PROS (PRO) 8-K PROS Holdings, Inc. Reports Fourth Quarter and Full Year 2009 Financial Results

Exhibit 99.1

PROS Holdings, Inc. Reports Fourth Quarter and Full Year 2009
Financial Results

• Fourth quarter total revenue of $16.9 million.

• Full year revenues of $68.8 million

• GAAP income from operations of $1.6 million, and net income of $1.2 million or $0.04 per diluted share for the fourth quarter.

• Non-GAAP income from operations of $3.0 million, and net income of $2.3 million or $0.09 per diluted share for the fourth quarter, above our guided range.

• Cash and cash equivalents of $62.4 million, no debt and $11.3 million of positive cash flow from operations for the year ended December 31, 2009.

Houston, Texas — February 11, 2010 — PROS Holdings, Inc.(NYSE: PRO), a leading provider of pricing and margin optimization science and software, today announced financial results for the fourth quarter ended December 31, 2009.

Total revenue for the fourth quarter of 2009 was $16.9 million, near the high end of the company’s guided range. License and implementation revenue was $10.3 million and maintenance and support revenue was $6.6 million. For the year ended December 31, 2009, revenue was $68.8 million, with 64% from license and implementation revenue and 36% from maintenance revenue.

Bert Winemiller, Chairman and CEO, stated, “We are pleased with our financial performance in the fourth quarter of 2009. We remain focused on our strategic goals of delivering significant value to our customers early in the implementation with a high return on investment and low total cost of ownership, while also scaling to meet the needs of the large long-term market opportunity. We are growing our pricing partner and influencer ecosystem as we expand our work with industry analysts, strategic consultants, technology providers and system integrators. We believe the market for pricing and margin optimization software is in the innovator early adopter stage. We also believe there are thousands of companies that would greatly benefit from our software with a current market penetration in the low single digits. While the macro economy continues to be challenging and forecasting for the longer-term remains difficult, we believe interest in PROS’ science-based pricing and margin optimization software continues to increase as sales-related activity levels continue to be very good and third party coverage of the power of pricing continues to reach a broader audience.”

For the quarter ended December 31, 2009, PROS reported income from operations, in accordance with generally accepted accounting principles (“GAAP”), of $1.6 million compared with $3.8 million in the fourth quarter of 2008. GAAP net income in the quarter was $1.2 million, or $0.04 per diluted share, compared with $3.6 million, or $0.14 per diluted share, in the fourth quarter of 2008.

For the quarter ended December 31, 2009, non-GAAP income from operations was $3.0 million compared with $4.9 million for the same period in 2008. Non-GAAP net income was $2.3 million, or $0.09 per diluted share, above the Company’s guided range, compared with non-GAAP net income of $4.6 million, or $0.17 per diluted share, in the fourth quarter of 2008. These non-GAAP results in the fourth quarter of 2009 and 2008 exclude $1.5 million and $1.1 million, respectively, of stock-based compensation charges.

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For the year ended December 31, 2009, income from operations, in accordance with GAAP was $7.4 million compared with $13.9 million for the year ended December 31, 2008. GAAP net income for the year was $5.5 million, or $0.21 per diluted share, compared with $10.8 million, or $0.40 per diluted share, in 2008. Cash flow from operations was $11.3 million for the year ended December 31, 2009.

For the year ended December 31, 2009, non-GAAP income from operations was $12.8 million compared with $18.0 million for the year ended December 31, 2008. Non-GAAP net income for the year was $9.5 million, or $0.36 per diluted share, compared with $13.6 million, or $0.51 per diluted share, in 2008. These non-GAAP results for the year ended December 31, 2009 and 2008 exclude $5.5 million and $4.0 million, respectively, of stock-based compensation charges.

