UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2010
 OR
 o
    
    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(State or other jurisdiction of 
incorporation or organization)
    
    76-0168604(I.R.S. Employer Identification No.)
 3100 Main Street, Suite 900, Houston, TX 77002
(713) 335-5151  (Address and telephone number of principal executive offices)
 þ o
 o þ
  Large Accelerated Filer o
    
    Accelerated Filer þ
    
    Non-Accelerated Filer o
    
    Smaller Reporting Company o(Do not check if a smaller reporting company)
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PagePART I. Financial InformationItem 1. Unaudited condensed consolidated financial statementsCondensed consolidated balance sheets at September 30, 2010 and December 31, 2009 (Unaudited)
    
    
    3Condensed consolidated statements of operations for the three and nine months ended
September 30, 2010 and 2009 (Unaudited)
    
    
    4Condensed consolidated statements of cash flows for the nine months ended September 30,
2010 and 2009 (Unaudited)
    
    
    5Notes to unaudited condensed consolidated financial statements
    
    
    6Item 2. Managements discussion and analysis of financial condition and results of operations
    
    
    10Item 3. Quantitative and qualitative disclosures about market risk
    
    
    18Item 4. Controls and procedures
    
    
    18PART II. Other InformationItem 1. Legal proceedings
    
    
    19Item 1A. Risk factors
    
    
    19Item 2. Unregistered sales of equity securities and use of proceeds
    
    
    31Item 3. Defaults upon senior securities
    
    
    31Item 4. [Removed and Reserved pursuant to SEC Release No. 34-6175A]
    
    
    31Item 5. Other information
    
    
    31Item 6. Exhibits
    
    
    31Signatures
    
    
    34
  Except for the historical financial information contained herein, the matters discussed in
this report on Form 10-Q (as well as documents incorporated herein by reference) may be considered
forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking
statements include declarations regarding the intent, belief or current expectations of PROS
Holdings, Inc. and its management and may be signified by the words expects, anticipates,
target, project, goals, estimates, potential, predicts, may, might, could,
intends, believes or similar language. You are cautioned that any such forward-looking
statements are not guarantees of future performance and involve a number of risks and
uncertainties. Actual results could differ materially from those indicated by such forward-looking
statements. Factors that could cause or contribute to such differences include those discussed
under Risk Factors and elsewhere in this report. PROS Holdings, Inc. disclaims any intention or
obligation to update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
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##### 



PART I. Financial Information
 
 Item 1. Unaudited Condensed Consolidated Financial Statements
 PROS Holdings, Inc.
 
 Condensed Consolidated Balance Sheets  (In thousands, except share amounts)  (Unaudited)
 September 30,
    
    
    December 31,2010
    
    
    2009Assets:Current assets:Cash and cash equivalents
    
    $
    53,063
    
    
    $
    62,449Restricted cash
    
    
    73
    
    
    
    Accounts and unbilled receivables, net of allowance
of $950 and $1,300, respectively
    
    
    19,591
    
    
    
    12,035Prepaid and other current assets
    
    
    7,717
    
    
    
    4,143Total current assets
    
    
    80,444
    
    
    
    78,627Restricted cash
    
    
    293
    
    
    
    Property and equipment, net
    
    
    3,173
    
    
    
    2,959Other long term assets, net
    
    
    2,567
    
    
    
    3,743Total assets
    
    $
    86,477
    
    
    $
    85,329Liabilities and Stockholders Equity:Current liabilities:Accounts payable
    
    $
    1,476
    
    
    $
    1,198Accrued liabilities
    
    
    1,306
    
    
    
    3,199Accrued payroll and other employee benefits
    
    
    4,551
    
    
    
    4,510Deferred revenue
    
    
    21,739
    
    
    
    14,099Other current liabilities
    
    
    
    
    
    
    4,866Total current liabilities
    
    
    29,072
    
    
    
    27,872Long-term deferred revenue
    
    
    1,208
    
    
    
    2,418Total liabilities
    
    
    30,280
    
    
    
    30,290Commitments and contingencies (Note 4)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, 30,565,369 and
30,163,508 shares issued,
respectively,
26,147,784 and 25,745,923 shares
outstanding, respectively
    
    
    31
    
    
    
    30Additional paid-in capital
    
    
    67,184
    
    
    
    63,439Treasury stock, 4,417,585 common shares, at cost
    
    
    (13,938
    )
    
    
    (13,938
    )Accumulated other comprehensive (loss) income
    
    
    (26
    )
    
    
    Retained earnings
    
    
    2,946
    
    
    
    5,508Total stockholders equity
    
    
    56,197
    
    
    
