prospectively effective January 1, 2019 and there was no impact on the Company's unaudited condensed consolidated financial statements as of the adoption date. In addition, the new standard had no significant impact on the unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2019.

Recently issued accounting pronouncements not yet adopted

In January 2017, the FASB issued ASU 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment" ("Topic 350"), 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 after January 1, 2017. The Company is currently assessing the impact of Topic 350 on its unaudited 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 nine months ended September 30, 2019, as compared to the recent accounting pronouncements described in the Company's Annual Report, that are of significance or potential significance to the Company.

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Summary of Significant Accounting Policies (Notes)

9 Months Ended

Sep. 30, 2019

Accounting Policies [Abstract]

Significant Accounting Policies [Text Block]

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 unaudited 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 September 30, 2019, the results of operations for the three and nine months ended September 30, 2019 and 2018, cash flows for the nine months ended September 30, 2019 and 2018, and stockholders' equity for the three and nine months ended September 30, 2019 and 2018.

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, 2018 ("Annual Report") filed with the SEC. The unaudited condensed consolidated balance sheet as of December 31, 2018 was derived from the Company's audited consolidated financial statements but does not include all disclosures required under GAAP.

Changes in accounting policies

The Company has consistently applied these accounting policies to all periods presented in these consolidated financial statements, except for the Company's adoption of certain accounting standards described in more detail under "Recently adopted accounting pronouncements" in this Note 2 below.

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 ("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 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 determining the nature and timing of satisfaction of performance obligations and determining the standalone selling price of performance obligations, 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, operating lease right-of-use assets and operating lease liabilities, 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 estimates and judgments are discussed in the Annual Report under management's discussion and analysis of financial condition and results of operations and are also discussed under Item 2 "Management's discussion and analysis of financial condition and results of operations".

Revenue recognition

The Company derives its revenues primarily from subscription services, professional services, perpetual licensing of its software products and associated software maintenance and support services.

The Company determines revenue recognition through the following steps:

• Identification of the contract, or contracts, with a customer;

• Identification of the performance obligations in the customer contract(s);

• Determination of the transaction price;

• Allocation of the transaction price to each performance obligation in the customer contract(s); and

• Recognition of revenue when, or as, the Company satisfies a performance obligation.

Subscription services revenue

Subscription services primarily include customer access to one or more of the Company's cloud applications and associated customer support. Subscription services revenue is generally recognized ratably over the contractual subscription term, beginning on the date that the Company's subscription service is made available to the customer. The Company's subscription contracts do not provide customers with the right to take possession of the software supporting the service and, as a result, are accounted for as service contracts. The Company's subscription contracts are generally two to five years in length, billed annually in advance, and non-cancelable.

Maintenance and support revenue

Maintenance and support revenue includes post-implementation customer support for on-premise licenses and the right to unspecified software updates and enhancements. The Company recognizes revenue from maintenance and support arrangements ratably over the period in which the services are provided. The Company's maintenance and support contracts are generally one to three years in length, billed annually in advance, and non-cancelable.

License revenue

Licenses to on-premise software provide the customer with a right to use, in the customer's environment, the Company's software as it exists when made available to the customer. License revenue from customer contracts with distinct on-premises licenses is recognized at the point in time when the software is made available to the customer. For customer contracts that contain license and professional services that are not considered distinct, both the license and professional services are determined to be a single performance obligation and the revenue is recognized over time based upon the Company's efforts to satisfy the performance obligation.

Professional services revenue

Professional services revenue primarily consists of fees for deployment and configuration services, as well as training services. Professional services revenues are generally recognized as the services are rendered for time and material contracts, or on a proportional performance basis for fixed fee contracts. The majority of the Company's professional services contracts are on a fixed fee basis. Training revenues are recognized as the services are rendered.

Significant judgment is required in determining whether professional services contained in a customer subscription services contract are capable of being distinct and are separately identifiable in the customer contract. Professional services determined to be distinct are accounted for as a separate performance obligation and revenue is recognized as the services are performed. If the professional services are not determined to be distinct, the professional services and the subscription services are accounted for as a single performance obligation and revenue is recognized over the contractual term of the subscription beginning on the date that subscription services are made available to the customer.

Customer contracts with multiple performance obligations

A portion of the Company's customer contracts contain multiple performance obligations. Significant judgment is required in determining whether multiple performance obligations contained in a single customer contract are capable of being distinct and are separately identifiable. An obligation determined to be distinct is accounted for as a separate performance obligation and revenue for that separate performance obligation is recognized when, or as, the Company satisfies the performance obligation. If obligations are not determined to be distinct, those obligations are accounted for as a single, combined performance obligation. The transaction price is allocated to each performance obligation on a relative standalone selling price basis.

