##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-K
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the year ended December 31, 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
    
    76-0168604(State or Other Jurisdiction of Incorporation or Organization)
    
    (I.R.S. Employer Identification No.)
 3100 Main Street, Suite 900Houston, Texas
    
    77002(Address of Principal Executive Offices)
    
    (Zip code)
 Registrants telephone number, including area code:
(713) 335-5151
Securities Registered Pursuant to Section 12(b) of the Act:
 Title of Each Class
    
    Name of Each Exchange on Which RegisteredCommon Stock, par value $0.001 per share
    
    New York Stock Exchange
 Securities Registered Pursuant to Section 12(g) of the Act:
None
 o þ
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  Large Accelerated Filer o
    
    Accelerated Filer
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    Non-Accelerated Filer o
    
    Smaller Reporting Company o(Do not check if a smaller reporting company)
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE:




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PROS Holdings, Inc.  Annual Report on Form 10-K
Table of Contents
 PagePart IItem 1. Business
    
    
    2Item 1A. Risk Factors
    
    
    9Item 1B. Unresolved Staff Comments
    
    
    20Item 2. Properties
    
    
    20Item 3. Legal Proceedings
    
    
    20Item 4. [Removed and Reserved]
    
    
    20Part IIItem 5. Market for Registrants Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
    
    
    21Item 6. Selected Financial Data
    
    
    23Item 7. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    23Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    37Item 8. Financial Statements and Supplementary Data
    
    
    37Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
    
    
    37Item 9A. Controls and Procedures
    
    
    37Item 9B. Other Information
    
    
    38Part IIIItem 10. Directors, Executive Officers and Corporate Governance
    
    
    38Item 11. Executive Compensation
    
    
    38Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
    
    
    38Item 13. Certain Relationships, Related Transactions and Director
Independence
    
    
    38Item 14. Principal Accountant Fees and Services
    
    
    38Part IVItem 15. Exhibits and Financial Statement Schedules
    
    
    39EX-21.1EX-23.1EX-31.1EX-31.2EX-32.1
  1




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SIGNIFICANT RELATIONSHIPS REFERENCED IN THIS ANNUAL REPORT
  CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS
   
 Part I
 
 Item 1. Business
 Overview
    Market background
  2




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Our products
   
    
    Science-based approach to pricing.Our software products enable our customers to
apply advanced pricing science to identify and address their unique and complex pricing
challenges. Our software products include a variety of advanced pricing analytics and
forecasting and optimization engines that incorporate our pricing expertise and support
real-time, high volume, individually priced transactions with accurate pricing
information.
    
    Improved business insight.Our software products enable our customers to gain
insight into their business strategy, segment and product profitability and pricing
challenges. As a result, our customers can identify and characterize the relative
attractiveness of products, customers, geographies and even individual transactions
based on sales volume and overall profitability.
    
    Enhanced planning and decision making.Our software products enhance our customers
ability to process and implement pricing policies in a systematic manner. As a result,
they are able to pursue more sophisticated and effective pricing strategies and make
more informed pricing decisions. Additionally, our software products help companies
implement best practices uniformly throughout an enterprise, from sales to marketing to
finance.
 PROS Pricing Solution Suite
   
    
    identify and understand detrimental pricing trends;
    
    understand the components of margin variance, including price, cost, volume, product
mix and exchange rate effects;
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
    
    understand differences in segment purchasing behavior;
    
    proactively monitor pricing performance and market conditions;
    
    determine how individual customers contribute to overall revenue and profitability;
    
    create and manage pricing policies and rules that are aligned with corporate
strategies;
    
    automatically generate mass price updates when pricing inputs change, including
costs, competitor prices, market indices, supply availability or demand metrics;
    
    set up and manage field pricing and discounting guidelines based on pricing policies
and benchmarks;
    
    manage pricing approval and exception thresholds and the pricing approval workflow
to ensure consistency in the pricing process and maintain transaction histories;
    
    more accurately understand transaction economics including the impact of discounts,
rebates, allowances, shipping terms, payment terms, replacement costs and other factors
that can influence the profitability of a transaction;
    
    communicate price targets, price floors and profitability guidelines to appropriate
decision-makers within an organization;
    
    consider important transaction context to aid in better price negotiations,
including insight into customer price history and willingness-to-pay, current and
planned inventory levels and recent trends in demand, supply, cost or competition; and
    
    evaluate transaction scenarios and allow comparisons to previous transactions and
peer group benchmarks based on relevant metrics.
  
    
    Scientific Analytics helps companies gain insight into their pricing performance,
allowing them to take action to correct poor performance and take advantage of
time-sensitive opportunities.
    
    Price Optimizer allows companies to streamline pricing processes and institute
control of pricing policies to support corporate business goals. It allows
organizations to create multiple segment-specific rules-based price lists and quickly
modify prices or guidelines in response to changes in business conditions or strategy.
    
    Deal Optimizer provides a sales force with the guidelines, additional context and
information to negotiate better prices over the entire deal horizon.
 PROS Revenue Management Solution Suite
   
    
    maximize revenue and profitability;
    
    quickly adapt to changing market conditions and business objectives;
    
    differentiate customers by market and sales channel;
    
    conduct real-time negotiations effectively;
    
    monitor pricing and revenue management performance; and
    
    increase customer loyalty by providing the right product to the right customer at
the right time.
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
    
    PROS Analytics for Airlines identifies hidden revenue leaks and opportunities
    
    PROS Revenue Management product manages passenger demand with either leg- or
segment-based revenue optimization;
    
    PROS O&D products manage passenger demand with passenger name record, or PNR, based
revenue optimization;
    
    PROS Real-Time Dynamic Pricing product determines the optimal prices based on
real-time evaluations;
    
    PROS Group Revenue Management product manages revenues related to group requests and
bookings;
    
    PROS Network Revenue Planning product delivers network-oriented fare class
segmentation;
    
    PROS Cruise Pricing and Revenue Optimization product allows customers to understand
their consumers price sensitivities, track competitor behavior, and quickly set prices
and availability.
    
    PROS Hotel Revenue Optimization product helps customers simplify, accelerate, and
improve pricing decision making.
 Technology
 Software architecture.
 Service-Oriented Architecture.
 Embedded Science.
 Configuration vs. Custom Coding.
 Performance and scalability.
 Data integration.
 Science and research
  5




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Services
 Pricing and implementation professional services
   Customer support
  Customers
  Backlog
   6




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Sales and marketing
   Competition
  
    
    ability to offer integrated high-value solutions;
    
    pricing focus and domain expertise;
    
    organizational change management expertise;
    
    product architecture, functionality, performance, reliability and scalability;
    
    breadth and depth of product offerings;
    
    time to value for the customer;
    
    services organization and customer support;
    
    existing enterprise relationships;
    
    large and referenceable customer base;
    
    vendor viability; and
    
    price.
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Intellectual property
  Research and development
  Employees
  Where you can find additional information
  8




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Annual CEO Certification
  
 Item 1A. Risk Factors
  Risks relating to our business and industry:
 The
current state 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.
  9




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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.
  Our global growth is subject to economic and political risks.
  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.
  We focus exclusively on the pricing and margin optimization software market, and if this
market develops more slowly than we expect, our business will be harmed.
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Any downturn in sales to our target markets of manufacturing, distribution, services, hotel
and cruise, and airline would adversely affect our operating results.
  
    
    the possibility that it may be more difficult than we currently anticipate to implement
our software products in our target industries;
    
    the possibility that it may be more difficult than we currently anticipate to increase
our customer base in our target industries;
    
    the possibility that it may take more time to train our personnel in the implementation
of our software products in our target industries; and
    
    our limited experience implementing our software products in certain of our target
industries.
  Our software products require implementation projects that are subject to significant risks
and delays, which if any occurred could negatively impact the effectiveness of our software,
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.
  
