NYSE:PRO Analyst Day Presentation - 4Mar11
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NYSE:PRO Analyst Day Presentation - 4Mar11

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PROS Holdings, Inc. (NYSE:PRO) Analyst Day Presentation - 4Mar11 ...

PROS Holdings, Inc. (NYSE:PRO) Analyst Day Presentation - 4Mar11

Agenda (Speaker / Topic)
Andres Reiner, President & CEO / Welcome and PROS Update
Craig Zawada, SVP Pricing Excellence / The Current and Future State of Pricing
Tim Girgenti, Chief Marketing Officer / Marketing Overview
Wilbur Reid, Director of Strategic Pricing SP Richards / SP Richards and PROS
Chris Jones, Chief Sales Officer / Sales Overview
Charlie Murphy, EVP & CFO / Financial Update


PROS is a leading provider of prescriptive pricing and revenue management software for companies in the manufacturing, distribution, services and travel industries. PROS gives customers far greater confidence and agility in their pricing strategies by providing data-driven insights into transaction profitability, forecasting demand, recommending optimal prices for each product and deal, and streamlining pricing processes with enhanced controls and compliance. With $468 billion in revenues under management, PROS has implemented more than 500 solutions in more than 50 countries. The PROS team comprises more than 500 professionals, including 100 with advanced degrees and 25 with Ph.D.s.
StockTwits - http://stocktwits.com/PROSHoldings
Twitter - http://twitter.com/#!/mattbal4
IR Website - http://phx.corporate-ir.net/phoenix.zhtml?c=211158&p=irol-irhome
Corporate Blog - http://www.pricingleadership.com/

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    NYSE:PRO Analyst Day Presentation - 4Mar11 NYSE:PRO Analyst Day Presentation - 4Mar11 Presentation Transcript

    • PROS Analyst Day 20114 March 2011 Leading Provider ofEnterprise Pricing Software ©2011 PROS Holdings, Inc. All rights reserved. 1
    • Forward-looking StatementsIncluded in this material are forward-looking statements including,but not limited to, those related to earnings and other financialprojections. These predictions, estimates, and other forward-looking statements involve known and unknown risks anduncertainties that may cause actual results to differ materiallyfrom those expressed or implied in this presentation. We referyou to the documents we file with the Securities and ExchangeCommission, which identify and discuss important factors thatcould cause actual results to differ materially from thosediscussed in these forward-looking statements. All statementsincluded in these materials are based upon information known atthe time, and PROS Holdings assumes no obligation to updateany such statements. ©2011 PROS Holdings, Inc. All rights reserved. 2
    • AgendaTime Speaker Topic8:30 am Andres Reiner, President & CEO Welcome and PROS Update9:00 am Craig Zawada, SVP Pricing Excellence The Current and Future State of Pricing9:30 am Tim Girgenti, Chief Marketing Officer Marketing Overview10:00 am BREAK Wilbur Reid, Director of Strategic10:15 am SP Richards and PROS Pricing SP Richards11:00 am Chris Jones, Chief Sales Officer Sales Overview11:30 am Charlie Murphy, EVP & CFO Financial Update12:00 pm PROS Executive Team PROS Leadership Q&A Panel ©2011 PROS Holdings, Inc. All rights reserved. 3
    • PROS UpdateAndres Reiner, President and CEO Leading Provider ofEnterprise Pricing Software ©2011 PROS Holdings, Inc. All rights reserved. 4
    • Company Overview to leverage the power of pricing to improve FY 2010 revenue $74.2 million up 8% YOY, Q4 up 19% YOY 500+ implementations in 50 countries over 25 year history $2M average sales price Serve four major verticals across B2B & B2C ~95% maintenance renewal rate ©2011 PROS Holdings, Inc. All rights reserved. 5
    • Why Pricing Software? Pricing Complexity Limited Visibility Dynamic Markets ©2011 PROS Holdings, Inc. All rights reserved. 6
    • PROS Prescriptive Pricing SoftwareImprove Market Share Improve ©2011 PROS Holdings, Inc. All rights reserved. 7
    • Large Market Opportunity Enterprise ~7,500 $500M+ Targets Mid-Market $100-500M ~ 18,000 Targets Enterprise B2B Market Penetration: 3% to 5% -Gartner Market Data Source: Hoovers December 2010 ©2011 PROS Holdings, Inc. All rights reserved. 8
    • Why We’re Confident ©2011 PROS Holdings, Inc. All rights reserved. 9
    • PROS Momentum 2011 backlog revenue $72M, Three consecutive quarters of YOY growth Stronger pipeline and win rates Higher ASP 1Q10 2Q10 3Q10 Q410 FYE2010 Revenue $17.3 $17.8 $18.8 $20.2 $74.2 YOY ∆ -3.9% 3.0% 14.0% 19.0% 7.8% Operating Income 12.6% 11.5% 12.8% 14.3% 12.9% ©2011 PROS Holdings, Inc. All rights reserved. 10
