pro-20210331

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 March 31, 2021


☐			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.)

3200 Kirby Drive, Suite 600

77098

Houston

(Address of Principal Executive Offices)

(Zip Code)

(713)

335-5151

(Registrant's telephone number, including area code)

(Former address, if changed since last report)

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 44,252,856 as of April 27, 2021.

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PROS Holdings, Inc.

Form 10-Q

For the Quarterly Period Ended March 31, 2021

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		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	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	22
Item 4.	Controls and Procedures	22

PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	23
Item 1A.	Risk Factors	23
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	23
Item 3.	Defaults Upon Senior Securities	23
Item 4.	Mine Safety Disclosure	23
Item 5.	Other Information	23
Item 6.	Exhibits	23
Signatures		25

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"). All statements in this report other than historical facts are forward-looking and are based on current estimates, assumptions, trends, and projections. Statements which include the words "believes," "seeks," "expects," "may," "should," "intends," "likely," "targets," "plans," "anticipates," "estimates," or the negative version of those words and similar expressions are intended to identify forward-looking statements. Numerous important factors, risks and uncertainties affect our operating results, including, without limitation, those described in our Annual Report on Form 10-K and in this Quarterly Report on Form 10-Q, and could cause our actual results to differ materially, from the results implied by these or any other forward-looking statements made by us or on our behalf. You should pay particular attention to the important risk factors and cautionary statements described in the section of our Annual Report on Form 10-K entitled "Risk Factors" and the section of this Quarterly Report on Form 10-Q entitled "Risk Factors." You should also carefully review the cautionary statements described in the other documents we file with the Securities and Exchange Commission, specifically the Annual Report on Form 10-K, all Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.

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.

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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)


	March 31, 2021		December 31, 2020
Assets:
Current assets:
Cash and cash equivalents	$	323,929	$	329,134

Trade and other receivables, net of allowance of $3,563 and $4,122, respectively	53,665		49,578
Deferred costs, current	5,883		5,941
Prepaid and other current assets	10,668		9,647

Total current assets	394,145		394,300

Property and equipment, net	35,629		36,504
Operating lease right-of-use assets	29,044		30,689
Deferred costs, noncurrent	11,735		12,544
Intangibles, net	7,467		8,341
Goodwill	49,563		50,044

Other assets, noncurrent	7,505		7,549
Total assets	$	535,088	$	539,971
Liabilities and Stockholders' Equity:
Current liabilities:
Accounts payable and other liabilities	$	6,317	$	4,246
Accrued liabilities	16,734		13,065
Accrued payroll and other employee benefits	17,958		25,514
Operating lease liabilities, current	5,897		5,937
Deferred revenue, current	113,478		99,156

Total current liabilities	160,384		147,918
Deferred revenue, noncurrent	8,528		11,372
Convertible debt, net	287,169		218,028
Operating lease liabilities, noncurrent	42,529		44,099
Other liabilities, noncurrent	1,449		1,517
Total liabilities	500,059		422,934
Commitments and contingencies (see Note 9)
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; 48,933,488 and 48,142,267 shares issued, respectively; 44,252,765 and 43,461,544 shares outstanding, respectively	49		48
Additional paid-in capital	518,338		589,040
Treasury stock, 4,680,723 common shares, at cost	(29,847)		(29,847)
Accumulated deficit	(449,472)		(438,773)
Accumulated other comprehensive loss	(4,039)		(3,431)

Total stockholders' equity	35,029		117,037
Total liabilities and stockholders' equity	$	535,088	$	539,971

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

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PROS Holdings, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(In thousands, except per share data)

(Unaudited)


	Three Months Ended March 31,
		2021		2020
Revenue:
Subscription		$	42,648	$	43,170
Maintenance and support		9,674		12,523
Total subscription, maintenance and support		52,322		55,693

Services		9,056		10,618
Total revenue		61,378		66,311
Cost of revenue:
Subscription		13,801		12,864
Maintenance and support		2,258		2,790
Total cost of subscription, maintenance and support		16,059		15,654

Services		10,433		13,073
Total cost of revenue		26,492		28,727
Gross profit		34,886		37,584
Operating expenses:
Selling and marketing		21,564		24,920
Research and development		20,458		19,136
General and administrative		13,454		14,880


Loss from operations		(20,590)		(21,352)
Convertible debt interest and amortization		(1,576)		(2,062)
Other income, net		286		831
Loss before income tax provision		(21,880)		(22,583)
Income tax provision		149		152
Net loss		$	(22,029)	$	(22,735)



Net loss per share:
Basic and diluted		$	(0.50)	$	(0.53)

Weighted average number of shares:

Basic and diluted		44,245		43,102
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment		$	(608)	$	(170)

Other comprehensive income (loss), net of tax		(608)		(170)
Comprehensive loss		$	(22,637)	$	(22,905)