    55,039Total liabilities and stockholders equity
    
    $
    86,477
    
    
    $
    85,329
 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 Operations  (In thousands, except share and per share data)  (Unaudited)
 For the Three Months
    
    
    For the Nine MonthsEnded September 30,
    
    
    Ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Revenue:License and implementation
    
    $
    8,580
    
    
    $
    10,276
    
    
    $
    29,382
    
    
    $
    33,404Maintenance and support
    
    
    7,106
    
    
    
    6,234
    
    
    
    21,470
    
    
    
    18,458Total revenue
    
    
    15,686
    
    
    
    16,510
    
    
    
    50,852
    
    
    
    51,862Cost of revenue:License and implementation
    
    
    3,798
    
    
    
    3,065
    
    
    
    10,432
    
    
    
    10,422Maintenance and support
    
    
    1,486
    
    
    
    1,226
    
    
    
    4,382
    
    
    
    3,606Total cost of revenue
    
    
    5,284
    
    
    
    4,291
    
    
    
    14,814
    
    
    
    14,028Gross profit
    
    
    10,402
    
    
    
    12,219
    
    
    
    36,038
    
    
    
    37,834Operating expenses:Selling, general and
administrative
    
    
    9,334
    
    
    
    5,954
    
    
    
    24,484
    
    
    
    17,019Research and development
    
    
    4,856
    
    
    
    5,177
    
    
    
    15,542
    
    
    
    14,999(Loss) income from operations
    
    
    (3,788
    )
    
    
    1,088
    
    
    
    (3,988
    )
    
    
    5,816Other income:Interest income
    
    
    24
    
    
    
    30
    
    
    
    53
    
    
    
    177(Loss) income before income tax provision
    
    
    (3,764
    )
    
    
    1,118
    
    
    
    (3,935
    )
    
    
    5,993Income tax (benefit) provision
    
    
    (1,359
    )
    
    
    320
    
    
    
    (1,373
    )
    
    
    1,669Net (loss) income
    
    $
    (2,405
    )
    
    $
    798
    
    
    $
    (2,562
    )
    
    $
    4,324Net (loss) earnings attributable to common
stockholders per share:Basic
    
    $
    (0.09
    )
    
    $
    0.03
    
    
    $
    (0.10
    )
    
    $
    0.17Diluted
    
    $
    (0.09
    )
    
    $
    0.03
    
    
    $
    (0.10
    )
    
    $
    0.16Weighted average number of shares:Basic
    
    
    26,088,971
    
    
    
    25,718,342
    
    
    
    26,011,473
    
    
    
    25,702,736Diluted
    
    
    26,088,971
    
    
    
    26,397,958
    
    
    
    26,011,473
    
    
    
    26,395,131
 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 4




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PROS Holdings, Inc.
 
 Condensed Consolidated Statements of Cash Flows  (In thousands)  (Unaudited)
 For the Nine MonthsEnded September 30,2010
    
    
    2009Operating activities:Net (loss) income
    
    $
    (2,562
    )
    
    $
    4,324Adjustments to reconcile net income to net
cash provided by operating activities:Depreciation
    
    
    1,020
    
    
    
    952Stock-based compensation
    
    
    4,461
    
    
    
    4,022Excess tax benefits on vesting of restricted stock units
    
    
    (623
    )
    
    
    Deferred income taxes
    
    
    (114
    )
    
    
    89Provision for doubtful accounts
    
    
    (157
    )
    
    
    36Changes in operating assets and liabilities:Accounts receivable
    
    
    (7,597
    )
    
    
    (1,398
    )Unbilled receivables
    
    
    (1,383
    )
    
    
    (1,789
    )Prepaid expenses and other
    
    
    (2,094
    )
    
    
    (1,416
    )Accounts payable, accrued liabilities
and accrued payroll
    
    
    7
    
    
    
    (1,042
    )Other current liabilities
    
    
    (4,867
    )
    
    
    Deferred revenue
    
    
    6,430
    
    
    
    892Net cash (used in) provided by operating activities
    
    
    (7,479
    )
    
    
    4,670Investing activities:Purchases of property and equipment
    
    
    (1,261
    )
    
    
    (782
    )Increase in restricted cash
    
    
    (366
    )
    
    
    Net cash used in investing activities
    
    
    (1,627
    )
    
    
    (782
    )Financing activities:Exercise of stock options
    
    
    291
    
    
    
    70Excess tax benefits on vesting of restricted stock units
    
    
    623
    
    
    
    Tax withholding related to net share settlement of restricted stock units
    
    
    (1,194
    )
    
    
    Net cash (used in) provided by financing activities
    
    
    (280
    )
    
    
    70Net (decrease) increase in cash and cash
equivalents
    
    
    (9,386
    )
    
    
    3,958Cash and cash equivalents:Beginning of period
    
    
    62,449
    
    
    
    51,979End of period
    
    $
    53,063
    
    
    $
    55,937
 The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
 5




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PROS Holdings, Inc.
 
