New Issue: Pros Holding (PRO) Convertible Senior Notes due 2019

PF Cash:  $161mm                       PF Debt:   $125mm                   LTM EBITDA:   $(10)mm
LTM CF:   $2mm                           Leverage:  NM                           Mkt Cap:          $879mm

PROS is a small software company that focuses on "big data".  The company serves the manufacturing, distribution, services, and travel industry by providing pricing and revenue management solutions.  More than 50% of revenue comes from outside the US.  

PROS has been acquiring companies to bolster the offerings and drive growth.  In December 2013 the company acquired Signal Demand, an optimization software company, for $13.5 million cash.  In January it began acquiring the stock of Chameleon Software, a configure, price and quote software company, for $33 million.  The final portion of the stock acquisition was completed in the third quarter.  These acquisitions have been successful at growing revenue, which was up 27% to $46.7 million in the third quarter compared to the year earlier period.  However, EBITDA has turned negative this year, likely due to integration issues.  

Prior to the convert PROS had no debt.  Liquidity came from cash balances of $40 million and an undrawn $50 million secured revolver (L+150 to 225, matures July 2017).  Free Cash Flow has been consistently positive, but remains just so at $2 million for the last twelve months.  

This is a very small company.  Management will be using proceeds from the convertible offering to do additional acquisitions, which always come with risks.  However, PROS is competing with the likes of SAP and Oracle on certain offerings, so it needs to expand to remain relevant.  

The HOCS slash line for the new issue is 60 Overall / 74 Growth / 31 Safety.  An Overall score of 60 for a new issue is nothing to get excited about and a 31 Safety score is rather worrisome.