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

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PROS Holdings, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands) (Unaudited)


	Three Months Ended March 31,
	2021		2020
Operating activities:
Net loss	$	(22,029)	$	(22,735)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	3,068		3,420
Amortization of debt discount and issuance costs	373		1,712
Share-based compensation	8,170		6,347



Provision for doubtful accounts	(559)		2,596



Changes in operating assets and liabilities:
Accounts and unbilled receivables	(3,610)		8,889
Deferred costs	867		763
Prepaid expenses and other assets	(395)		(701)
Operating lease right-of-use assets and liabilities	(173)		868
Accounts payable and other liabilities	2,012		579
Accrued liabilities	3,918		(3,840)
Accrued payroll and other employee benefits	(7,573)		(20,055)
Deferred revenue	11,502		(2,016)
Net cash used in operating activities	(4,429)		(24,173)
Investing activities:
Purchases of property and equipment	(1,300)		(10,993)


Capitalized internal-use software development costs	—		(412)


Investment in equity securities	(501)		—



Net cash used in investing activities	(1,801)		(11,405)
Financing activities:


Proceeds from employee stock plans	1,596		1,364
Tax withholding related to net share settlement of stock awards	(352)		(20,172)











Net cash provided by (used in) financing activities	1,244		(18,808)
Effect of foreign currency rates on cash	(219)		91
Net change in cash and cash equivalents	(5,205)		(54,295)
Cash and cash equivalents:
Beginning of period	329,134		306,077
End of period	$	323,929	$	251,782

Supplemental disclosure of cash flow information:
Noncash investing activities:
Purchase of property and equipment accrued but not paid	$	328	$	3,253

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

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PROS Holdings, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands, except share data)

(Unaudited)


	Three Months Ended March 31, 2021
	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, 2020	43,461,544	$	48	$	589,040	4,680,723	$	(29,847)	$	(438,773)	$	(3,431)	$	117,037

Stock awards net settlement	749,251	1		(353)		—	—		—		—		(352)
Proceeds from employee stock plans	41,970	—		1,596		—	—		—		—		1,596



Cumulative effect of adoption of ASU 2020-06	—	—		(80,098)		—	—		11,330		—		(68,768)



Noncash share-based compensation	—	—		8,153		—	—		—		—		8,153

Other comprehensive income (loss)	—	—		—		—	—		—		(608)		(608)
Net loss	—	—		—		—	—		(22,029)		—		(22,029)
Balance at March 31, 2021	44,252,765	$	49	$	518,338	4,680,723	$	(29,847)	$	(449,472)	$	(4,039)	$	35,029


	Three Months Ended March 31, 2020
	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, 2019	42,630,123	$	47	$	560,496	4,680,723	$	(29,847)	$	(361,789)	$	(3,911)	$	164,996
Stock awards net settlement	634,600	1		(20,173)		—	—		—		—		(20,172)
Proceeds from employee stock plans	26,774	—		1,364		—	—		—		—		1,364






Warrant exercise	163	—		—		—	—		—		—		—
Noncash share-based compensation	—	—		6,327		—	—		—		—		6,327

Other comprehensive income (loss)	—	—		—		—	—		—		(170)		(170)
Net loss	—	—		—		—	—		(22,735)		—		(22,735)
Balance at March 31, 2020	43,291,660	$	48	$	548,014	4,680,723	$	(29,847)	$	(384,524)	$	(4,081)	$	129,610

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

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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 solutions that optimize the processes of selling and shopping in the digital economy. PROS solutions leverage artificial intelligence ("AI"), self-learning and automation to ensure that every transactional experience is fast, frictionless and personalized for every shopper, supporting both business-to-business ("B2B") and business-to-consumer ("B2C") companies across industry verticals. Companies can use the Company's selling, pricing, revenue optimization and eCommerce 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, partner, online, mobile and emerging channels with personalized experiences regardless of which channel those buyers 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 solutions based on the industries it serves and offers services to configure its solutions to meet the specific needs of each customer.

2. Summary of Significant Accounting Policies

Basis of presentation

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States ("GAAP") for interim financial reporting and applicable quarterly reporting regulations of the Securities and Exchange Commission ("SEC"). In management's opinion, the accompanying interim unaudited condensed consolidated financial statements include all adjustments necessary for a fair statement of the financial position of the Company as of March 31, 2021, the results of operations for the three months ended March 31, 2021 and 2020, cash flows for the three months ended March 31, 2021 and 2020, and stockholders' equity for the three months ended March 31, 2021 and 2020.

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, 2020 ("Annual Report") filed with the SEC. The unaudited condensed consolidated balance sheet as of December 31, 2020 was derived from the Company's audited consolidated financial statements but does not include all disclosures required under GAAP.