The effective tax rate was approximately 24% for the three months ended December 31, 2009 compared to an effective tax rate of approximately 9.0% for the three months ended December 31, 2008. The change in the tax rates was due to the timing of the reinstatement of the Research and Experimentation (“R&E”) tax credit which was not signed into law until October 2008. As a result, PROS recorded the full benefit of the R&E tax credit for 2008 in the fourth quarter of 2008. For the year ended December 31, 2009 and 2008, the effective tax rate was approximately 27% and 28%, respectively.

Charles Murphy, Executive Vice President and CFO, stated, “We are pleased to have recorded sequential revenue growth in the fourth quarter. Even in this challenging economy we were able to maintain a good level of profitability with non-GAAP operating margin of 18% for the quarter and 19% for the full year. Our strong balance sheet, with over $62 million in cash and no debt, and history of profitability and positive cash flow positions us favorably as customers consider vendor viability when making purchasing decisions. Our business trends are showing signs of stabilizing, but we believe it is too early to discern a significant upswing in our business environment.”

The attached table provides a reconciliation of GAAP to non-GAAP income from operations and net income as well as net income per share available to common stockholders for the year ended December 31, 2009 and 2008.

Financial Outlook

Based on information as of today, PROS is providing the following outlook for the first quarter of 2010:

First Quarter of Fiscal Year 2010:

• The Company expects total revenue in the range of $16.9 million to $17.3 million.

• The Company is projecting GAAP income from operations of $0.3 million to $0.7 million and GAAP diluted earnings per share of $0.01 to $0.02. Earnings per share are based on an estimated weighted average of 27.0 million diluted shares outstanding.

• The Company is projecting non-GAAP income from operations of $1.8 million to $2.2 million and non-GAAP diluted earnings per share of $0.05 to $0.06. Non-GAAP income from operations for the first quarter excludes estimated stock based compensation charges of approximately $1.5 million.

The projections provided above are based on an estimated tax rate of 30%. This rate assumes that Congress will reinstate on a retroactive basis the Research & Experimentation (“R&E”) tax credit. Congress has reinstated on a retroactive basis the R&E tax credit several times since its enactment in 1981, and PROS believes Congress will do so in 2010. However, until the credit is reinstated, PROS overall tax rate will be 37% to 38%. The impact of the R&E tax credit not being reinstated translates to a $0.01 diluted earnings per share impact for the first quarter of 2010 on a non-GAAP basis.

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Backlog

Our backlog is derived from agreements that we believe to be firm to provide software products and related implementation and maintenance services in the future. Our backlog varies significantly period to period depending on a number of factors including the timing of our sales and the nature of the agreements we enter into with our customers. We typically do not recognize any revenue upon the signing of an agreement. Therefore, we do not seek to accelerate our sales processes around any reporting period.

Our backlog is also significantly based on estimates and judgments that we make regarding total contract values, requisite man-days to complete engagements and the value and number of man-days worked or expected to be worked in any particular period. For example, we could have agreements that include refund, delay or termination for convenience provisions, and we exercise judgment over the extent to which, if any, to include these agreements in our backlog. However, based on our history of successfully implementing our software products, we generally include the full estimated value of these agreements in backlog.

We make significant estimates and judgments regarding maintenance renewals and changes to existing maintenance agreements. Backlog includes committed maintenance amounts and amounts payable to us under maintenance agreements that we reasonably expect to renew. For example, we include annualized monthly maintenance revenue reduced by our historical average maintenance non-renewal rate in backlog.

We compute our backlog as of a specific date, and we update our backlog to reflect changes in our estimates and judgments or subsequent additions, delays, terminations or reductions in our agreements. We also have agreements denominated in foreign currencies, and variation in currency exchange rates can influence our calculation of backlog. We compute backlog using then-existing currency exchange rates and update backlog to reflect changes in these rates.

For these and other reasons, we do not believe that backlog is a meaningful indicator of future revenue to be recognized in any particular period, and there can be no assurance that our backlog at any point in time will translate into revenue in any subsequent period.

We had backlog of $84.3 million as of December 31, 2009 as compared to backlog of $83.6 million as of December 31, 2008. The portion of our backlog as of December 31, 2009 not reasonably expected to be recognized as revenue within the next twelve months is estimated to be $33 million.