    
    pricing and margin optimization software vendors, including a number of vendors that
provide pricing and margin optimization software for specific industries; and
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
    
    large enterprise application providers that have developed offerings that include pricing
and margin optimization functionality.
   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 results.
  We might not generate increased business from our current customers, which could limit our
revenue in the future.
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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.
  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.
  
    
    difficulties in integrating the operations and personnel of the acquired companies;
    
    difficulties in maintaining acceptable standards, controls, procedures and policies;
    
    potential disruption of ongoing business and distraction of management;
    
    inability to maintain relationships with customers of the acquired business;
    
    impairment of relationships with employees and customers as a result of any integration
of new management and other personnel;
    
    difficulties in incorporating acquired technology and rights into our products and
services;
    
    unexpected expenses resulting from the acquisition; and
    
    potential unknown liabilities associated with acquired businesses.
   If we fail to develop or acquire new pricing and margin optimization functionality to enhance
our existing software products, we will not be able to grow our business and it could be harmed.
  
    
    rapid technological developments;
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
    
    newly emerging and changing customer requirements; and
    
    frequent product introductions, updates and functional enhancements.
   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.
  
    
    lost or delayed market acceptance and sales of our software products;
    
    delays in payment to us by customers;
    
    injury to our reputation;
    
    diversion of our resources;
    
    legal claims, including product liability claims, against us;
    
    increased maintenance and support expenses; and
    
    increased insurance costs.
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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.
  Intellectual property litigation and infringement claims may cause us to incur significant
expense or prevent us from selling our software products.
  
    
    incur substantial expenses and expend significant management efforts to defend such
claims;
    
    pay damages, potentially including treble damages, if we are found to have willfully
infringed such parties patents or copyrights;
    
    cease making, licensing or using products that are alleged to incorporate the intellectual
property of others;
    
    distract management and other key personnel from performing their duties for us;
    
    enter into potentially unfavorable royalty or license agreements in order to obtain the
right to use necessary technologies; and
    
    expend additional development resources to redesign our products.
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If we fail to protect our proprietary rights and intellectual property adequately, our
business and prospects may be harmed.
      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.
  16




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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.
  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.
  
    
    economic conditions in various parts of the world;
    
    unexpected changes in regulatory requirements;
    
    less protection for intellectual property rights in some countries;
    
    new and different sources of competition;
    
    multiple, conflicting and changing tax laws and regulations that may affect both our
international and domestic tax liabilities and result in increased complexity and costs;
    
    if we were to establish international offices, the difficulty of managing and staffing
such international offices and the increased travel, infrastructure and legal compliance
costs associated with multiple international locations;
    
    difficulties in enforcing contracts and collecting accounts receivable, especially in
developing countries;
    
    if more contracts become denominated in local currency, fluctuations in exchange rates;
and
    
    tariffs and trade barriers, import/export controls and other regulatory or contractual
limitations on our ability to sell or develop our products in certain foreign markets.
  17




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Our operations might be affected by the occurrence of a natural disaster or other catastrophic
event in Houston, Texas.
  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 existing or new compliance initiatives.
   Risks relating to ownership of our common stock:
 Market volatility may affect our stock price and the value of your investment.
   18




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
    
    variations in our quarterly or annual operating results;
    
    decreases in market valuations of comparable companies;
    
    fluctuations in stock market prices and volumes;
    
    decreases in financial estimates by equity research analysts;
    
    announcements by our competitors of significant contracts, new products or product
enhancements, acquisitions, distribution partnerships, joint ventures or capital
commitments;
    
    departure of key personnel;
    
    changes in governmental regulations and standards affecting the software industry and our
products;
    
    sales of common stock or other securities by us in the future;
    
    damages, settlements, legal fees and other costs related to litigation, claims and other
contingencies;
    
    deterioration of the general U. S. and global economic condition; and
    
    other risks described elsewhere in this section.
  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.
  
    
    the division of our board of directors into three classes to be elected on a staggered
basis, one class each year;
    
    a prohibition on actions by written consent of our stockholders;
    
    the elimination of the right of stockholders to call a special meeting of stockholders;
    
    a requirement that stockholders provide advance notice of any stockholder nominations of
directors or any proposal of new business to be considered at any meeting of stockholders;
    
    a requirement that a supermajority vote be obtained to amend or repeal certain provisions
of our certificate of incorporation; and
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
    
    the ability of our board of directors to issue preferred stock without stockholder
approval.
  We do not intend to pay dividends on our common stock in the foreseeable future.
  
 Item 1B. Unresolved Staff Comments
  
 Item 2. Properties
  
 Item 3. Legal Proceedings
   
 Item 4. [Removed and Reserved]
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Part II
 
 Item 5.
    
    Market for Registrants Common Equity, Related Stockholders Matters and Issuer Purchases
of Equity Securities
 Market information and dividends
  Price Range ofCommon StockLow
    
    
    HighYear ended December 31, 2009First Quarter
    
    $
    3.03
    
    
    $
    7.10Second Quarter
    
    $
    3.96
    
    
    $
    8.89Third Quarter
    
    $
    6.70
    
    
    $
    8.55Fourth Quarter
    
    $
    7.22
    
    
    $
    10.64Year ended December 31, 2010First Quarter
    
    $
    7.10
    
    
    $
    10.67Second Quarter
    
    $
    6.02
    
    
    $
    10.15Third Quarter
    
    $
    6.42
    
    
    $
    9.97Fourth Quarter
    
    $
    9.06
    
    
    $
    13.08
  Performance graph
   21




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(1)
    
    The graph assumes that $100 was invested on June 28, 2007, in our common
stock (at the closing price on the date of our initial public offering), the S&P 500
and the NASDAQ Computer Index and further assumes all dividends were reinvested. No
cash dividends have been paid on our common stock for the periods presented above.
 6/28/2007
    
    
    12/31/2007
    
    
    12/31/2008
    
    
    12/31/2009
    
    
    12/31/2010PRO
    
    $
    100.00
    
    
    $
    149.77
    
    
    $
    43.89
    
    
    $
    79.01
    
    
    $
    86.95S&P 500
    
    $
    100.00
    
    
    $
    97.67
    
    
    $
    60.08
    
    
    $
    74.17
    
    
    $
    83.66NASDAQ Computer Index
    
    $
    100.00
    
    
    $
    111.31
    
    
    $
    59.34
    
    
    $
    101.37
    
    
    $
    119.05
 Issuer purchase of equity securities
   Equity Compensation Plan Information
  I
    
    
    II
    
    
    IIINumber of securitiesremaining availablefor future issuanceNumber of securities to be
    
    
    Weighted-average
    
    
    under plansissued upon exercise of
    
    
    exercise price of
    
    
    (excluding securitiesPlan Category
    
    outstanding options
    
    
    outstanding options
    
    
    listed in Column (I))Equity compensation plans approved by security holders
    
    
    
    
    
    $
    
    
    
    
    Equity compensation plans not approved by security holders
    
    
    3,846,751
    
    
    
    10.27
    
    
    
    79,682Total
    
    
    3,846,751
    
    
    $
    10.27
    
    
    
    79,682
 22




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Item 6.
    