Risks and uncertainties

Since its initial onset in early 2020, the coronavirus ("COVID-19") pandemic has created significant global uncertainty, and compliance with the various containment measures implemented by governmental authorities has impacted the Company's business, as well as the businesses of its customers, suppliers and other counterparties, and the scope and duration of the outbreak and timeframe for economic recovery is uncertain. As there are no comparable recent events that provide guidance as to the long-term effect of the COVID-19 pandemic, the Company is unable to predict the full impact that COVID-19 will have on its results from operations, financial condition, liquidity and cash flows due to numerous uncertainties, including the duration and severity of the pandemic and containment measures.

Changes in accounting policies

There have been no material changes in the Company’s significant accounting policies and their application as compared to the significant accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, except for the Company's adoption of certain accounting standards described in more detail under "Recently adopted accounting pronouncements" in this Note 2 below.

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 $296.3 million and $301.3 million at March 31, 2021 and December 31, 2020, respectively, and

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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. When developing its estimate of expected credit losses on trade and other receivables, the Company considers the available information relevant to assessing the collectability of cash flows, which includes a combination of both internal and external information relating to past events, current conditions, and future forecasts as well as relevant qualitative and quantitative factors that relate to the environment in which the Company operates.

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 for renewals), 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 $17.6 million and $18.5 million as of March 31, 2021 and December 31, 2020, respectively. Amortization expense for the deferred costs was $1.5 million and $1.4 million for the three months ended March 31, 2021 and 2020, respectively. Amortization of deferred costs is included in selling and marketing expense in the accompanying unaudited condensed consolidated statements of comprehensive income (loss).

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 $2.8 million and $2.9 million as of March 31, 2021 and December 31, 2020, respectively. Amortization expense for the deferred implementation costs was $0.3 million and $0.5 million for the three months ended March 31, 2021 and 2020, 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).

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Recently adopted accounting pronouncements

In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options ("Subtopic 470-20") and Derivatives and Hedging - Contracts in an Entity's Own Equity ("Subtopic 815-40"), which simplifies the accounting for certain convertible instruments, amends the guidance on derivative scope exceptions for contracts in an entity's own equity, and modifies the guidance on diluted earnings per share calculations as a result of these changes. This new standard is effective for the Company's interim and annual periods beginning January 1, 2022, and earlier adoption is permitted on January 1, 2021. The Company may elect to apply the amendments on a retrospective or modified retrospective basis. The Company early adopted the new standard effective January 1, 2021 on the modified retrospective basis. The adoption decreased additional paid-in capital by $80.1 million related to the equity conversion component of the outstanding convertible notes which was previously separated and recorded in equity, and increased convertible debt, net by $68.8 million related to the removal of the debt discounts and adjustment of debt issuance cost recorded under the previous standard. The net cumulative effect of the adjustments of $11.3 million was recorded as an increase to the opening balance of the accumulated deficit as of January 1, 2021. As a result of the adoption the non-cash interest expense was lower for the three months ended March 31, 2021 and will be lower for the remaining term of the outstanding convertible notes. The adoption had no impact on the condensed consolidated statements of cash flows.

Recently issued accounting pronouncements not yet adopted

With the exception of the new standard discussed above, there have been no other recent accounting pronouncements or changes in accounting pronouncements during the three months ended March 31, 2021, 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 March 31, 2021 and 2020, the Company recognized approximately $42.3 million and $47.7 million, respectively, 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 March 31, 2021, the Company expects to recognize approximately $401.3 million of revenue from remaining performance obligations. The Company expects, based on the terms of the related, underlying contractual arrangements, to recognize revenue on approximately $191.0 million of these performance obligations over the next 12 months, with the balance recognized thereafter. However, as a result of uncertain economic conditions caused by COVID-19, the amount of revenue recognized from the Company's contractual remaining performance obligations could vary and be less than what the Company expects as revenue recognized could be delayed or not occur depending on the ongoing impact of COVID-19.

4. Disaggregation of Revenue

Revenue by Geography

The geographic information in the table below is presented for the three months ended March 31, 2021 and 2020. 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 March 31,
		2021	2020
(in thousands)			Revenue		Percent		Revenue		Percent
United States of America			$	20,876	34	%	$	21,800	33	%
Europe			18,692		30	%	19,930		30	%
The rest of the world			21,810		36	%	24,581		37	%
Total revenue			$	61,378	100	%	$	66,311	100	%

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5. 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 12 years. Some of these leases include options to extend for up to 15 years, and some include options to terminate within 1 year.

As of March 31, 2021, the Company did not have any finance leases.