 Notes to Unaudited Condensed Consolidated Financial Statements  (unaudited)
 1. Summary of business and basis of presentation
 Nature of operations
  Basis of presentation
  Basis of consolidation
  Dollar amounts
  Use of estimates
  6




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Fair value measurements
 Fair Value Measurement and Disclosure
 Deferred revenue and unbilled receivables
  Foreign currency
   Income taxes
   7




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Recent accounting pronouncements
 Multiple-Deliverable Revenue Arrangements Revenue Recognition Certain Arrangements That Include Software
Elements Software
 2. Earnings per share
    For the Three Months
    
    
    For the Nine MonthsEnded September 30,
    
    
    Ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Numerator:Net (loss) income attributable to common
stockholders
    
    $
    (2,405
    )
    
    $
    798
    
    
    $
    (2,562
    )
    
    $
    4,324Denominator:Weighted average shares (basic)
    
    
    26,089
    
    
    
    25,718
    
    
    
    26,011
    
    
    
    25,703Dilutive effect of stock options, restricted stock
units and stock appreciation rights
    
    
    
    
    
    
    680
    
    
    
    
    
    
    
    692Weighted average shares (diluted)
    
    
    26,089
    
    
    
    26,398
    
    
    
    26,011
    
    
    
    26,395Basic (loss) earnings per share
    
    $
    (0.09
    )
    
    $
    0.03
    
    
    $
    (0.10
    )
    
    $
    0.17Diluted (loss) earnings per share
    
    $
    (0.09
    )
    
    $
    0.03
    
    
    $
    (0.10
    )
    
    $
    0.16
 3. Stock-based compensation
   8




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##### 



For the Three Months
    
    
    For the Nine MonthsEnded September 30,
    
    
    Ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Stock-based compensation:Cost of license and implementation revenue
    
    $
    96
    
    
    $
    229
    
    
    $
    614
    
    
    $
    640Total included in cost of revenue
    
    
    96
    
    
    
    229
    
    
    
    614
    
    
    
    640Selling, general and administrative
    
    
    903
    
    
    
    804
    
    
    
    2,957
    
    
    
    2,127Research and development
    
    
    51
    
    
    
    438
    
    
    
    890
    
    
    
    1,254Total included in operating expenses
    
    
    954
    
    
    
    1,242
    
    
    
    3,847
    
    
    
    3,381Total stock-based compensation expense
    
    $
    1,050
    
    
    $
    1,471
    
    
    $
    4,461
    
    
    $
    4,021
  4. Commitments and contingencies
 Litigation
   5. Subsequent events
  9




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Item 2. Managements discussion and analysis of financial condition and results of operations
 The terms we, us and our refer to PROS Holdings, Inc. and all of its subsidiaries that
are consolidated in conformity with accounting principles generally accepted in the United States
of America.
 Cautionary statement
 .
 Overview
   10




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Trends and uncertainties
  
    
    Difficult Economic Conditions.We believe the market for pricing and margin
optimization software is underpenetrated and in the early innovator stage of adoption.
Market interest for our software has increased over the past several years. While
there appears to be some improvement in the economy, the current economic conditions
continue to be challenging and have had and may continue to have a negative impact on
the adoption of pricing and margin optimization software and may increase the
volatility in our business. Due to the difficult economic conditions, we have
experienced longer sales times, increased scrutiny on purchasing decisions and overall
cautiousness taken by customers. In response to the challenging economic environment,
some customer prospects have changed their purchasing strategies, including,
requesting changes to our contract terms that, in some instances, have affected the
timing of revenue recognition or have resulted in an increase in the number of limited
term license agreements. We believe our solutions provide value to our customers
during periods of growth as well as in recessions, but it is uncertain the extent to
which the difficult economic conditions will further affect our business.
 
    
    Variability in revenue among industries and geography.We sell our products to
customers in the manufacturing, distribution, services, hotel and cruise and airline
industries. From a geographical standpoint, approximately 69% and 61% of our
consolidated revenues were derived from customers outside the United States for the
three months ended September 30, 2010 and 2009, respectively, and approximately 61%
and 59% of our consolidated revenues were derived from customers outside the United
States for the nine months ended September 30, 2010 and 2009, respectively. The
current economic environment could change our trends of revenue within industries and
across geographies if certain industries or geographies are more impacted than others.
 