    Selected financial data
  Year Ended December 31,2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006Selected consolidated statement of operations data:Total revenue
    
    $
    71,045
    
    
    $
    68,783
    
    
    $
    75,588
    
    
    $
    62,079
    
    
    $
    46,027Gross profit
    
    
    50,478
    
    
    
    50,138
    
    
    
    56,336
    
    
    
    44,135
    
    
    
    30,422(Loss) income from operations
    
    
    (4,287
    )
    
    
    7,367
    
    
    
    13,933
    
    
    
    11,006
    
    
    
    6,829Net (loss) income
    
    
    (1,931
    )
    
    
    5,516
    
    
    
    10,757
    
    
    
    10,517
    
    
    
    7,025Accretion of preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (82
    )
    
    
    (460
    )Net (loss) earnings attributable to common
stockholders
    
    $
    (1,931
    )
    
    $
    5,516
    
    
    $
    10,757
    
    
    $
    10,435
    
    
    $
    6,565Net
(loss) earnings attributable to common stockholders per share:Basic
    
    $
    (0.07
    )
    
    $
    0.21
    
    
    $
    0.41
    
    
    $
    0.45
    
    
    $
    0.33Diluted
    
    $
    (0.07
    )
    
    $
    0.21
    
    
    $
    0.40
    
    
    $
    0.45
    
    
    $
    0.32Weighted average number of shares:Basic
    
    
    26,090
    
    
    
    25,711
    
    
    
    26,121
    
    
    
    23,026
    
    
    
    19,649Diluted
    
    
    26,090
    
    
    
    26,431
    
    
    
    26,569
    
    
    
    23,434
    
    
    
    20,604
 December 31,2010
    
    
    2009
    
    
    2,008.00
    
    
    2007
    
    
    2006Selected consolidated balance sheet data:Cash and cash equivalents
    
    $
    55,845
    
    
    $
    62,449
    
    
    $
    51,979
    
    
    $
    44,378
    
    
    $
    42,540Working capital
    
    
    52,326
    
    
    
    50,755
    
    
    
    41,741
    
    
    
    33,917
    
    
    
    27,575Total assets
    
    
    98,128
    
    
    
    85,329
    
    
    
    76,967
    
    
    
    68,980
    
    
    
    63,046Long-term obligations
    
    
    1,461
    
    
    
    2,418
    
    
    
    3,187
    
    
    
    5,885
    
    
    
    4,132Redeemable preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,283Total stockholders equity
    
    $
    59,503
    
    
    $
    55,039
    
    
    $
    43,752
    
    
    $
    33,688
    
    
    $
    10,677
 
 Item 7.
    
    Managements discussion and analysis of financial condition and results of operations
 Overview
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Background
   Trends and uncertainties
  
    
    Difficult Economic Conditions. We believe the market for
pricing and margin optimization software is under penetrated. Market interest for our software has increased
over the past several years. While there has been 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. We believe our
products provide value to our customers during periods of
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growth as well as in
recessions, but it is uncertain the extent to which 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 60% of our consolidated
revenues was derived from customers outside the United States for the year ended
December 31, 2010. The current global economic environment and
political instability in certain geographics may
change our trends in revenue within industries and across geographies if certain
industries or geographies are more impacted than others. For additional geographic
information with respect to our customers, see Note 10 of the Notes to the
Consolidated Financial Statements.
 Discussion of consolidated financial information
 Revenue:
   License and implementation revenue.
   25




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Maintenance and support revenue.
  Revenue distribution
  Cost of revenue
 Cost of license and implementation revenue.
 Cost of maintenance and support revenue.
 Operating expenses
 Selling, general and administrative.
 Research and development.
 Income taxes
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Deferred revenue and unbilled receivables
  Litigation settlement
  Results of operations
 Comparison of year ended December 31, 2010 with year ended December 31, 2009
 Revenue:
 Year Ended December 31,2010
    
    
    2009As a percentage
    
    
    
    
    
    
    As a percentage(Dollars in thousands)
    
    Amount
    
    
    of total revenue
    
    
    Amount
    
    
    of total revenue
    
    
    Variance $
    
    
    Variance %License and implementation
    
    $
    42,067
    
    
    
    59
    %
    
    $
    43,684
    
    
    
    64
    %
    
    $
    (1,617
    )
    
    
    (4
    )%Maintenance and support
    
    
    28,978
    
    
    
    41
    %
    
    
    25,099
    
    
    
    36
    %
    
    
    3,879
    
    
    
    15
    %Total
    
    $
    71,045
    
    
    
    100
    %
    
    $
    68,783
    
    
    
    100
    %
    
    $
    2,262
    
    
    
    3
    %
 License and implementation.
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Maintenance and support.
 Cost of revenue and gross profit:
 Year Ended December 31,2010
    
    
    2009As a percentage
    
    
    
    
    
    
    As a percentage(Dollars in thousands)
    
    Amount
    
    
    of related revenue
    
    
    Amount
    
    
    of related revenue
    
    
    Variance $
    
    
    Variance %Cost of
license and implementation
    
    $
    14,751
    
    
    
    35
    %
    
    $
    13,893
    
    
    
    32
    %
    
    $
    858
    
    
    
    6
    %Cost of
maintenance and support
    
    
    5,816
    
    
    
    20
    %
    
    
    4,752
    
    
    
    19
    %
    
    
    1,064
    
    
    
    22
    %Total cost of revenue
    
    $
    20,567
    
    
    
    29
    %
    
    $
    18,645
    
    
    
    27
    %
    
    $
    1,922
    
    
    
    10
    %Gross profit
    
    $
    50,478
    
    
    
    71
    %
    
    $
    50,138
    
    
    
    73
    %
    
    $
    340
    
    
    
    1
    %
 Cost of license and implementation.
  Cost of maintenance and support.
 Gross profit.
 28




---



##### Table of Contents



Operating expenses:
 Year Ended December 31,2010
    
    
    2009As a percentage
    
    
    
    
    
    
    As a percentage(Dollars in thousands)
    
    Amount
    
    
    of total revenue
    
    
    Amount
    
    
    of total revenue
    
    
    Variance $
    
    
    Variance %Selling, general and administrative
    
    $
    34,101
    
    
    
    48
    %
    
    $
    22,635
    
    
    
    33
    %
    
    $
    11,466
    
    
    
    51
    %Research and development
    
    
    20,664
    
    
    
    29
    %
    
    
    20,136
    
    
    
    29
    %
    
    
    528
    
    
    
    3
    %Total operating expenses
    
    $
    54,765
    
    
    
    77
    %
    
    $
    42,771
    
    
    
    62
    %
    
    $
    11,994
    
    
    
    28
    %
 Selling, general and administrative expenses.
 Research and development expenses.
 Interest and other income:
 Year Ended December 31,(Dollars in thousands)
    
    2010
    
    
    2009
    
    
    Variance $
    
    
    Variance %Interest income
    
    $
    69
    
    
    $
    196
    
    
    $
    (127
    )
    
    
    (65
    )%Other income
    
    $
    25
    
    
    $
    
    
    
    $
    25
    
    
    
    n/aInterest and other income
    
    $
    94
    
    
    $
    196
    
    
    $
    (102
    )
    
    
    (52
    )%
 Interest and other income.
 Income tax provision:
 Year Ended December 31,(Dollars in thousands)
    
    2010
    
    
    2009
    
    
    Variance $
    
    
    Variance %Effective tax rate
    
    
    (54
    )%
    
    
    27
    %
    
    
    n/a
    
    
    
    (81
    )%Income tax (benefit)
provision
    
    $
    (2,262
    )
    
    $
    2,047
    
    
    $
    (4,309
    )
    
    
    (211
    )%
 Income tax provision.
 29




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##### Table of Contents



Comparison of year ended December 31, 2009 with year ended December 31, 2008
 Revenue:
 Year Ended December 31,2009
    
    
    2008As a percentage
    
    
    
    
    
    
    As a percentage(Dollars in thousands)
    
    Amount
    
    
    of total revenue
    
    
    Amount
    
    
    of total revenue
    
    
    Variance $
    
    
    Variance %License and implementation
    
    $
    43,684
    
    
    