    • Maturing Buying Process Favors PROS Increased activity More emphasis on More emphasis on ©2011 PROS Holdings, Inc. All rights reserved. 11
    • Intensifying Market Dynamics Wall Street Journal Feb 11, 2011“Tata Steel Profit Misses Estimates onhigher European Raw Material Costs”BloombergFeb 15, 2011 “Valspar First Quarter Margins Down to Raw Material Pricing ”“Electrolux operating income declined Toronto Stardue to rising raw material costs” Feb 15, 2011Wall Street JournalFeb 2, 2011 ©2011 PROS Holdings, Inc. All rights reserved. 12
    • Increased Visibility of Pricing Success“With strict cost and pricing discipline, we “We expect our annual big book pricingwere able to increase earnings considerably cycle to provide gross margin expansion indespite the difficult market environment.” excess of 100 basis points for 2011 first - BASF quarter vs. 4th quarter.” –MSC Top Concerns of CFOs for 2011 • Ability to maintain margins • Ability to forecast results • Deal with rice pressure from competitors February 2011 ©2011 PROS Holdings, Inc. All rights reserved. 13
    • Investing for Long-term Growth sales and marketing innovation partner ecosystem, M&A ©2011 PROS Holdings, Inc. All rights reserved. 14
    • The Current and Future State of PricingCraig Zawada, SVP Pricing Excellence Leading Provider ofEnterprise Pricing Software ©2011 PROS Holdings, Inc. All rights reserved. 15
    • Contents $ $ $1. Rising importance of pricing 2. The rising of importance 3. Implications for PROS software – in getting it right ©2011 PROS Holdings, Inc. All rights reserved. 16
    • Why is pricing strategic? Price is the Most Powerful Lever to Drive Profits Revenue Comparison of Profit Levers focused *Source: Baker, Marn, Zawada, 8.7% McKinsey & Company – The Price Advantage (2nd Edition 2010)Increase in 5.9% John Wiley & Sons Operating Profit 2.8% 1.8% Fixed Volume Variable Price Costs Costs Improve by 1% ©2011 PROS Holdings, Inc. All rights reserved. 17
    • B2B pressures intensifying… Channel World Increased concentration sourcing volatility Increased Excess Open- Higher price buyer capacity book transparency sophistication costingSource: The Price Advantage, McKinsey & Company ©2011 PROS Holdings, Inc. All rights reserved. 18
    • … as well as B2C pressures Graying Increased baby quality boomers private brands Growing Frugal Higher price Discount Gen-X and trans- chains Millennials parencySource: The Price Advantage, McKinsey & Company ©2011 PROS Holdings, Inc. All rights reserved. 19
    • Sophisticated buyers Spend on software tools – ($ Millions) 3,200 ~180 E-Procurement PricingSource: McKinsey & Company Research (2009), Gartner Research (2010) ©2011 PROS Holdings, Inc. All rights reserved. 20
    • Finding cost savings more difficult Cents/lb Copper smelting and refining cost curve USD 30 1992 25 2009 20 15 10 5 0 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 Cumulative capacitySource: Brook Hunt Report Kilo tons ©2011 PROS Holdings, Inc. All rights reserved. 21
    • Contents $ $ $1. Rising importance of pricing 2. The rising of importance 3. Rising to theby challenge – software – in raising the profile getting it right of pricing in your company ©2011 PROS Holdings, Inc. All rights reserved. 22
    • Pricing problems much more complex… Shorter product lifecycles Volatile input costs Segment proliferation Multi-country pricing Distributed decision making ©2011 PROS Holdings, Inc. All rights reserved. 23
    • Increased volatility of input costs“Eastman deals with Rising Raw-Material Costs”MorningstarFeb 1, 2011“Tata Steel Profit Misses Estimates onhigher European Raw Material Costs”BloombergFeb 15, 2011 “Valspar First Quarter Margins Down to Raw Material Pricing ” Toronto Star“DSM looks to price hikes after Feb 15, 2011Q4 slightly misses”Reuters “Electrolux operating income declinedFeb 22, 2011 due to rising raw material costs” Wall Street Journal Feb 2, 2011 ©2011 PROS Holdings, Inc. All rights reserved. 24
    • Increased volatility of input costs (2) Average month to month price change across 20 commodities Percent 6.3 + 42% 5.49 4.64 4.09 3.84 3.82 Average monthly price change Std. Deviation 1981-1990 1991-2000 2001-2010Source: Indexmundi.com, PROS analysis ©2011 PROS Holdings, Inc. All rights reserved. 25