    
    Research and experimentation tax credit.At the end of 2009, Congress recessed
without reinstating the Research & Experimentation (R&E) tax credit beyond the
current expiration date of December 31, 2009. Since its enactment in 1981, Congress
has reinstated on a retroactive basis the R&E tax credit several times. However,
unless the R&E tax credit is reinstated, we will record the federal income tax
provision (benefit) in 2010 at the enacted federal rate of 34%, net of other tax
credits that may benefit us, if any.
 Critical accounting policies and estimates
   11




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Results of operations
 Comparison of three months ended September 30, 2010 with three months ended September 30, 2009
 Revenue:
 For the Three Months Ended September 30,2010
    
    
    2009As a percentage
    
    
    
    
    
    
    As a percentage(Dollars in thousands)
    
    Amount
    
    
    of total revenue
    
    
    Amount
    
    
    of total revenue
    
    
    Variance $
    
    
    Variance %License and implementation
    
    $
    8,580
    
    
    
    55
    %
    
    $
    10,276
    
    
    
    62
    %
    
    $
    (1,696
    )
    
    
    (17
    )%Maintenance and support
    
    
    7,106
    
    
    
    45
    %
    
    
    6,234
    
    
    
    38
    %
    
    
    872
    
    
    
    14
    %Total
    
    $
    15,686
    
    
    
    100
    %
    
    $
    16,510
    
    
    
    100
    %
    
    $
    (824
    )
    
    
    (5
    )%
 License and implementation.
  Maintenance and support.
 12




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##### 



Cost of revenue and gross profit:
 For the Three Months Ended September 30,2010
    
    
    2009As a percentage
    
    
    
    
    
    
    As a percentage(Dollars in thousands)
    
    Amount
    
    
    of related revenue
    
    
    Amount
    
    
    of related revenue
    
    
    Variance $
    
    
    Variance %Cost of license and
implementation
    
    $
    3,798
    
    
    
    44
    %
    
    $
    3,065
    
    
    
    30
    %
    
    $
    733
    
    
    
    24
    %Cost of maintenance and
support
    
    
    1,486
    
    
    
    21
    %
    
    
    1,226
    
    
    
    20
    %
    
    
    260
    
    
    
    21
    %Total cost of revenue
    
    $
    5,284
    
    
    
    34
    %
    
    $
    4,291
    
    
    
    26
    %
    
    $
    993
    
    
    
    23
    %Gross profit
    
    $
    10,402
    
    
    
    66
    %
    
    $
    12,219
    
    
    
    74
    %
    
    $
    (1,817
    )
    
    
    (15
    )%
 Cost of license and implementation.
 Cost of maintenance and support.
 Gross profit.
 Operating expenses:
 For the Three Months Ended September 30,2010
    
    
    2009As a percentage
    
    
    
    
    
    
    As a percentage(Dollars in thousands)
    
    Amount
    
    
    of total revenue
    
    
    Amount
    
    
    of total revenue
    
    
    Variance $
    
    
    Variance %Selling, general and administrative
    
    $
    9,334
    
    
    
    60
    %
    
    $
    5,954
    
    
    
    36
    %
    
    $
    3,380
    
    
    
    57
    %Research and development
    
    
    4,856
    
    
    
    31
    %
    
    
    5,177
    
    
    
    31
    %
    
    
    (321
    )
    
    
    (6
    )%Total operating expenses
    
    $
    14,190
    
    
    
    90
    %
    
    $
    11,131
    
    
    
    67
    %
    
    $
    3,059
    
    
    
    27
    %
 Selling, general and administrative expenses.
 13




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##### 



Research and development expenses.
 Income tax (benefit) provision:
 For the Three MonthsEnded September 30,(Dollars in thousands)
    
    2010
    
    
    2009
    
    
    Variance $
    
    
    Variance %Effective tax rate
    
    
    (36
    )%
    
    
    29
    %
    
    
    n/a
    
    
    
    (65
    )%Income tax (benefit)
provision
    
    $
    (1,359
    )
    
    $
    320
    
    
    $
    (1,679
    )
    
    
    
 Income tax (benefit) provision.
   Comparison of nine months ended September 30, 2010 with nine months ended September 30, 2009
 Revenue:
 For the Nine Months Ended September 30,2010
    
    
    2009As a percentage
    
    
    
    
    
    
    As a percentage(Dollars in thousands)
    
    Amount
    
    
    of total revenue
    
    
    Amount
    
    
    of total revenue
    
    
    Variance $
    
    
    Variance %License and implementation
    
    $
    29,382
    
    
    
    58
    %
    
    $
    33,404
    
    
    
    64
    %
    
    $
    (4,022
    )
    
    
    (12
    )%Maintenance and support
    
    
    21,470
    
    
    
    42
    %
    
    
    18,458
    
    
    
    36
    %
    
    
    3,012
    
    
    