    64
    %
    
    $
    53,923
    
    
    
    71
    %
    
    $
    (10,239
    )
    
    
    (19
    )%Maintenance and support
    
    
    25,099
    
    
    
    36
    %
    
    
    21,665
    
    
    
    29
    %
    
    
    3,434
    
    
    
    16
    %Total
    
    $
    68,783
    
    
    
    100
    %
    
    $
    75,588
    
    
    
    100
    %
    
    $
    (6,805
    )
    
    
    (9
    )%
 License and implementation.
 Maintenance and support.
 Cost of revenue and gross profit:
 Year Ended December 31,2009
    
    
    2008As a percentage
    
    
    
    
    
    
    As a percentage(Dollars in thousands)
    
    Amount
    
    
    of related revenue
    
    
    Amount
    
    
    of related revenue
    
    
    Variance $
    
    
    Variance %Cost of
license and implementation
    
    $
    13,893
    
    
    
    32
    %
    
    $
    14,894
    
    
    
    28
    %
    
    $
    (1,001
    )
    
    
    (7
    )%Cost of maintenance and
 support
    
    
    4,752
    
    
    
    19
    %
    
    
    4,358
    
    
    
    20
    %
    
    
    394
    
    
    
    9
    %Total cost of revenue
    
    $
    18,645
    
    
    
    27
    %
    
    $
    19,252
    
    
    
    25
    %
    
    $
    (607
    )
    
    
    (3
    )%Gross profit
    
    $
    50,138
    
    
    
    73
    %
    
    $
    56,336
    
    
    
    75
    %
    
    $
    (6,198
    )
    
    
    (11
    )%
 Cost of license and implementation.
  Cost of maintenance and support.
 30




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##### Table of Contents



Gross profit.
 Operating expenses:
 Year Ended December 31,2009
    
    
    2008As a percentage
    
    
    
    
    
    
    As a percentage(Dollars in thousands)
    
    Amount
    
    
    of total revenue
    
    
    Amount
    
    
    of total revenue
    
    
    Variance $
    
    
    Variance %Selling, general and administrative
    
    $
    22,635
    
    
    
    33
    %
    
    $
    22,094
    
    
    
    29
    %
    
    $
    541
    
    
    
    2
    %Research and development
    
    
    20,136
    
    
    
    29
    %
    
    
    20,309
    
    
    
    27
    %
    
    
    (173
    )
    
    
    (1
    )%Total operating expenses
    
    $
    42,771
    
    
    
    62
    %
    
    $
    42,403
    
    
    
    56
    %
    
    $
    368
    
    
    
    1
    %
 Selling, general and administrative expenses.
 Research and development expenses.
 Other income:
 Year Ended December 31,(Dollars in thousands)
    
    2009
    
    
    2008
    
    
    Variance $
    
    
    Variance %Interest income
    
    $
    196
    
    
    $
    1,112
    
    
    $
    (916
    )
    
    
    (82
    )%Other income
    
    $
    196
    
    
    $
    1,112
    
    
    $
    (916
    )
    
    
    (82
    )%
 Interest income.
 Income tax provision:
 Year Ended December 31,(Dollars in thousands)
    
    2009
    
    
    2008
    
    
    Variance $
    
    
    Variance %Effective tax rate
    
    
    27
    %
    
    
    28
    %
    
    
    n/a
    
    
    
    (1
    )%Income tax (benefit) provision
    
    $
    2,047
    
    
    $
    4,288
    
    
    $
    (2,241
    )
    
    
    (52
    )%
 Income tax provision.
 31




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##### Table of Contents



Liquidity and capital resources:
     Year Ended December 31,(Dollars in thousands)
    
    2010
    
    
    2009
    
    
    2008Net cash (used in) provided by operating activities
    
    $
    (5,276
    )
    
    $
    11,463
    
    
    $
    13,823Net cash used in investing activities
    
    
    (1,890
    )
    
    
    (1,111
    )
    
    
    (1,208
    )Net cash provided by (used in) financing activities
    
    
    562
    
    
    
    118
    
    
    
    (5,014
    )Cash and cash equivalents (end of period)
    
    $
    55,845
    
    
    $
    62,449
    
    
    $
    51,979
 Cash flow analysis:
   32




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##### Table of Contents



Stock repurchases
  Contractual obligations
  Payment due by periodLess than
    
    
    
    
    
    
    
    
    
    
    more than(Dollars in thousands)
    
    1 year
    
    
    1 to 3 years
    
    
    3 to 5 years
    
    
    5 years
    
    
    TotalOperating leases
    
    $
    755
    
    
    $
    13
    
    
    $
    
    
    
    $
    
    
    
    $
    768Total contractual obligations
    
    $
    755
    
    
    $
    13
    
    
    $
    
    
    
    $
    
    
    
    $
    768
  Off-balance sheet arrangements
  Critical accounting policies and estimates:
   33




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##### Table of Contents



Revenue recognition
     Multiple-Deliverable Revenue Arrangements Revenue Recognition
 
    
    provide updated guidance on whether multiple deliverables exist,
how the deliverables in an arrangement should be separated, and
how the consideration should be allocated;
    
    require an entity to allocate revenue in an arrangement
using best estimated selling price, or BESP, of
deliverables if a vendor does not have vendor specific
objective evidence, or VSOE, of selling price; and
    
    eliminate the use of the residual method and require an
entity to allocate revenue using the relative selling price
method.
    34




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##### Table of Contents



Allowance for doubtful accounts
  Share-based compensation
  Stock options.
 35




---



##### Table of Contents



Restricted stock units.
 Stock appreciation rights.
   Accounting for income taxes
    36




---



##### Table of Contents



Recently adopted accounting pronouncements
 Multiple-Deliverable Revenue Arrangements Revenue Recognition Certain
Arrangements That Include Software Elements Software
 
 Item 7A. Quantitative and qualitative disclosures about market risk
 Foreign currency risk
  
 Item 8. Financial statements and supplementary data
  
 Item 9. Change in and disagreements with accountants on accounting and financial disclosure
  
 Item 9A. Controls and procedures
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
  37




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##### Table of Contents



Managements Report on Internal Control over Financial Reporting
    
 Item 9B. Other information
  
 Part III
 
 Item 10. Directors, executive officers and corporate governance
  
 Item 11. Executive compensation
  
 Item 12. Security ownership of certain beneficial owners and management and related stockholder
 matters
  
 Item 13. Certain relationships, related transactions and director independence
  
 Item 14. Principal accountant fees and services
  38




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##### Table of Contents



Part IV
 
 Item 15. Exhibits and financial statements schedules
 (a)(1) Financial Statements
  (a)(2) Financial Statement Schedules
   (a)(3) Exhibits
  3.1
    
    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).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
 39




---



##### Table of Contents



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 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).10.9.1*
    
    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).10.9.2*
    
    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).10.9.3*
    
    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).10.9.4*
    
    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).10.10*
    
    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).10.10.1*
    
    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).10.11*
    
    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).10.12*
    
    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).10.12.1*
    
    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).10.13
    
    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).21.1#
    
    List of Subsidiaries23.1#
    
    Consent of PricewaterhouseCoopers LLP (filed herewith).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
  40




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##### Table of Contents



Signatures
   By:
    /s/ Andres ReinerAndres ReinerPresident and Chief Executive
Officer   Signatures
    
    Title
    
    Date/s/ Andres Reiner

Andres Reiner
    
    President, Chief Executive Officer,
and Director
(Principal Executive Officer)
    
    February 28, 2011/s/ Charles H. Murphy

Charles H. Murphy
    
    Executive Vice President and Chief
Financial Officer (Principal
Accounting Officer)
    