Leases

The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use ("ROU") assets, current operating lease liabilities and noncurrent operating lease liabilities in the Company's unaudited condensed consolidated balance sheet.

ROU assets represent the Company’s right to use an underlying asset over the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. The Company includes any anticipated lease incentives in the determination of lease liability.

The Company uses its estimated incremental borrowing rate, which is derived from information available at the lease commencement date, in determining the present value of lease payments. The Company gives consideration to its recent debt issuances as well as publicly available data for instruments with similar characteristics when determining its incremental borrowing rates.

The Company’s lease terms will include options to extend the lease when it is reasonably certain that the Company will exercise that option. Leases with a term of 12 months or less are not recorded on the Company's unaudited condensed consolidated balance sheet. The Company’s lease agreements do not contain any residual value guarantees.

Internal-use software

Costs incurred to develop internal-use software during the development stage are capitalized, stated at cost, and amortized 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 September 30, 2019 and 2018, the Company capitalized $0.2 million and $1.2 million, respectively, of internal-use software development costs related to cloud-based offerings, and for the nine months ended September 30, 2019 and 2018, the Company capitalized $1.0 million and $3.7 million, 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 September 30, 2019 and 2018, the Company amortized $0.8 million and $0.3 million, respectively, and for the nine months ended September 30, 2019 and 2018, the Company amortized $2.0 million and $0.7 million, respectively, of 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, once it commences, is included in cost of subscription and cost of services 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 and nine months ended September 30, 2019 and 2018.

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, (ii) performance-based awards in which the number of shares that vest are based upon achievement of certain internal performance metrics set by the Company, and (iii) 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 September 30, 2019 and December 31, 2018, respectively, (in thousands): 

Award type	September 30, 2019	December 31, 2018
Restricted stock units (time-based)	1,876	1,969
Restricted stock units (performance-based)	114	—
Restricted stock units (market-based)	—	215
Stock appreciation rights	165	287
Market stock units	267	419

Stock options, time-based RSUs and SARs vest ratably between one and 4 years. Performance-based RSUs vest on the third anniversary of the grant and the maximum number of shares issuable upon vesting is 200% of the initially granted shares based upon achievement of certain internal performance metrics set by the Company, as defined by each award's plan documents or individual award agreements. 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, SARs or MSUs during the three and nine months ended September 30, 2019 or 2018.

The fair value of the time-based and performance-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.

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 giving effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible notes using the if-converted method. Dilutive potential common shares consist of shares issuable upon the exercise of stock options, shares of unvested restricted stock units and market 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, restricted stock units, market stock units and convertible notes 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.

Equity 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 at cost, less impairment and adjusted for subsequent observable price changes obtained from orderly transactions for identical or similar investments issued by the same investee.  Adjustments resulting from impairment, fair value, or observable price changes are accounted for in the unaudited condensed consolidated statements of comprehensive income (loss).

As of September 30, 2019 and December 31, 2018, the Company held $2.2 million and $2.0 million, respectively, of equity securities in a privately held company. This investment is accounted for at cost, less impairment and adjusted for subsequent observable price changes obtained from orderly transactions for identical or similar investments issued by the same investee. The Company estimates fair value of its equity 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 defined by Accounting Standard Codification ("ASC") 820, "Fair Value Measurement and Disclosure" ("ASC 820"). As of September 30, 2019 and December 31, 2018, the Company determined there were no other-than-temporary impairments on its equity investment. 

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 $289.8 million and $268.6 million at September 30, 2019 and December 31, 2018, respectively, and were invested in treasury money market funds. 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 ASC 820.

Trade and other receivables

Trade and other receivables are primarily comprised of trade receivables, net of allowance for doubtful accounts, contract assets and unbilled receivables. The Company records trade accounts receivable for its unconditional rights to consideration arising from the Company's performance under contracts with customers. The Company's standard billing terms are that payment is due upon receipt of invoice, payable generally within thirty to sixty days. The carrying value of such receivables, net of the allowance for doubtful accounts, represents their estimated net realizable value. The Company estimates its allowance for doubtful accounts for specific trade receivable balances based on historical collection trends, the age of outstanding trade receivables, existing economic conditions, and any financial security associated with the receivables.

Contract assets represent conditional rights to consideration that have been recognized as revenue in advance of billing the customer. Unbilled receivables represent unconditional rights to consideration arising from contingent revenue that have been recognized as revenue in advance of billing the customer.

Deferred costs

Sales commissions earned by the Company's sales representatives are considered incremental and recoverable costs of obtaining a customer contract. Sales commissions are deferred and amortized on a straight-line basis over the period of benefit, which the Company has determined to be five to eight years. The Company determined the period of benefit by taking into consideration its customer contracts, expected renewals of those customer contracts (as the Company currently does not pay an

incremental sales commission), the Company's technology and other factors. The Company also defers amounts earned by employees other than sales representatives who earn incentive payments under compensation plans that are also tied to the value of customer contracts acquired. Deferred costs were $20.6 million and $17.5 million as of September 30, 2019 and December 31, 2018, respectively. Amortization expense for the deferred costs was $1.3 million and $0.8 million for the three months ended September 30, 2019 and 2018, respectively, and $3.5 million and $2.1 million for the nine months ended September 30, 2019 and 2018, respectively.