    16
    %Total
    
    $
    50,852
    
    
    
    100
    %
    
    $
    51,862
    
    
    
    100
    %
    
    $
    (1,010
    )
    
    
    (2
    )%
 License and implementation.
 14




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##### 



Maintenance and support.
 Cost of revenue and gross profit:
 For the Nine Months Ended September 30,2010
    
    
    2009As a percentage
    
    
    
    
    
    
    As a percentage(Dollars in thousands)
    
    Amount
    
    
    of related revenue
    
    
    Amount
    
    
    of related revenue
    
    
    Variance $
    
    
    Variance %Cost of license and
implementation
    
    $
    10,432
    
    
    
    36
    %
    
    $
    10,422
    
    
    
    31
    %
    
    $
    10
    
    
    
    0
    %Cost of maintenance and
support
    
    
    4,382
    
    
    
    20
    %
    
    
    3,606
    
    
    
    20
    %
    
    
    776
    
    
    
    22
    %Total cost of revenue
    
    $
    14,814
    
    
    
    29
    %
    
    $
    14,028
    
    
    
    27
    %
    
    $
    786
    
    
    
    6
    %Gross profit
    
    $
    36,038
    
    
    
    71
    %
    
    $
    37,834
    
    
    
    73
    %
    
    $
    (1,796
    )
    
    
    (5
    )%
 Cost of license and implementation.
 Cost of maintenance and support.
 Gross profit.
 15




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##### 



Operating expenses:
 For the Nine Months Ended September 30,2010
    
    
    2009As a percentage
    
    
    
    
    
    
    As a percentage(Dollars in thousands)
    
    Amount
    
    
    of total revenue
    
    
    Amount
    
    
    of total revenue
    
    
    Variance $
    
    
    Variance %Selling, general and administrative
    
    $
    24,484
    
    
    
    48
    %
    
    $
    17,019
    
    
    
    33
    %
    
    $
    7,465
    
    
    
    44
    %Research and development
    
    
    15,542
    
    
    
    31
    %
    
    
    14,999
    
    
    
    29
    %
    
    
    543
    
    
    
    4
    %Total operating expenses
    
    $
    40,026
    
    
    
    79
    %
    
    $
    32,018
    
    
    
    62
    %
    
    $
    8,008
    
    
    
    25
    %
 Selling, general and administrative expenses.
 Research and development expenses.
 Income tax (benefit) provision:
 For the Nine MonthsEnded September 30,(Dollars in thousands)
    
    2010
    
    
    2009
    
    
    Variance $
    
    
    Variance %Effective tax rate
    
    
    (35
    )%
    
    
    28
    %
    
    
    n/a
    
    
    
    (63
    )%Income tax (benefit)
provision
    
    $
    (1,373
    )
    
    $
    1,669
    
    
    $
    (3,042
    )
    
    
    
 Income tax (benefit) provision.
   16




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##### 



Liquidity and capital resources
     For the Nine MonthsEnded September 30,(Dollars in thousands)
    
    2010
    
    
    2009Net cash (used in) provided by operating activities
    
    $
    (7,479
    )
    
    $
    4,670Net cash used in investing activities
    
    
    (1,627
    )
    
    
    (782
    )Net cash (used in) provided by financing activities
    
    
    (280
    )
    
    
    70Cash and cash equivalents (end of period)
    
    $
    53,063
    
    
    $
    55,937
 Cash flow analysis:
  Contractual obligations
  17




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##### 



Off-balance sheet arrangements
  Recent accounting pronouncements
 Multiple-Deliverable Revenue Arrangements Revenue Recognition Certain Arrangements That Include Software Elements Software
 Available information
  
 Item 3. Quantitative and qualitative disclosures about market risk
 Foreign currency risk
  
 Item 4. Controls and procedures
 Evaluation of Disclosure Controls and Procedures
  18




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Changes in Internal Control over Financial Reporting
  Remediation Efforts
  
    
    formally documented the existing contract review by the legal department in which
non-standard terms and conditions for each new sales contract are identified; and
 
    
    implemented a new checklist to enhance the documentation and evaluation of revenue
recognition criteria for each new sales contract to provide for more in-depth analysis and
ensure appropriate revenue recognition for each contract.
  