    February 28, 2011/s/ Ronald F. Woestemeyer

Ronald Woestemeyer
    
    Executive Vice President, Strategic
Business Planning and Director
    
    February 28, 2011/s/ William Russell

William Russell
    
    Chairman of the Board
    
    February 28, 2011/s/ Ellen Keszler

Ellen Keszler
    
    Director
    
    February 28, 2011/s/ Greg B. Petersen

Greg B. Petersen
    
    Director
    
    February 28, 2011/s/ Timothy V. Williams

Timothy V. Williams
    
    Director
    
    February 28, 2011/s/ Mariette M. Woestemeyer

Mariette M. Woestemeyer
    
    Director
    
    February 28, 2011
 41




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##### Table of Contents



PROS Holdings, Inc.
 Index to the Consolidated Financial Statements
 PageReport of independent registered public accounting firm
    
    
    F-2Consolidated balance sheets at December 31, 2010 and 2009
    
    
    F-3Consolidated statements of operations for the years ended December 31, 2010, 2009 and 2008
    
    
    F-4Consolidated statements of cash flows for the years ended December 31, 2010, 2009 and 2008
    
    
    F-5Consolidated statements of stockholders equity for the years ended December 31, 2010, 2009 and 2008
    
    
    F-6Notes to the consolidated financial statements
    
    
    F-7Schedule II  valuation and qualifying accounts
    
    
    F-23
 F-1




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    /s/ PricewaterhouseCoopers LLPSan Jose, CaliforniaFebruary 28, 2011 F-2




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##### Table of Contents



PROS HOLDINGS, INC.  
 Consolidated Balance Sheets
(In thousands, except share amounts)
 December 31,2010
    
    
    2009Assets:Current assets:Cash and cash equivalents
    
    $
    55,845
    
    
    $
    62,449Short-term investments
    
    
    73
    
    
    
    Accounts and unbilled receivables, net of allowance
of $1,020 and $1,300, respectively
    
    
    27,402
    
    
    
    12,035Prepaid expenses and other current assets
    
    
    6,170
    
    
    
    4,143Total current assets
    
    
    89,490
    
    
    
    78,627Restricted cash
    
    
    293
    
    
    
    Property and equipment, net
    
    
    3,248
    
    
    
    2,959Other long term assets, net
    
    
    5,097
    
    
    
    3,743Total assets
    
    $
    98,128
    
    
    $
    85,329Liabilities and stockholders equity:Current liabilities:Accounts payable
    
    $
    2,131
    
    
    $
    1,198Accrued liabilities
    
    
    1,998
    
    
    
    3,199Accrued payroll and other employee benefits
    
    
    4,606
    
    
    
    4,510Deferred revenue
    
    
    28,429
    
    
    
    14,099Other current liabilities
    
    
    
    
    
    
    4,866Total current liabilities
    
    
    37,164
    
    
    
    27,872Long-term deferred revenue
    
    
    1,461
    
    
    
    2,418Total liabilities
    
    
    38,625
    
    
    
    30,290Commitments
and contingencies (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, 30,777,000 and 30,163,508 shares
issued, respectively, 26,359,415 and 25,745,923 shares outstanding,
respectively
    
    
    31
    
    
    
    30Additional paid-in capital
    
    
    69,844
    
    
    
    63,439Treasury stock, 4,417,585 common shares, at cost
    
    (13,938)
    
    
    (13,938
    )Accumulated other comprehensive loss
    
    
    (11
    )
    
    
    Retained earnings
    
    
    3,577
    
    
    
    5,508Total stockholders equity
    
    
    59,503
    
    
    
    55,039Total liabilities and stockholders equity
    
    $
    98,128
    
    
    $
    85,329
 The accompanying notes are an integral part of these consolidated financial statements.
 F-3




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##### Table of Contents



PROS Holdings, Inc.  
 Consolidated Statements of Operations
(In thousands, except share and per share data)
 Year Ended December 31,2010
    
    
    2009
    
    
    2008Revenue:License and implementation
    
    $
    42,067
    
    
    $
    43,684
    
    
    $
    53,923Maintenance and support
    
    
    28,978
    
    
    
    25,099
    
    
    
    21,665Total revenue
    
    
    71,045
    
    
    
    68,783
    
    
    
    75,588Cost of revenue:License and implementation
    
    
    14,751
    
    
    
    13,893
    
    
    
    14,894Maintenance and support
    
    
    5,816
    
    
    
    4,752
    
    
    
    4,358Total cost of revenue
    
    
    20,567
    
    
    
    18,645
    
    
    
    19,252Gross profit
    
    
    50,478
    
    
    
    50,138
    
    
    
    56,336Operating expenses:Selling, general and administrative
    
    
    34,101
    
    
    
    22,635
    
    
    
    22,094Research and development
    
    
    20,664
    
    
    
    20,136
    
    
    
    20,309(Loss) income from operations
    
    
    (4,287
    )
    
    
    7,367
    
    
    
    13,933Other income:Interest income
    
    
    69
    
    
    
    196
    
    
    
    1,112Other income
    
    
    25
    
    
    
    
    
    
    
    (Loss) income before income tax provision
    
    
    (4,193
    )
    
    
    7,563
    
    
    
    15,045Income tax (benefit) provision
    
    
    (2,262
    )
    
    
    2,047
    
    
    
    4,288Net (loss) income
    
    $
    (1,931
    )
    
    $
    5,516
    
    
    $
    10,757Net (loss) earnings attributable to common
stockholders per share:Basic
    
    $
    (0.07
    )
    
    $
    0.21
    
    
    $
    0.41Diluted
    
    $
    (0.07
    )
    
    $
    0.21
    
    
    $
    0.40Weighted average number of shares:Basic
    
    
    26,089,850
    
    
    
    25,710,569
    
    
    
    26,120,613Diluted
    
    
    26,089,850
    
    
    
    26,430,817
    
    
    
    26,569,074
 The accompanying notes are an integral part of these consolidated financial statements.
 F-4




---



##### Table of Contents



PROS Holdings, Inc.  
 Condensed Consolidated Statements of Cash Flows
(In thousands)
 Year Ended December 31,2010
    
    
    2009
    
    
    2008Operating activities:Net (loss) income
    
    $
    (1,931
    )
    
    $
    5,516
    
    
    $
    10,757Adjustments to reconcile net income to net
cash provided by operating activities:Depreciation
    
    
    1,361
    
    
    
    1,283
    
    
    
    1,363Stock-based compensation
    
    
    6,964
    
    
    
    5,475
    
    
    
    4,021Excess tax benefits on vesting of restricted stock units
    
    
    (959
    )
    
    
    
    
    
    
    Deferred income taxes
    
    
    (187
    )
    
    
    (1,563
    )
    
    
    (821
    )Provision for doubtful accounts
    
    
    (87
    )
    
    
    (566
    )
    
    
    288Amortization of capitalized costs
    
    
    
    
    
    
    203
    
    
    
    1,120Changes in operating assets and liabilities:Accounts receivable
    
    
    (14,619
    )
    
    
    4,377
    
    
    
    (669
    )Unbilled receivables
    
    
    (2,242
    )
    
    
    1,932
    
    
    
    (1,064
    )Prepaid expenses and other
    
    
    (2,737
    )
    
    
    (639
    )
    
    
    (260
    )Accounts payable, accrued liabilities
and accrued payroll
    
    
    654
    
    
    
    (1,597
    )
    
    
    (340
    )Other current liabilities
    
    
    (4,866
    )
    
    
    
    
    
    
    Deferred revenue
    
    
    13,373
    
    
    
    (2,958
    )
    