Deferred implementation costs

The Company capitalizes certain contract fulfillment costs, including personnel and other costs (such as hosting, employee salaries, benefits and payroll taxes), that are associated with arrangements where professional services are not distinct from other undelivered obligations in its customer contracts. The Company analyzes implementation costs and capitalizes those costs that are directly related to customer contracts, that are expected to be recoverable, and that enhance the resources which will be used to satisfy the undelivered performance obligations in those contracts. Deferred implementation costs are amortized ratably over the remaining contract term once the revenue recognition criteria for the respective performance obligation has been met and revenue recognition commences. Deferred implementation costs were $4.8 million and $3.9 million as of September 30, 2019 and December 31, 2018, respectively. Amortization expense for the deferred implementation costs was $0.4 million and $0.1 million for the three months ended September 30, 2019 and 2018, respectively, and $1.0 million and $0.4 million for the nine months ended September 30, 2019 and 2018, respectively. Deferred implementation costs are included in prepaid and other current assets and other assets, noncurrent in the unaudited condensed consolidated balance sheets. Amortization of deferred implementation costs is included in cost of subscription and cost of services revenues in the accompanying unaudited condensed consolidated statements of comprehensive income (loss).

Deferred revenue

Deferred revenue primarily consists of customer invoicing in advance of revenues being recognized. The Company generally invoices its customers annually in advance for subscription services and maintenance and support services. Deferred revenue that is anticipated to be recognized during the next twelve-month period is recorded as current deferred revenue and the remaining portion is recorded as long-term.

Credit facility

As of September 30, 2019, the Company had no outstanding borrowings under its $50.0 million secured Credit Agreement ("Revolver") with the lenders party thereto and Wells Fargo Bank, National Association as agent for the lenders party thereto. The Company included $0.1 million of unamortized debt issuance costs related to the Revolver in prepaid and other current assets and other assets, noncurrent in the unaudited condensed consolidated balance sheets. For the three and nine months ended September 30, 2019 and 2018, the Company recorded an immaterial amount of amortization of debt issuance cost which is included in other income (expense), net in the unaudited condensed consolidated statements of comprehensive income (loss).

Income taxes

The Company recorded an income tax provision of $0.1 million and $0.2 million for the three months ended September 30, 2019 and 2018, respectively, and $0.6 million and $0.2 million for the nine months ended September 30, 2019 and 2018, respectively, primarily related to foreign income taxes and withholding taxes. The effective tax rate was (0.6)% and (1.1)% for the three months ended September 30, 2019 and 2018, respectively, and (1.1)% and (0.3)% for the nine months ended September 30, 2019 and 2018, respectively. 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 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 February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)" ("Topic 842"), which requires the lessee to recognize most leases on the balance sheet thereby resulting in the recognition of right-of-use ("ROU") assets and lease liabilities for those leases currently classified as operating leases. Lessor accounting remains largely unchanged from current guidance, however, Topic 842 provides improvements that are intended to align lessor accounting with the lessee model and with updated revenue recognition guidance. This standard took effect in the first quarter of 2019, including interim periods within that reporting

period. The Company adopted Topic 842 as of January 1, 2019 using the modified retrospective method by recognizing the cumulative effect of initially applying the new standard as an adjustment to the opening balances of operating ROU assets and lease liabilities, while prior period amounts are not adjusted and continue to be reported in accordance with the Company's historic accounting under the prior lease accounting rules in ASC 840, "Leases".

The Company elected the package of practical expedients permitted under the transition guidance within the new Topic 842 standard for all asset classes, which among other things, allowed the Company to carryforward the historical lease classification. The Company also elected the hindsight practical expedient to determine the reasonably certain lease term for existing leases. The Company made an accounting policy election to not recognize leases with an initial term of 12 months or less on the balance sheet and instead would recognize those lease payments on a straight-line basis over the lease term in the unaudited condensed consolidated statement of comprehensive income (loss).

The adoption of the standard had a material impact on the Company’s unaudited condensed consolidated balance sheet as a result of the increase of $26.9 million in assets and liabilities from recognition of ROU assets and lease liabilities. The standard did not have a material impact on the Company's unaudited condensed consolidated statement of comprehensive income (loss).