Conference Call

In conjunction with this announcement, PROS Holdings, Inc. will host a conference call on February 11, 2010, at 4:30 p.m. (EST) to discuss the company’s financial results. To access this call, dial (866) 271-5140 (domestic) or (617) 213-8893 (international). The pass code for the call is 80279314. Additionally, a live web cast of the conference call will be available in the “Investor Relations” section of the Company’s web site at www.prospricing.com.

Following the conference call, a replay will be available at (888) 286-8010 (domestic) or (617) 801-6888 (international). The replay pass code is 39900651. An archived web cast of this conference call will also be available in the “Investor Relations” section of the Company’s web site at www.prospricing.com.

About PROS

PROS Holdings, Inc. (NYSE: PRO) is a leading provider of pricing and margin optimization software products, specializing in price analytics, price execution, and price optimization. By using PROS’ software products, companies gain insight into their pricing strategies, identify pricing-based profit leaks, optimize their pricing decision making and improve their business processes and financial performance. PROS’ software products implement advanced pricing science, which includes operations research, forecasting and statistics. PROS high performance software architecture supports real-time high volume transaction processing and allows PROS to handle the processing and database requirements of the most sophisticated and largest customers, including customers with 100’s of simultaneous users and sub-second electronic transactions. PROS provides professional

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services to configure its software products to meet the specific pricing needs of each customer. PROS has implemented over 200 solutions across a range of industries in more than 40 countries.

Founded in 1985, PROS is headquartered in Houston, Texas. Today, PROS has over 350 employees, more than 100 with advanced degrees and over 25 with Ph.D.s. To learn more about PROS, please visit www.prospricing.com.

Forward-looking Statements

This press release contains forward-looking statements, including statements about PROS’ future financial performance, the interest, stabilization and demand of customers in PROS’ target market of pricing and margin optimization, the growth of PROS pricing partner and influencer ecosystem, PROS’ markets, product development, the demand for PROS solutions, the performance of PROS solutions, and the predictability of the PROS business. The forward-looking statements contained in this press release are based upon PROS’ historical performance and its current plans, estimates and expectations and are not a representation that such plans, estimates or expectations will be achieved. Factors that could cause actual results to differ materially from those described herein include: (a) the risk that the continued slowdown in the economy has on PROS’ sales cycles, prospects’ and customers’ spending decisions and timing of implementation decisions, (b) PROS’ ability to sell its solutions and successfully install and deliver the products and services at levels required to meet its future financial performance expectations, (c) PROS’ ability to develop and sell new products and product enhancements with the required technical specifications and functionality desired by customers, (d) the ability of the market for enterprise pricing and margin optimization software to grow, (e) the ability of the PROS revenue model to continue to provide the level of predictability to the PROS business which it historically has provided, (f) PROS’ ability to maintain its current level of gross margins, (g) PROS’ ability to maintain historical maintenance renewal rates, (h) PROS’ ability to deliver its solutions according to the acceptance criteria of its customers and the avoidance of dispute related thereto, (i) PROS’ successful implementation of its solutions without modification or negotiation of contractual arrangements and (j) the impact of currency fluctuations on our results of operations. Additional information relating to the uncertainty affecting the PROS business are contained in PROS’ filings with the Securities and Exchange Commission. These forward-looking statements represent PROS’ expectations as of the date of this press release. Subsequent events may cause these expectations to change, and PROS disclaims any obligations to update or alter these forward-looking statements in the future, whether as a result of new information, future events or otherwise.