    
    (572
    )Net cash (used in) provided by operating activities
    
    
    (5,276
    )
    
    
    11,463
    
    
    
    13,823Investing activities:Purchases of property and equipment
    
    
    (1,524
    )
    
    
    (1,111
    )
    
    
    (1,208
    )Increase in restricted cash
    
    
    (293
    )
    
    
    
    
    
    
    Increase in short-term investments
    
    
    (73
    )
    
    
    
    
    
    
    Net cash used in investing activities
    
    
    (1,890
    )
    
    
    (1,111
    )
    
    
    (1,208
    )Financing activities:Exercise of stock options
    
    
    888
    
    
    
    118
    
    
    
    286Excess tax benefits on vesting of restricted stock units
    
    
    959
    
    
    
    
    
    
    
    Tax withholding related to net share settlement of restricted stock units
    
    
    (1,285
    )
    
    
    
    
    
    
    Secondary offering costs
    
    
    
    
    
    
    
    
    
    
    (300
    )Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    (5,000
    )Net cash provided by (used in) financing activities
    
    
    562
    
    
    
    118
    
    
    
    (5,014
    )Net (decrease) increase in cash and cash
equivalents
    
    
    (6,604
    )
    
    
    10,470
    
    
    
    7,601Cash and cash equivalents:Beginning of period
    
    
    62,449
    
    
    
    51,979
    
    
    
    44,378End of period
    
    $
    55,845
    
    
    $
    62,449
    
    
    $
    51,979Supplemental disclosure of cash flow information:Cash paid during period for:Taxes
    
    $
    84
    
    
    $
    4,407
    
    
    $
    4,895Interest
    
    $
    
    
    
    $
    
    
    
    $
    
 The accompanying notes are an integral part of these consolidated financial statements.
 F-5




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##### Table of Contents



PROS Holdings, Inc.


Consolidated Statements of Stockholders Equity
(In thousands, except share data)
 Accumulated
    
    
    AccumulatedAdditional
    
    
    
    
    
    
    
    
    
    
    other
    
    
    (deficit)
    
    
    TotalCommon stock
    
    
    paid-In
    
    
    Treasury stock
    
    
    comprehensive
    
    
    retained
    
    
    stockholdersShares
    
    
    Amount
    
    
    capital
    
    
    Shares
    
    
    Amount
    
    
    loss
    
    
    earnings
    
    
    equityBalance at December 31, 2007
    
    
    26,079,489
    
    
    $
    30
    
    
    $
    53,361
    
    
    
    3,847,040
    
    
    $
    (8,938
    )
    
    $
    
    
    
    $
    (10,765
    )
    
    $
    33,688Exercise of stock options
    
    
    169,317
    
    
    
    
    
    
    
    286
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    286Share-based compensation
    
    
    
    
    
    
    
    
    
    
    4,021
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,021Stock repurchase program
    
    
    (570,545
    )
    
    
    
    
    
    
    
    
    
    
    570,545
    
    
    
    (5,000
    )
    
    
    
    
    
    
    
    
    
    
    (5,000
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,757
    
    
    
    10,757Balance at December 31, 2008
    
    
    25,678,261
    
    
    
    30
    
    
    
    57,668
    
    
    
    4,417,585
    
    
    
    (13,938
    )
    
    
    
    
    
    
    (8
    )
    
    
    43,752Exercise of stock options
    
    
    67,662
    
    
    
    
    
    
    
    118
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    118Tax impact of exercise of
non-qualified stock options
    
    
    
    
    
    
    
    
    
    
    178
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    178Share-based compensation
    
    
    
    
    
    
    
    
    
    
    5,475
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,475Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,516
    
    
    
    5,516Balance at December 31, 2009
    
    
    25,745,923
    
    
    
    30
    
    
    
    63,439
    
    
    
    4,417,585
    
    
    
    (13,938
    )
    
    
    
    
    
    
    5,508
    
    
    
    55,039Exercise of stock options
    
    
    159,945
    
    
    
    
    
    
    
    888
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    888Restricted stock units net
settlement
    
    
    453,547
    
    
    
    1
    
    
    
    (1,914
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,913
    )Tax impact of non-qualified
stock options and
restricted stock unit
activity
    
    
    
    
    
    
    
    
    
    
    467
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    467Share-based compensation
    
    
    
    
    
    
    
    
    
    
    6,964
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,964Translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11
    )
    
    
    
    
    
    
    (11
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,931
    )
    
    
    (1,931
    )Balance at December 31, 2010
    
    
    26,359,415
    
    
    $
    31
    
    
    $
    69,844
    
    
    
    4,417,585
    
    
    $
    (13,938
    )
    
    $
    (11
    )
    
    $
    3,577
    
    
    $
    59,503
 The accompanying notes are an integral part of these consolidated financial statements.
 F-6




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##### Table of Contents



PROS Holdings, Inc.
 
 Notes to Consolidated Financial Statements
 1. Organization and summary of significant accounting policies
 Nature of operations
  Principles of consolidation and basis of presentation
  Dollar amounts
  Use of estimates
  Cash and cash equivalents
  Financial instruments
  F-7




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##### Table of Contents



Prepaid expenses and other assets
  Property and equipment, net
  Treasury stock
  Revenue recognition
     F-8




---



##### Table of Contents



Multiple-Deliverable Revenue Arrangements Revenue Recognition
 
    
    provide updated guidance on whether multiple deliverables exist,
how the deliverables in an arrangement should be separated, and
how the consideration should be allocated;
    
    require an entity to allocate revenue in an arrangement
using best estimated selling price, (BESP) of
deliverables if a vendor does not have vendor specific
objective evidence (VSOE) of selling price; and
    
    eliminate the use of the residual method and require an
entity to allocate revenue using the relative selling price
method.
        F-9




---



##### Table of Contents



Foreign currency
   Research and development
  Impairment of long-lived assets
  Software development costs
  Share-based compensation
  Stock options.
 F-10




---



##### Table of Contents



Restricted stock units.
 Stock appreciation rights.
   Product warranties
  Income taxes
   Earnings per share
  F-11




---



##### Table of Contents



Comprehensive (loss) income
  Year Ended December 31,2010
    
    
    2009
    
    
    2008Net (loss) income
    
    $
    (1,931
    )
    
    $
    5,516
    
    
    $
    10,757Other comprehensive (loss) income:Translation adjustment
    
    
    (11
    )
    
    
    
    
    
    
    Comprehensive (loss) income
    
    $
    (1,942
    )
    
    $
    5,516
    
    
    $
    10,757
 Recent accounting pronouncements
 Multiple-Deliverable Revenue Arrangements Revenue Recognition Certain
Arrangements That Include Software Elements Software
 2. Accounts receivable and contracts in progress
  December 31,2010
    
    
    2009Accounts receivable
    
    $
    24,076
    
    
    $
    11,112Unbilled receivables
    
    
    4,346
    
    
    
    2,223Total receivables
    
    
    28,422
    
    
    
    13,335Less: allowance for doubtful accounts
    
    
    (1,020
    )
    
    
    (1,300
    )Accounts receivable, net
    
    $
    27,402
    
    
    $
    12,035
   December 31,2010
    
    
    2009Costs and
estimated earnings recognized to date
    
    $
    87,887
    
    
    $
    67,549Progress billings to date
    
    
    (113,431
    )
    
    
    (81,843
    )Total
    
    $
    (25,544
    )
    
    $
    (14,294
    )
  F-12




---



##### Table of Contents



December 31,2010
    
    
    2009Unbilled receivables
    
    $
    4,346
    
    
    $
    2,223Deferred revenue
    
    
    (29,890
    )
    
    
    (16,517
    )Total
    
    $
    (25,544
    )
    