 PART II. Other Information
 
 Item 1. Legal proceedings
   
 Item 1A. Risk factors
  19




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Risks relating to our business and industry:
 The continued deterioration of general U. S. and global economic conditions could
adversely affect our sales and operating results.
    A significant or prolonged economic downturn in industries in which we focus, may result in
our customers or prospects reducing or postponing spending on the products we offer.
  A weakening economy and changing business conditions could result in substantial defaults or
slowing of payments by our customers on our accounts receivable which could have a significant
negative impact on our business, results of operations, financial condition or liquidity.
  We are subject to a lengthy sales cycle and delays or failures to complete sales may harm our
business and cause our revenue and operating income to decline in the future.
  20




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##### 



We focus exclusively on the pricing and revenue optimization software market, and if this
market develops more slowly than we expect, our business will be harmed.
    Any downturn in sales to our target markets of manufacturing, distribution, services, hotel
and cruise, and airline would adversely affect our operating results.
  
 
 
 
  21




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##### 



The expiration of the research and experimentation tax credit or other general business credit
could have a negative impact on our business, results of operations, financial condition or
liquidity.
  Our software products require implementation projects that are subject to significant risks
and delays, the materialization of which could negatively impact the effectiveness of our
solutions, resulting in harm to our reputation, business and financial performance.
  Competition from vendors of pricing solutions and enterprise applications as well as from
companies internally developing their own solutions could adversely affect our ability to sell our
software products and could result in pressure to price our software products in a manner that
reduces our margins and harms our operating results.
  
 
  22




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##### 



Our revenue recognition is primarily based upon our ability to estimate the efforts required
to complete our implementation projects, which may be difficult to estimate.
  Failure to sustain our historical maintenance and support renewal rates and pricing would
adversely affect our operating result.
  We might not generate increased business from our current customers, which could limit our
revenue in the future.
  If our cost estimates for fixed-fee arrangements do not accurately anticipate the cost and
complexity of implementing our software products, our profitability could be reduced and we could
experience losses on these arrangements.
  Our revenue recognition policy may cause any decreases in sales not to be reflected in our
revenue immediately.
  23




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##### 



We may enter into acquisitions that may be difficult to integrate, fail to achieve our
strategic objectives, disrupt our business, dilute stockholder value or divert management
attention.
  
 
 
 
 
 
 
 
   If we fail to develop or acquire new pricing and revenue optimization functionality to enhance
our existing software products, we will not be able to grow our business and it could be harmed.
  
 
 
  24




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##### 



Defects or errors in our software products could harm our reputation, impair our ability to
sell our products and result in significant costs to us.
  
 
 
 
 
 
 
  If our executives and other key personnel are unable to effectively manage our business, or if
we fail to attract additional qualified personnel, our operating results could be adversely
affected.
  25




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##### 



Intellectual property litigation and infringement claims may cause us to incur significant
expense or prevent us from selling our software products.
  
 
 
 
 
 
   If we fail to protect our proprietary rights and intellectual property adequately, our
business and prospects may be harmed.
   26




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##### 



We use open source software in our products that may subject our software products to general
release or require us to re-engineer our products, which may cause harm to our business.
  We utilize third-party software that we incorporate into our software products, and impaired
relations with these third parties, defects in third-party software or a third partys inability or
failure to enhance their software over time could adversely affect our operating performance and
financial condition.
  27




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##### 



New accounting standards or interpretations of existing accounting standards, including those
related to revenue recognition, could adversely affect our operating results.
  Our international sales subject us to risks that may adversely affect our operating results.
  
 
 
 
 
 
 
 
 
  Our operations might be affected by the occurrence of a natural disaster or other catastrophic
event in Houston, Texas.
  28




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##### 



Our ability to raise capital in the future may be limited, and our failure to raise capital
when needed could prevent us from executing our strategy.
  We incur significant increased costs as a result of operating as a public company, and our
management will be required to devote substantial time to new compliance initiatives.
   Risks relating to ownership of our common stock:
 Market volatility may affect our stock price and the value of your investment.
   
 
 
 
 
 
 29




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##### 




 
 
 
 
  Shares of our common stock are relatively illiquid
  If equity research analysts cease to publish research or reports about us or if they issue
unfavorable commentary or downgrade our common stock, the price of our common stock could decline.
  Anti-takeover provisions in our Certificate of Incorporation and Bylaws and under Delaware law
could make an acquisition of us, which may be beneficial to our stockholders, more difficult and
may prevent attempts by our stockholders to replace or remove our current management.
  
 
 
 
 
 
  30




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##### 



We do not intend to pay dividends on our common stock in the foreseeable future.
  
 Item 2. Unregistered sales of equity securities and use of proceeds.
   
 Item 3. Defaults upon senior securities.
  
 Item 4.
 
 Item 5. Other information.
  