Non-GAAP Financial Measures

PROS has provided in this release certain financial information that has not been prepared in accordance with GAAP. This information includes non-GAAP income from operations, net income and diluted earnings per share. PROS uses these non-GAAP financial measures internally in analyzing its financial results and believes they are useful to investors, as a supplement to GAAP measures, in evaluating PROS’ ongoing operational performance. PROS believes that the use of these non-GAAP financial measures provides an additional tool for investors to use in evaluating ongoing operating results. As noted, the non-GAAP financial measures discussed above are equity-based compensation charges for the quarter and year ended December 31, 2009 of $1.5 million and $5.5 million, respectively, pursuant to GAAP stock-based compensation.

Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Investors are encouraged to review the reconciliation of these non-GAAP measures to their most directly comparable GAAP financial measure as detailed above. A reconciliation of GAAP to the non-GAAP financial measures has been provided in the tables included as part of this press release. PROS use of non-GAAP financial measures may not be consistent with the presentations by similar companies in PROS industry.

Investor Contact:
PROS Investor Relations
Tel: 713-335-5879
e-mail:ir@PROSpricing.com

Media Contact:
PROS Corporate Communications
Tel: 713-335-5197
e-mail:corpcomm@PROSpricing.com

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PROS HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

(Unaudited)

	December 31,
	2009			2008
Assets:
Current assets:
Cash and cash equivalents	$	62,449		$	51,979
Accounts and unbilled receivables, net of allowance of $1,300 and $1,900, respectively		12,035			16,552
Prepaid expenses and other current assets		4,143			3,238
Total current assets		78,627			71,769
Property and equipment, net		2,959			2,901
Other long term assets, net		3,743			2,297
Total assets	$	85,329		$	76,967
Liabilities and stockholders’ equity:
Current liabilities:
Accounts payable	$	1,198		$	1,088
Accrued liabilities		3,504			3,293
Accrued payroll and other employee benefits		4,205			4,493
Deferred revenue		14,099			16,288
Other current liabilities		4,866			4,866
Total current liabilities		27,872			30,028
Long-term deferred revenue		2,418			3,187
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.001 par value, 75,000,000 shares authorized, 30,163,508 and 30,095,846 shares issued, respectively, 25,745,923 and 25,678,261 shares outstanding, respectively		30			30
Additional paid-in capital		63,438			57,668
Treasury stock 4,417,585 common shares, at cost		(13,938	)		(13,938	)
Retained earnings (deficit)		5,509			(8	)
Total stockholders’ equity		55,039			43,752
Total liabilities and stockholders’ equity	$	85,329		$	76,967

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PROS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
(Unaudited)

	For the Three Months						For the Year
	Ended December 31,						Ended December 31,
	2009			2008			2009			2008
Revenue:
License and implementation	$	10,280		$	14,043		$	43,684		$	53,923
Maintenance and support		6,641			5,722			25,099			21,665
Total revenue		16,921			19,765			68,783			75,588
Cost of revenue:
License and implementation		3,471			4,072			13,893			14,894
Maintenance and support		1,146			1,063			4,752			4,358
Total cost of revenue		4,617			5,135			18,645			19,252
Gross profit		12,304			14,630			50,138			56,336
Gross margin		72.7	%		74.0	%		72.9	%		74.5	%
Operating expenses:
Selling, general and administrative		5,616			5,589			22,635			22,094
Research and development		5,137			5,236			20,136			20,309
Total operating expenses		10,753			10,825			42,771			42,403
Income from operations		1,551			3,805			7,367			13,933
Other income:
Interest income		19			127			196			1,112
Income before income tax provision		1,570			3,932			7,563			15,045
Income tax provision		378			347			2,047			4,288
Net income	$	1,192		$	3,585			5,516			10,757
Net earnings attributable to common stockholders per share:
Basic	$	0.05		$	0.14		$	0.21		$	0.41
Diluted	$	0.04		$	0.14		$	0.21		$	0.40
Weighted average number of shares:
Basic		25,734,068			25,919,422			25,710,569			26,120,613
Diluted		26,736,311			26,236,828			26,430,817			26,569,074

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PROS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS — RECONCILIATION
OF GAAP TO NON-GAAP
(Dollars in thousands, except per share data)
(Unaudited)