In August 2018, the FASB issued ASU 2018-15, "Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract" ("Subtopic 350-40"). The amendment aligns the requirements for capitalizing implementation costs in a cloud computing arrangement service contract with the requirements for capitalizing implementation costs incurred to develop or obtain an internal-use software. The standard is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2019; early adoption is permitted. The Company early adopted Subtopic 350-40 prospectively effective January 1, 2019 and there was no impact on the Company's unaudited condensed consolidated financial statements as of the adoption date. In addition, the new standard had no significant impact on the unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2019.

Recently issued accounting pronouncements not yet adopted

In January 2017, the FASB issued ASU 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment" ("Topic 350"), 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 after January 1, 2017. The Company is currently assessing the impact of Topic 350 on its unaudited 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 nine months ended September 30, 2019, as compared to the recent accounting pronouncements described in the Company's Annual Report, that are of significance or potential significance to the Company.

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Earnings per Share (Note)

9 Months Ended

Sep. 30, 2019

Earnings Per Share [Abstract]

Earnings per Share

Earnings per Share

The following table sets forth the computation of basic and diluted earnings per share for the three and nine months ended September 30, 2019 and 2018:

	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands, except per share data)	2019			2018			2019			2018
Numerator:
Net loss	$	(17,347	)	$	(15,786	)	$	(51,781	)	$	(51,486	)
Denominator:
Weighted average shares (basic)	41,276			35,676			39,438			33,568
Dilutive effect of potential common shares	—			—			—			—
Weighted average shares (diluted)	41,276			35,676			39,438			33,568
Basic loss per share	$	(0.42	)	$	(0.44	)	$	(1.31	)	$	(1.53	)
Diluted loss per share	$	(0.42	)	$	(0.44	)	$	(1.31	)	$	(1.53	)

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 2.1 million and 2.2 million for the three months ended September 30, 2019 and 2018, respectively, and 2.1 million and 2.1 million for the nine months ended September 30, 2019 and 2018, respectively. Potential common shares related to the convertible notes determined to be antidilutive and excluded from diluted weighted average shares outstanding were 3.1 million for the three and nine months ended September 30, 2019.

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Summary of Significant Accounting Policies Awards Outstanding (Details) - shares shares in Thousands	Sep. 30, 2019	Dec. 31, 2018
Restricted stock unit - market-based [Member]
Awards outstanding [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Outstanding, Number	0	215
Stock appreciation rights
Awards outstanding [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Outstanding, Number	165	287
Market Share Units (MSUs) [Member]
Awards outstanding [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Outstanding, Number	267	419
Restricted Stock Unit - time based [Member]
Awards outstanding [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Outstanding, Number	1,876	1,969
Performance Shares [Member]
Awards outstanding [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Outstanding, Number	114	0

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Earnings per Share (Table)

9 Months Ended

Sep. 30, 2019

Earnings Per Share [Abstract]

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

The following table sets forth the computation of basic and diluted earnings per share for the three and nine months ended September 30, 2019 and 2018:

	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands, except per share data)	2019			2018			2019			2018
Numerator:
Net loss	$	(17,347	)	$	(15,786	)	$	(51,781	)	$	(51,486	)
Denominator:
Weighted average shares (basic)	41,276			35,676			39,438			33,568
Dilutive effect of potential common shares	—			—			—			—
Weighted average shares (diluted)	41,276			35,676			39,438			33,568
Basic loss per share	$	(0.42	)	$	(0.44	)	$	(1.31	)	$	(1.53	)
Diluted loss per share	$	(0.42	)	$	(0.44	)	$	(1.31	)	$	(1.53	)

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Leases (Details) - USD ($) $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2019	Dec. 31, 2018
Lessee, Lease, Description [Line Items]
Operating Lease, Right-of-Use Asset	$ 28,548	$ 28,548	$ 0
Operating Lease, Liability	30,600	30,600
Operating Lease, Cost	2,285	6,778
Variable Lease, Cost	498	1,389
Sublease Income	(99)	(248)
Lease, Cost	2,684	7,919
Operating Lease, Payments	$ 1,467	$ 4,349
Operating Lease, Weighted Average Remaining Lease Term	7 years	7 years
Operating Lease, Weighted Average Discount Rate, Percent	7.26%	7.26%
Unrecorded Unconditional Purchase Obligation	$ 1,500	$ 1,500
Minimum [Member]
Lessee, Lease, Description [Line Items]
Lessee, Operating Lease, Term of Contract	1 year	1 year
Lessee, Operating Lease, Lease Not yet Commenced, Term of Contract	5 years	5 years
Maximum [Member]
Lessee, Lease, Description [Line Items]
Lessee, Operating Lease, Term of Contract	14 years	14 years
Lessee, Operating Lease, Lease Not yet Commenced, Term of Contract	14 years	14 years
Lease Modification [Member]
Lessee, Lease, Description [Line Items]
Operating Lease, Right-of-Use Asset	$ 5,700	$ 5,700