 Item 6. Exhibits.
 Index to Exhibits3.1
    
    Amended and Restated Certificate of Incorporation (incorporated
by reference to Exhibit 3.1.1 of the Registrants Form S-1
Registration Statement (Registration No. 333-141884), declared
effective by the Securities and Exchange Commission on June 27,
2007).3.2
    
    Amended and Restated Bylaws (incorporated by reference to
Exhibit 3.3 of the Registrants Form 8-K filed with the
Securities and Exchange Commission on August 27, 2008).4.1
    
    Specimen certificate for shares of common stock (incorporated by
reference to the exhibit of the same number to the Registrants
Form S-1 Registration Statement (Registration No. 333-141884),
declared effective by the Securities and Exchange Commission on
June 27, 2007).10.1
    
    1999 Equity Incentive Plan, as amended to date, and form of
stock option agreement (incorporated by reference to the exhibit
10.2 to the Registrants Form S-1 Registration Statement
(Registration No. 333-141884), declared effective by the
Securities and Exchange Commission on June 27, 2007).10.2
    
    2007 Equity Incentive Plan and form of stock option agreement
(incorporated by reference to the exhibit 10.3 to the
Registrants Form S-1 Registration Statement (Registration No.
333-141884), declared effective by the Securities and Exchange
Commission on June 27, 2007).10.3
    
    Stock Purchase and Stockholders Agreement, dated June 8, 1998,
by and among Registrant (as successor in interest to PROS
Strategic Solutions, Inc.) and certain stockholders
(incorporated by reference to the exhibit 10.4 to the
Registrants Form S-1 Registration Statement (Registration No.
333-141884), declared effective by the Securities and Exchange
Commission on June 27, 2007).10.3.1
    
    Amendment to Stock Purchase and Stockholders Agreement dated
March 26, 2007 by and among Registrant (as successor in interest
to PROS Strategic Solutions, Inc.) and certain stockholders.
(incorporated by reference to the exhibit 10.4.1 to the
Registrants Form S-1 Registration Statement (Registration No.
333-141884), declared effective by the Securities and Exchange
Commission on June 27, 2007).
 31




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##### 



10.5
    
    Registration Rights Agreement, dated May 25, 1999, by and
between Registrant (as successor in interest to PROS Strategic
Solutions, Inc.) and David Samuel Coats (incorporated by
reference to the exhibit 10.6 to the Registrants Form S-1
Registration Statement (Registration No. 333-141884), declared
effective by the Securities and Exchange Commission on June 27,
2007).10.6
    
    Registration Rights Agreement, dated April 13, 2000, by and
between Registrant (as successor in interest to PROS Strategic
Solutions, Inc.) and Robert Salter (incorporated by reference to
the exhibit 10.7 to the Registrants Form S-1 Registration
Statement (Registration No. 333-141884), declared effective by
the Securities and Exchange Commission on June 27, 2007).10.7
    
    Registration Rights Agreement, dated June 8, 2007, by and among
Registrant, Mariette M. Woestemeyer and Ronald F. Woestemeyer
(incorporated by reference to the exhibit 10.8 to the
Registrants Form S-1 Registration Statement (Registration No.
333-141884), declared effective by the Securities and Exchange
Commission on June 27, 2007).10.8
    
    Office Lease, dated January 31, 2001, by and between PROS
Revenue Management L.P. and Houston Community College System
(incorporated by reference to the exhibit 10.10 to the
Registrants Form S-1 Registration Statement (Registration No.
333-141884), declared effective by the Securities and Exchange
Commission on June 27, 2007).10.8.1
    
    First Amendment to Office Lease, dated May 31, 2006, by and
between PROS Revenue Management L.P. and Houston Community
College System (incorporated by reference to the exhibit 10.10.1
to the Registrants Form S-1 Registration Statement
(Registration No. 333-141884), declared effective by the
Securities and Exchange Commission on June 27, 2007).10.9*
    
    Employment Agreement, dated September 30, 2005, by and between
PROS Revenue Management L.P. and Albert Winemiller (incorporated
by reference to the exhibit 10.11 to the Registrants Form S-1
Registration Statement (Registration No. 333-141884), declared
effective by the Securities and Exchange Commission on June 27,
2007).10.9.1*
    
    Immediately Exercisable Stock Option Grant, dated April 2, 2007,
by and between Registrant and Albert Winemiller (incorporated by
reference to the exhibit 10.11.1 to the Registrants Form S-1
Registration Statement (Registration No. 333-141884), declared
effective by the Securities and Exchange Commission on June 27,
2007).10.9.2*
    
    Amendment No.1 to Employment Agreement, dated April 2, 2007, by
and between Registrant and Albert Winemiller (incorporated by
reference to the exhibit 10.11.2 to the Registrants Form S-1
Registration Statement (Registration No. 333-141884), declared
effective by the Securities and Exchange Commission on June 27,
2007).10.9.3*
    