    $
    (14,294
    )
  3. Earnings per share
  Year Ended December 31,2010
    
    
    2009
    
    
    2008Numerator:Net (loss) income attributable to common
stockholders
    
    $
    (1,931
    )
    
    $
    5,516
    
    
    $
    10,757Denominator:Weighted average shares (basic)
    
    
    26,090
    
    
    
    25,711
    
    
    
    26,121Dilutive effect of stock options, restricted stock
units and stock appreciation rights
    
    
    
    
    
    
    720
    
    
    
    448Weighted average shares (diluted)
    
    
    26,090
    
    
    
    26,431
    
    
    
    26,569Basic (loss) earnings per share
    
    $
    (0.07
    )
    
    $
    0.21
    
    
    $
    0.41Diluted (loss) earnings per share
    
    $
    (0.07
    )
    
    $
    0.21
    
    
    $
    0.40
  4. Property and equipment, net
  Estimated
    
    
    December 31,useful life
    
    
    2010
    
    
    2009Furniture and fixtures
    
    7-10 years
    
    $
    1,909
    
    
    $
    1,909Computers and equipment
    
    3-10 years
    
    
    7,739
    
    
    
    7,560Software
    
    3-5 years
    
    
    2,359
    
    
    
    1,720Leasehold improvements
    
    Shorter of lease  term or useful life
    
    
    1,038
    
    
    
    1,038Less: accumulated depreciation
    
    
    
    
    
    
    (9,797
    )
    
    
    (9,268
    )Property and equipment, net
    
    
    
    
    
    $
    3,248
    
    
    $
    2,959
  F-13




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##### Table of Contents



5. Fair value measurements
        6. Stockholders equity
 Stock repurchase
   F-14




---



##### Table of Contents



7. Share-based compensation
 Employee share-based compensation plans:
   Year Ended December 31,Award type
    
    2010
    
    
    2009Stock option
    
    
    1,858
    
    
    
    2,356Restricted stock unit
    
    
    1,242
    
    
    
    1,332Stock appreciation rights
    
    
    748
    
    
    
    
 1999 plan.
 2007 plan.
    F-15




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##### Table of Contents



For the Year Ended December 31,2010
    
    
    2009
    
    
    2008Share-based compensation:Cost of license and implementation revenue
    
    $
    876
    
    
    $
    872
    
    
    $
    611Total included in cost of revenue
    
    
    876
    
    
    
    872
    
    
    
    611Selling, general and administrative
    
    
    4,859
    
    
    
    2,938
    
    
    
    2,145Research and development
    
    
    1,229
    
    
    
    1,665
    
    
    
    1,265Total included in operating expenses
    
    
    6,088
    
    
    
    4,603
    
    
    
    3,410Total share-based compensation expense
    
    $
    6,964
    
    
    $
    5,475
    
    
    $
    4,021
   Stock Options:
  Weighted averageNumber of shares
    
    
    Weighted average
    
    
    remaining contractual
    
    
    Aggregateunder option
    
    
    exercise price
    
    
    term (year)
    
    
    intrinsic value (1)Outstanding, December 31, 2009
    
    
    2,252
    
    
    $
    10.77Granted
    
    
    
    
    
    
    Forfeited
    
    
    (252
    )
    
    
    13.07Exercised
    
    
    (142
    )
    
    
    6.04Outstanding, December 31, 2010
    
    
    1,858
    
    
    $
    10.77
    
    
    
    6.7
    
    
    $
    4,483Exercisable at December 31, 2010
    
    
    1,551
    
    
    $
    10.25
    
    
    
    6.6
    
    
    $
    4,175Vested and expected to vest at
December 31, 2010
    
    
    1,817
    
    
    $
    11.81
    
    
    
    6.8
    
    
    $
    4,448
 
 (1)
    
    The aggregate intrinsic value was calculated based on the positive difference between the
estimated fair value of the Companys common stock on December 31, 2010 of $11.39 and the
exercise price of the underlying options.  2008Volatility
    
    
    48.0
    %Risk-free interest rate
    
    
    3.0
    %Expected option life in years
    
    
    4.6Dividend yield
    
    
    
   F-16




---



##### Table of Contents



Restricted stock units:
   Weighted average
    
    
    Weighted averageNumber of
    
    
    grant date
    
    
    remaining contractual
    
    
    Aggregateshares
    
    
    fair value
    
    
    term (year)
    
    
    intrinsic value (1)Unvested at December 31, 2009
    
    
    1,332
    
    
    $
    5.27Granted
    
    
    627
    
    
    
    8.94Vested
    
    
    (656
    )
    
    
    5.49Forfeited
    
    
    (61
    )
    
    
    5.42Unvested at December 31, 2010
    
    
    1,242
    
    
    $
    7.08
    
    
    
    8.8
    
    
    $
    14,142Expected to vest at December
31, 2010
    
    
    1,132
    
    
    $
    7.06
    
    
    
    8.8
    
    
    $
    12,891
 
 (1)
    
    The aggregate intrinsic value was calculated based on the positive difference between the
estimated fair value of the Companys common stock on December 31, 2010 of $11.39 and the
exercise price of the underlying options.  SAR:
   Weighted averageStock appreciation
    
    
    Weighted average
    
    
    remaining contractual
    
    
    Aggregaterights
    
    
    exercise price
    
    
    term (year)
    
    
    intrinsic value (1)Outstanding, December 31, 2009
    
    
    
    
    
    $
    Granted
    
    
    753
    
    
    
    10.26Forfeited
    
    
    (5
    )
    
    
    9.05Exercised
    
    
    
    
    
    
    Outstanding, December 31, 2010
    
    
    748
    
    
    $
    10.27
    
    
    
    9.6
    
    
    $
    837Exercisable at December 31, 2010
    
    
    69
    
    
    $
    8.68
    
    
    
    9.2
    
    
    $
    187Vested and expected to vest at
December 31, 2010
    
    
    705
    
    
    $
    9.57
    
    
    
    9.4
    
    
    $
    784
 
 (1)
    
    The aggregate intrinsic value was calculated based on the positive difference between the
estimated fair value of the Companys common stock on December 31, 2010 of $11.39 and the
exercise price of the underlying SARs.  2010Volatility
    
    
    53.56%  55.86
    %Risk-free interest rate
    
    
    1.46%  2.34
    %Expected option life in years
    
    
    4.6Dividend yield
    
    
    
 F-17




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##### Table of Contents



8. Income taxes
  Year Ended December 31,2010
    
    
    2009
    
    
    2008Current:Federal
    
    $
    (2,382
    )
    
    $
    3,328
    
    
    $
    4,739State and Foreign
    
    
    222
    
    
    
    282
    
    
    
    370(2,160
    )
    
    
    3,610
    
    
    
    5,109Deferred:Federal
    
    
    108
    
    
    
    (1,563
    )
    
    
    (821
    )State
    
    
    (210
    )
    
    
    
    
    
    
    Income tax (benefit) provision
    
    $
    (2,262
    )
    
    $
    2,047
    
    
    $
    4,288
  Year Ended December 31,2010
    
    
    2009
    
    
    2008Provision at the U.S. federal statutory rate
    
    $
    (1,426
    )
    
    $
    2,647
    
    
    $
    5,266Increase (decrease) resulting from:State income taxes, net of federal taxes
    
    
    (34
    )
    
    
    119
    
    
    
    177Foreign income taxes, net of federal taxes
    
    
    
    
    
    
    99
    
    
    
    98Nondeductible expenses
    
    
    126
    
    
    
    117
    
    
    
    129Domestic production activities
    
    
    
    
    
    
    (98
    )
    
    
    (178
    )Incremental benefits for tax credits
    
    
    (594
    )
    
