PROS Holdings, Inc. Reports Fourth Quarter AND Full Year 2010 Financial Results

• Fourth quarter GAAP total revenue of $20.2 million, exceeding the high end of revenue guidance.
• Full year GAAP total revenue of $71.0 million and non-GAAP total revenue of $74.2 million.
• Fourth quarter GAAP net income of $0.02 per share and non-GAAP net income of $0.08 per share.
• Cash and cash equivalents of $55.8 million and no debt.

HOUSTON, Feb. 9, 2011 — PROS Holdings, Inc. (NYSE: PRO), a leading provider of pricing and margin optimization software solutions, today announced financial results for the fourth quarter and full year ended December 31, 2010.

Total revenue, in accordance with generally accepted accounting principles (“GAAP”), for the fourth quarter of 2010 was $20.2 million, exceeding the high end of the Company’s revenue guidance for the quarter.  For the year ended December 31, 2010, GAAP revenue was $71.0 million and non-GAAP revenue was $74.2 million.

Andres Reiner, CEO, stated, “We are pleased that entering 2011, PROS is a stronger company as reflected by our growth and overall performance in 2010 and we believe PROS is in a strong position to seize the many opportunities ahead.  We are confident that our growth strategies are taking hold.  Awareness and adoption of PROS solutions are increasing, our customers are realizing outstanding value from our solutions, our partner ecosystem is expanding, and our product innovations continue to set new standards in the market.  We believe this combination positions PROS as the software provider of choice for companies interested in improving revenues and profitability.”

For the quarter ended December 31, 2010, PROS reported a GAAP loss from operations of $0.3 million, the primary difference between GAAP and non-GAAP income from operations is share-based compensation expense of $2.5 million. For the fourth quarter of 2009, income from operations was $1.6 million.  GAAP net income in the quarter was $0.6 million, or $0.02 per share, compared with GAAP net income of $1.2 million, or $0.04 per share, in the fourth quarter of 2009.
For the quarter ended December 31, 2010, non-GAAP income from operations was $2.9 million compared with $3.0 million for the same period in 2009.  Non-GAAP net income was $2.2 million, or $0.08 per share, which includes the benefit of the Research and Experimentation (“R&E”) tax credit, compared with $2.3 million, or $0.09 per share, in the fourth quarter of 2009.

For the year ended December 31, 2010, loss from operations, in accordance with GAAP was $4.3 million compared with income from operations of $7.4 million for the year ended December 31, 2009.  GAAP net loss for the year was $1.9 million, or $0.07 per share, compared with GAAP net income of $5.5 million, or $0.21 per share, in 2009.

For the year ended December 31, 2010, non-GAAP income from operations was $9.5 million compared with $12.8 million for the year ended December 31, 2009, as the Company invested in planned initiatives to drive long-term growth.  Non-GAAP net income for the year was $6.8 million, or $0.25 per share, which includes the benefit of the R&E tax credit, compared with $9.5 million, or $0.36 per share, in 2009.

The R&E tax credit was signed into law in the fourth quarter of 2010.  As a result for GAAP, PROS recorded the  benefit of the R&E tax credit for 2010 in the fourth quarter of 2010.  The GAAP effect of the reinstatement of the R&E tax credit was $0.02 and $0.03 for the quarter and year ended December 31, 2010, respectively, and non-GAAP earnings per share increased $0.01 and $0.02 for the quarter and year ended December 31, 2010, respectively.

Charles Murphy, Executive Vice President and CFO, stated, “We are very pleased that our revenue exceeded the high end of our revenue guidance for the fourth quarter, as well as our second quarter of achieving significant year over year non-GAAP revenue growth.  Even with our continued investments in support of long term growth, we were able to maintain a good level of profitability with a non-GAAP operating margin of 14.3% for the fourth quarter and 12.9% for the year.  We are pleased with our strong balance sheet, with $55.8 million in cash and no debt, and our history of profitability.  We believe our backlog growth will drive revenue growth on a full-year basis in 2011, while we continue making investment that will further strengthen our leadership position and drive longer-term growth opportunities.”

In the third quarter of 2010, the Company settled a legal dispute which resulted in a 2010 pre-tax charge to operating income of $6.2 million for the year, of which $3.1 million was a reduction of revenue and $3.1 million was an expense.  The Company does not anticipate any future payment obligations related to the litigation.

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 quarter and year ended December 31, 2010 and 2009.

Financial Outlook

Based on information as of today, PROS is providing the following outlook for the first quarter of 2011:

First Quarter of Fiscal Year 2011:

• The Company expects total revenue in the range of $20.5 million to $20.9 million.
• The Company is projecting GAAP income from operations of $0.8 million to $1.1 million and GAAP earnings per share of $0.02 to $0.03.
• The Company is projecting non-GAAP income from operations of $2.2 million to $2.5 million and non-GAAP earnings per share of $0.05 to $0.06.  Non-GAAP income from operations for the first quarter excludes estimated non-cash share-based compensation charges of approximately $1.4 million.
• Earnings per share are based on an estimated weighted average of 27.3 million diluted shares outstanding.

The GAAP and non-GAAP projections provided above are based on an estimated tax rate of 34%.

Backlog

We had backlog of $107.0 million as of December 31, 2010 as compared to backlog of $84.3 million as of December 31, 2009. The portion of our backlog as of December 31, 2010 reasonably expected to be recognized as revenue within the next twelve months is estimated to be $72.0 million.

Conference Call

In conjunction with this announcement, PROS Holdings, Inc. will host a conference call on February 9, 2010, at 4:30 p.m. (ET) to discuss the company’s financial results.  To access this call, dial (800) 901-5259 (domestic) or (617) 786-4514 (international).  The pass code for the call is 75495948.  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 17466797.  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.

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