    Amendment No. 2 to Employment Agreement, dated March 24, 2009,
by and between PROS Revenue Management L.P. and Albert E.
Winemiller. (incorporated by reference to the exhibit 10.4 to
the Registrants Form 8-K filed the Securities and Exchange
Commission on March 26, 2009).10.10*
    
    Employment Agreement, dated September 30, 2005, by and between
PROS Revenue Management L.P. and Charles Murphy (incorporated by
reference to the exhibit 10.12 to the Registrants Form S-1
Registration Statement (Registration No. 333-141884), declared
effective by the Securities and Exchange Commission on June 27,
2007).10.10.1*
    
    Immediately Exercisable Incentive Stock Option Grant, dated
September 30, 2005, by and between Registrant and Charles Murphy
(incorporated by reference to the exhibit 10.12.1 to the
Registrants Form S-1 Registration Statement (Registration No.
333-141884), declared effective by the Securities and Exchange
Commission on June 27, 2007).10.10.2*
    
    Immediately Exercisable Stock Option Grant, dated April 2, 2007,
by and between Registrant and Charles Murphy (incorporated by
reference to the exhibit 10.12.2 to the Registrants Form S-1
Registration Statement (Registration No. 333-141884), declared
effective by the Securities and Exchange Commission on June 27,
2007).10.10.3*
    
    Amendment No.1 to Employment Agreement, dated April 2, 2007, by
and between Registrant and Charles Murphy (incorporated by
reference to the exhibit 10.12.3 to the Registrants Form S-1
Registration Statement (Registration No. 333-141884), declared
effective by the Securities and Exchange Commission on June 27,
2007).10.10.4*
    
    Amendment No. 2 to Employment Agreement, dated March 24, 2009,
by and between PROS Revenue Management L.P. and Charles H.
Murphy. (incorporated by reference to the exhibit 10.4 to the
Registrants Form 8-K filed the Securities and Exchange
Commission on March 26, 2009).10.11*
    
    Employment Agreement, dated January 15, 1999, by and between
PROS Revenue Management L.P. and Ronald Woestemeyer
(incorporated by reference to the exhibit 10.12 to the
Registrants Form S-1 Registration Statement (Registration No.
333-141884), declared effective by the Securities and Exchange
Commission on June 27, 2007).
 32




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##### 



10.11.1*
    
    Amendment No. 1 to Employment Agreement, dated February 2, 2004,
by and between PROS Revenue Management L.P. and Ronald
Woestemeyer (incorporated by reference to the exhibit 10.13.1 to
the Registrants Form S-1 Registration Statement (Registration
No. 333-141884), declared effective by the Securities and
Exchange Commission on June 27, 2007).10.12*
    
    Form of Indemnification Agreement entered into among Registrant,
its affiliates and its directors and officers (incorporated by
reference to the exhibit number 10.16 to the Registrants Form
S-1 Registration Statement (Registration No. 333-141884),
declared effective by the Securities and Exchange Commission on
June 27, 2007).10.13*
    
    Employment Agreement, dated April 24, 2008, by and between PROS
Revenue Management L.P. and Andres Reiner  Senior
Vice-President Product Development. (incorporated by reference
to the exhibit 10.17 to the Registrants Form 10-Q filed the
Securities and Exchange Commission on August 7, 2008).10.13.1*
    
    Amendment No. 1 to Employment Agreement, dated March 24, 2009,
by and between PROS Revenue Management L.P. and Andres Reiner 
Senior Vice-President Product Development. (incorporated by
reference to the exhibit 10.1 to the Registrants Form 8-K filed
the Securities and Exchange Commission on March 26, 2009).10.14
    
    Settlement Agreement between PROS Holdings, Inc. and Harrahs
Entertainment, Inc., dated September 2, 2010 (incorporated by
reference to Exhibit 10.1 of the Registrants Form 8-K filed
with the Securities and Exchange Commission on September 2,
2010).31.1#
    
    Certification of Chief Executive Officer Pursuant to Exchange
Act Rule 13a-14(a) or 15d-14(a), as Adopted Pursuant to Section
302 of the Sarbanes Oxley Act of 2002.31.2#
    
    Certification of Chief Financial Officer Pursuant to Exchange
Act Rule 13a-14(a) or 15d-14(a), as Adopted Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.32.1#
    
    Certifications 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.
 
 *
    
    Constitutes management contracts or compensatory arrangements#
    
    Filed with this report 33




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##### 



SIGNATURES
  PROS HOLDINGS, INC.Date: November 4, 2010
    By:
    /s/ Albert E.  WinemillerAlbert E. WinemillerPresident and Chief Executive OfficerDate: November 4, 2010
    By:
    /s/ Charles H.  MurphyCharles H. MurphyExecutive Vice President and Chief Financial Officer
(Principal Accounting Officer) 34