    
    (783
    )
    
    
    (981
    )Change in tax rate/income subject
to lower tax rates and other
    
    
    (220
    )
    
    
    (109
    )
    
    
    (259
    )Change in valuation allowance
    
    
    (114
    )
    
    
    55
    
    
    
    36$
    (2,262
    )
    
    $
    2,047
    
    
    $
    4,288
     F-18




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##### Table of Contents



2010
    
    
    2009Current deferred tax asset:Accruals not currently deductible
    
    $
    1,073
    
    
    $
    2,313Total current deferred tax asset
    
    
    1,073
    
    
    
    2,313Noncurrent deferred tax asset:Property and equipment
    
    
    (433
    )
    
    
    (387
    )Deferred revenue
    
    
    4,240
    
    
    
    3,801State deferred
    
    
    168
    
    
    
    GBC carryforwards
    
    
    594
    
    
    
    FTC carryforwards
    
    
    188
    
    
    
    178Total noncurrent deferred tax assets
    
    
    4,757
    
    
    
    3,592Less: valuation allowance
    
    
    
    
    
    
    (178
    )Total noncurrent deferred tax assets
    
    
    4,757
    
    
    
    3,414Total net deferred tax asset
    
    $
    5,830
    
    
    $
    5,727
   9. Commitments and contingencies
 Litigation:
   F-19




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##### Table of Contents



Indemnification:
  Lease commitments:
  Year Ending December 31,2011
    
    $
    7552012
    
    
    112013
    
    
    22014
    
    
    2015
    
    
    2016 and thereafter
    
    
    Total minimum lease payments
    
    $
    768
  10. Segment and geographic information
     F-20




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Year Ended December 31,2010
    
    
    2009
    
    
    2008Revenue
    
    
    Percent
    
    
    Revenue
    
    
    Percent
    
    
    Revenue
    
    
    PercentThe Americas:United States of America
    
    $
    28,326
    
    
    
    40
    %
    
    $
    28,305
    
    
    
    41
    %
    
    $
    35,091
    
    
    
    46
    %Other
    
    
    3,620
    
    
    
    5
    %
    
    
    3,786
    
    
    
    6
    %
    
    
    3,751
    
    
    
    5
    %Subtotal
    
    
    31,946
    
    
    
    45
    %
    
    
    32,091
    
    
    
    47
    %
    
    
    38,842
    
    
    
    51
    %Europe, the Middle East and
Africa:United Kingdom
    
    
    2,973
    
    
    
    4
    %
    
    
    3,708
    
    
    
    5
    %
    
    
    6,321
    
    
    
    9
    %Germany
    
    
    3,408
    
    
    
    5
    %
    
    
    3,588
    
    
    
    5
    %
    
    
    3,469
    
    
    
    5
    %Middle East
    
    
    6,241
    
    
    
    9
    %
    
    
    3,823
    
    
    
    6
    %
    
    
    4,713
    
    
    
    6
    %Other
    
    
    13,648
    
    
    
    19
    %
    
    
    15,017
    
    
    
    22
    %
    
    
    12,357
    
    
    
    16
    %Asia Pacific
    
    
    12,829
    
    
    
    18
    %
    
    
    10,556
    
    
    
    15
    %
    
    
    9,886
    
    
    
    13
    %Subtotal
    
    
    39,099
    
    
    
    55
    %
    
    
    36,692
    
    
    
    53
    %
    
    
    36,746
    
    
    
    49
    %Total revenue
    
    $
    71,045
    
    
    
    100
    %
    
    $
    68,783
    
    
    
    100
    %
    
    $
    75,588
    
    
    
    100
    %
 11. Concentrations of credit risk
   12. Related-party transactions
  13. Employee retirement savings plan
  F-21




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##### Table of Contents



14. Quarterly results (Unaudited)
  Quarter EndedDecember 31,
    
    
    September 30,
    
    
    June 30,
    
    
    March 31,(Dollars in thousands, except per share data)
    
    2010
    
    
    2010
    
    
    2010
    
    
    2010Total revenue
    
    $
    20,193
    
    
    $
    15,686
    
    
    $
    17,839
    
    
    $
    17,327Gross profit
    
    $
    14,440
    
    
    $
    10,402
    
    
    $
    13,024
    
    
    $
    12,612(Loss) income from operations
    
    $
    (299
    )
    
    $
    (3,788
    )
    
    $
    (966
    )
    
    $
    766Net income (loss)
    
    $
    631
    
    
    $
    (2,405
    )
    
    $
    (628
    )
    
    $
    471Net earnings
(loss) attributable to common stockholders per share:Basic
    
    $
    0.02
    
    
    $
    (0.09
    )
    
    $
    (0.02
    )
    
    $
    0.02Diluted
    
    $
    0.02
    
    
    $
    (0.09
    )
    
    $
    (0.02
    )
    
    $
    0.02
 Quarter EndedDecember 31,
    
    
    September 30,
    
    
    June 30,
    
    
    March 31,(Dollars in thousands, except per share data)
    
    2009
    
    
    2009
    
    
    2009
    
    
    2009Total revenue
    
    $
    16,921
    
    
    $
    16,510
    
    
    $
    17,326
    
    
    $
    18,026Gross profit
    
    $
    12,304
    
    
    $
    12,219
    
    
    $
    12,407
    
    
    $
    13,208Income from operations
    
    $
    1,551
    
    
    $
    1,088
    
    
    $
    2,073
    
    
    $
    2,655Net income
    
    $
    1,192
    
    
    $
    798
    
    
    $
    1,536
    
    
    $
    1,990Net earnings attributable to commonstockholders per share:Basic
    
    $
    0.05
    
    
    $
    0.03
    
    
    $
    0.06
    
    
    $
    0.08Diluted
    
    $
    0.04
    
    
    $
    0.03
    
    
    $
    0.06
    
    
    $
    0.08
 15. Subsequent events
  F-22




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Schedule II
Valuation and Qualifying Accounts
 AdditionsBalance at
    
    
    charged to
    
    
    
    
    
    
    Balance atbeginning
    
    
    costs and
    
    
    
    
    
    
    end ofof period
    
    
    expenses
    
    
    Deductions
    
    
    periodAllowance for doubtful
accounts (1)2010
    
    $
    1,300
    
    
    $
    96
    
    
    $
    (376
    )
    
    $
    1,0202009
    
    $
    1,900
    
    
    $
    (566
    )
    
    $
    (34
    )
    
    $
    1,3002008
    
    $
    1,550
    
    
    $
    288
    
    
    $
    62
    
    
    $
    1,900Valuation allowance (2)2010
    
    $
    178
    
    
    $
    
    
    
    $
    (178
    )
    
    $
    2009
    
    $
    123
    
    
    $
    99
    
    
    $
    (44
    )
    
    $
    1782008
    
    $
    87
    
    
    $
    99
    
    
    $
    (63
    )
    
    $
    123
 
 (1)
    
    Deductions column represents uncollectible accounts written off, net of recoveries.(2)
    
    Deductions column represents the utilization of deferred tax assets that previously had a
valuation allowance for deferred tax assets. F-23




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##### Table of Contents



EXHIBIT INDEX
 (a)(3)
    
    Exhibits
  3.1
    
    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).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




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##### Table of Contents



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 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).10.9.1*
    
    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).10.9.2*
    
    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).10.9.3*
    
    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).10.9.4*
    
    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).10.10*
    
    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).10.10.1*
    
    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).10.11*
    
    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).10.12*
    
    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).10.12.1*
    
    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).10.13
    
    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).21.1#
    
    List of Subsidiaries23.1#
    
    Consent of PricewaterhouseCoopers LLP (filed herewith).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.