	For the Three Months						For the Year
	Ended December 31,						Ended December 31,
	2009			2008			2009			2008
Net income	$	1,192		$	3,585		$	5,516		$	10,757
GAAP stock based compensation:
Cost of revenue		232			147			872			611
Selling, general and administrative		810			582			2,938			2,145
Research and development		411			356			1,665			1,265
Total operating expenses		1,453			1,085			5,475			4,021
Tax impact of stock based compensation		(362	)		(103	)		(1,482	)		(1,146	)
Total non-GAAP tax impact		(362	)		(103	)		(1,482	)		(1,146	)
Non-GAAP net income	$	2,283		$	4,567		$	9,509		$	13,632
Basic	$	0.09		$	0.18		$	0.37		$	0.52
Diluted	$	0.09		$	0.17		$	0.36		$	0.51
Shares used in computing net income per common share:
Basic		25,734,068			25,919,422			25,710,569			26,120,613
Diluted		26,736,311			26,236,828			26,430,817			26,569,074

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PROS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS — RECONCILIATION
OF GAAP TO NON-GAAP
(Dollars in thousands)
(Unaudited)

	For the Three Months						For the Year
	Ended December 31,						Ended December 31,
	2009			2008			2009			2008
Income from operations	$	1,551		$	3,805		$	7,367		$	13,933
GAAP stock based compensation		1,453			1,085			5,475			4,021
Non-GAAP income from operations	$	3,004		$	4,890		$	12,842		$	17,954
Non-GAAP income from operations %		17.8	%		24.7	%		18.7	%		23.8	%
GAAP — gross profit	$	12,304		$	14,630		$	50,138		$	56,336
GAAP stock based compensation		232			147			872			611
Non-GAAP gross profit	$	12,536		$	14,777		$	51,010		$	56,947
Non-GAAP gross margin		74.1	%		74.8	%		74.2	%		75.3	%
GAAP — cost of license and implementation	$	3,471		$	4,072		$	13,893		$	14,894
GAAP stock based compensation		232			147			872			611
Non- GAAP — cost of license and implementation	$	3,239		$	3,925		$	13,021		$	14,283
Non-GAAP cost license and implementation margin		68.5	%		72.1	%		70.2	%		73.6	%
GAAP — selling, general and administrative	$	5,616		$	5,589		$	22,635		$	22,094
GAAP stock based compensation		810			582			2,938			2,145
Non- GAAP — selling, general and administrative	$	4,806		$	5,007		$	19,697		$	19,949
GAAP — research and development	$	5,137		$	5,236		$	20,136		$	20,309
GAAP stock based compensation		411			356			1,665			1,265
Non- GAAP — research and development	$	4,726		$	4,880		$	18,471		$	19,044

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PROS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)

	For the Year
	Ended December 31,
	2009			2008
Operating activities:
Net income	$	5,516		$	10,757
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		1,283			1,363
Stock based compensation		5,475			4,021
Deferred income taxes		(1,189	)		(821	)
Provision for doubtful accounts		(566	)		288
Other		119			—
Changes in operating assets and liabilities:
Accounts receivable		4,377			(669	)
Unbilled receivables		1,932			(1,064	)
Prepaid expenses and other		(1,281	)		860
Accounts payable, accrued liabilities, accrued contract labor and accrued payroll		(1,423	)		(340	)
Deferred revenue		(2,958	)		(572	)
Net cash provided by operating activities		11,285			13,823
Investing activities:
Purchases of property and equipment		(1,111	)		(1,208	)
Net cash used in investing activities		(1,111	)		(1,208	)
Financing activities:
Proceeds from the exercise of stock options		296			286
Secondary offering costs		—			(300	)
Purchase of treasury stock		—			(5,000	)
Net cash provided by (used in) financing activities		296			(5,014	)
Net increase in cash and cash equivalents		10,470			7,601
Cash and cash equivalents:
Beginning of period		51,979			44,378
End of period	$	62,449		$	51,979

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