    • Segmentation challenge - example Percent of revenue Overall goal: Move the curve and increase profits PRECONDITION: Develop a superior fact base on account and transaction profitability and source of leakageAccount net Difficultpocket margin <0 0-5 5-10 10-15 15-20 20-25 >25Percent Easy 3. Increase share of attractive 1. Cut off the losers or make 2. Raise average though improved Actions them profitable customer insight customers 4. Reduce Churn Typical % of impact 20-30% 60-70% 10-15% Relative challenge A “hunting license” for Difficult to argue with outliers Difficult to identify increasing revenue is welcome Rationale Policy-based changes easier Harder to convince sales force; However, often difficult to than behavior-based requires behavior change identify true, at-risk customers ©2011 PROS Holdings, Inc. All rights reserved. 26
    • Pricing software is key Percent of revenue Overall goal: Move the curve andProvide on-going access increase profitsto account and transactionprofitability and salespersonperformanceAccount net Difficultpocket margin <0 0-5 5-10 10-15 15-20 20-25 >25Percent Easy 3. Increase share of attractive 1. Cut off the losers or make 2. Raise average though improved Actions them profitable customer insight customers 4. Reduce Churn Floor prices, approval Scientific At risk customer flow segmentation assessment Audit trail Target and High value account Accountability stretch prices identification ©2011 PROS Holdings, Inc. All rights reserved. 27
    • The role of pricing software… Shorter product Decipher trends lifecycles Quickly react to changes Ensure cost recovery, react to changesVolatile input costs Identify underpriced segments Segment proliferation Multi-country pricing Quickly react to market trends Provide transparency to performance Distributed decision Provide guidance to decision-makers making Bring accountability to actions©2011 PROS Holdings, Inc. All rights reserved. 28
    • Good news: Pricing organizations Number of pricing dedicated professionals per $ billion in revenue 9.3 2.7Source: PROS analysis Ten years ago Today ©2011 PROS Holdings, Inc. All rights reserved. 29
    • Contents $ $ $1. Rising importance of pricing 2. Thegettingbarright for rising it – 3. Implications for PROS ©2011 PROS Holdings, Inc. All rights reserved. 30
    • Tremendous market opportunity Increased importance of software to capture pricing opportunity Companies that do not adopt pricing software at substantial risk of falling behind (and losing other advantages) PROS provides the engine for a broader array of companies to create pricing power Companies faced with a complexity and leadership challenge want to by from the leader ©2011 PROS Holdings, Inc. All rights reserved. 31
    • Marketing UpdateTim Girgenti, Chief Marketing Officer Leading Provider ofEnterprise Pricing Software ©2011 PROS Holdings, Inc. All rights reserved. 32
    • PROS Serves B2B and B2C Markets Fortune 500: 4 of top 20 Healthcare Wholesalers: 3 of top 7 Office & Electronics Wholesalers: 2 of top 6 Airlines: 15 of top 25 Automotive Services: 2 of top 5 Heavy Equipment: 2 of top 5 ©2011 PROS Holdings, Inc. All rights reserved. 33
    • PROS Differentiation Prescriptive SustainableMost Advanced UnmatchedPricing Science Commitment to Customer Success Unparalleled Experience & Most Complete Financial Stability Solution ©2011 PROS Holdings, Inc. All rights reserved. 34
    • Marketing Objectives ©2011 PROS Holdings, Inc. All rights reserved. 35
    • Segmented Approach • Pricing • Marketing Roles • Sales • CFO • Manufacturing • Distribution Industries • Services • Travel Technology • ERP • CRM ©2011 PROS Holdings, Inc. All rights reserved. 36
    • ©2011 PROS Holdings, Inc. All rights reserved.37 37
    • Project 95 Create provocative messages Target the office of the CFO Tap into markets already in motion ©2011 PROS Holdings, Inc. All rights reserved. 38
    • Provocative Messages Competitive Pressure • 71 Fortune 500 companies • 71% of Fortune 500 Distributors • 21% of Fortune 500 Manufacturers Performance Pressure • High performers 230% better than S&P 500 Risk Pressure • Pricing is your profitability safety net ©2011 PROS Holdings, Inc. All rights reserved. 39
    • Target the Office of the CFO • Ability to maintain margins • Ability to forecast results • Price pressure from competitors ©2011 PROS Holdings, Inc. All rights reserved. 40
    • Tap into Markets Already in Motion ©2011 PROS Holdings, Inc. All rights reserved. 41
    • Global Partner Ecosystem System Integrators Technology Partners ©2011 PROS Holdings, Inc. All rights reserved. 42
    • SP Richards and PROS Wilbur Reid43 Director of Strategic Pricing ©2011 PROS Holdings, Inc. All rights reserved.