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


	Three Months Ended March 31,
		2021		2020
Cash paid for operating lease liabilities		$	2,461	$	1,627
Right-of-use asset obtained in exchange for operating lease liability		$	97	$	1,759

As of March 31, 2021, maturities of lease liabilities were as follows (in thousands):


Year Ending December 31,	Amount
Remaining 2021	$	7,223
2022	10,354
2023	11,358
2024	5,368
2025	4,249
2026	4,131
Thereafter	27,726
Total operating lease payments	70,409
Less: Imputed interest	(20,598)
Less: Anticipated lease incentive	(1,385)
Total operating lease liabilities	$	48,426

6. Earnings per Share

The following table sets forth the computation of basic and diluted earnings per share for the three months ended March 31, 2021 and 2020:


	Three Months Ended March 31,
(in thousands, except per share data)		2021		2020
Numerator:
Net loss		$	(22,029)	$	(22,735)
Denominator:
Weighted average shares (basic)		44,245		43,102
Dilutive effect of potential common shares		—		—
Weighted average shares (diluted)		44,245		43,102
Basic loss per share		$	(0.50)	$	(0.53)
Diluted loss per share		$	(0.50)	$	(0.53)

Dilutive potential common shares consist of shares issuable upon the exercise of stock options, settlement of stock appreciation rights ("SARs"), and the vesting of restricted stock units ("RSUs") and market stock units ("MSUs"). Potential common shares determined to be antidilutive and excluded from diluted weighted average shares outstanding were approximately 1.2 million and 1.6 million for the three months ended March 31, 2021 and 2020, respectively. In addition, potential common shares related to the convertible notes determined to be antidilutive and excluded from diluted weighted average shares outstanding were 5.8 million and 2.2 million for the three months ended March 31, 2021 and 2020, respectively.

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7. Noncash Share-based Compensation

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 March 31, 2021, 892,056 shares remain available for issuance under the 2017 Stock Plan.

The following table presents the number of shares or units outstanding for each award type as of March 31, 2021 and December 31, 2020, respectively, (in thousands):


Award type	March 31, 2021	December 31, 2020

Restricted stock units (time-based)	2,011	1,802
Restricted stock units (performance-based)	140	162

Stock appreciation rights	—	28
Market stock units	126	111

During the three months ended March 31, 2021, the Company granted 801,402 RSUs (time-based) with a weighted average grant-date fair value of $48.05 per share. The Company also granted 125,541 MSUs with a weighted average grant-date fair value of $56.05 to certain executive employees during the three months ended March 31, 2021. These MSUs vest on January 31, 2024 and the actual number of MSUs that will be eligible to vest is based on the total stockholder return of the Company relative to the total stockholder return of the Index over the performance period, as defined by each award's plan documents or individual award agreements. The maximum number of shares issuable upon vesting is 200% of the MSUs initially granted. The Company did not grant any stock options, SARs or performance-based RSUs during the three months ended March 31, 2021.

The assumptions used to value the MSUs granted during the three months ended March 31, 2021 were as follows:


	March 31, 2021
Volatility	53.29	%
Risk-free interest rate	0.22	%
Expected option life in years	2.97
Dividend yield	—

Share-based compensation expense is allocated to expense categories on the unaudited condensed consolidated statements of comprehensive income (loss). The following table summarizes share-based compensation expense included in the Company's unaudited condensed consolidated statements of comprehensive income (loss) for the three months ended March 31, 2021 and 2020:


	Three Months Ended March 31,
		2021		2020
Share-based compensation:
Cost of revenue		$	826	$	524
Operating expenses:
Selling and marketing		2,224		1,866
Research and development		1,826		1,507
General and administrative		3,294		2,450
Total included in operating expenses		7,344		5,823
Total share-based compensation expense		$	8,170	$	6,347

At March 31, 2021, the Company had an estimated $89.6 million of total unrecognized compensation costs related to share-based compensation arrangements. These costs will be recognized over a weighted average period of 3.0 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

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market value of the Company's common stock on January 1 or June 30, whichever is lower, and (ii) on December 31 of each year at a 15% discount of the fair market value of the Company's common stock on July 1 or December 31, whichever is lower. An employee may not purchase more than $5,000 in either of the six-month measurement periods described above or more than $10,000 annually. During the three months ended March 31, 2021, the Company issued 41,970 shares under the ESPP. As of March 31, 2021, 32,824 shares remain authorized and available for issuance under the ESPP. As of March 31, 2021, the Company held approximately $1.0 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.

8. Convertible Senior Notes

The following is a summary of the Company's convertible senior notes as of March 31, 2021 (in thousands):


	Date of Issuance	Unpaid Principal Balance		Net Carrying Amount				Contractual Interest Rates
				Current		Noncurrent


1% Convertible Notes due in 2024 ("2024 Notes")	May 2019	$	143,750	$	—	$	140,985	1%
2.25% Convertible Notes due in 2027 ("2027 Notes")	September 2020	$	150,000

SEC Form 10-Q filed by PROS Holdings, Inc.