    • Time Tellers vs Clock Builders ©2011 PROS Holdings, Inc. All rights reserved.44
    • Agenda Overview of SP Richards / Genuine Parts SP Richards Pricing Challenges Understanding Profitability Segmented Pricing Strategy Pricing Complexity Dealer Challenges: MyAnalystPro Positive Results ©2011 PROS Holdings, Inc. All rights reserved.45
    • Genuine Parts Overview 2010 Revenue: $11.2 billion Fortune 500: ranked #236 55 Consecutive Years of Increased Dividends ©2011 PROS Holdings, Inc. All rights reserved.46
    • SP Richards Founded in 1848 Oldest Company in Atlanta Tradition of Trust 44 Distribution Centers in US and Canada Primary customers are independent office supply dealers Culture is conservative and traditional, but is also very innovative. History of slow, steady growth, but 7 consecutive years of declining margin going into 2008. ©2011 PROS Holdings, Inc. All rights reserved.47
    • Sales Breakdown Furniture Technology 12.9% Products 32.0% Cleaning and Breakroom Supplies Power 7.6% Channel 18% Independent DealersOffice Supplies 82% 47.6%48 ©2011 PROS Holdings, Inc. All rights reserved. Sales by Product Category
    • Challenge #1: Understanding True Profitability Gross Margin was THE measure of profitability Established a centralized customer incentives database Established activity based costing cost-to-serve metrics Solution: Implemented a customer waterfall and other reporting tools in PROS Scientific Analytics ©2011 PROS Holdings, Inc. All rights reserved.49
    • ©2011 PROS Holdings, Inc. All rights reserved.50
    • Challenge #1: Understanding True Profitability Early Wins Analyze data to eliminate losses – $200k error with one customer caught in training – Margin Summits Identify low price index and low margin products and customers to take increases ©2011 PROS Holdings, Inc. All rights reserved.51
    • Challenge #2: One-Size-Fits-All Pricing Majority of sales priced at nationally published benchmarks. Most customers get our ‘best price’ Solution: Use PROS Segmentation and Optimized Price Guidance to target the right products at the right prices for the right customers. ©2011 PROS Holdings, Inc. All rights reserved.52
    • SPR Peer Groups Power Internet Independent Bookstores Channel Resellers Dealers Not Committed Committed Other customer attributes to consider in Stocking Stockless Regular future segmentations: geography, life cycle, buying group, etc. 1 Small 5 Small Penetration 2 Medium 6 Medium 3 Large 7 Large 4 Super 8 Super53 Move away from one-size-fits-all pricing ©2011 PROS Holdings, Inc. All rights reserved.
    • Challenge #3: Pricing Complexities Too Much For Excel or Human Brain Institutional memory needs to be captured Chuck Solution: utilize Price Policies in PROS Price Optimizer ©2011 PROS Holdings, Inc. All rights reserved.54
    • Product Relationships Identifying product strategy by brand and category DRA90135 Create pricing policies (rules) based on those strategies Proprietary Brand to Branded: − Genuine Joe glass cleaner to be priced 10% less than the comparable Windex product − As long as margin is at least 20% − And within 3% of the competitive equivalent Multi-packs Good/better/best GJO10350 More profitable options ©2011 PROS Holdings, Inc. All rights reserved.55
    • Product RelationshipsS PR04501 BINDER,3-RNG,LBLHLD,2"-BK $ 2.64 AVE04501 $ 3.49 -24.4%S PR03602 BINDER,3-RNG,3"-BK $ 3.07 AVE03602 $ 4.66 -34.1%S PR05711 BINDER,VUE,3-RNG,1"-WE $ 1.37 AVE05711 $ 2.49 -45.1%S PR09700 BINDER,VUE,S-RNG,3"-BK $ 3.79 AVE09700 $ 7.22 -47.6% ©2011 PROS Holdings, Inc. All rights reserved. 56
    • Scientific Analysis – Demand and Price Modeling©2011 PROS Holdings, Inc. All rights reserved. 57
    • Promotional Analysis©2011 PROS Holdings, Inc. All rights reserved. 58
    • PROS Scientific Analytics for Dealers• Patent Pending“… a stunning success” - OPI Magazine ©2011 PROS Holdings, Inc. All rights reserved.59
    • ©2011 PROS Holdings, Inc. All rights reserved.60
    • MyAnalystPro™ Dashboard Period over period Top sales and margins Customers, period to date Monthly Sales and Margin Trend ©2011 PROS Holdings, Inc. All rights reserved.61
    • Market Price Points ©2011 PROS Holdings, Inc. All rights reserved.62
    • SP Richards 2010 Service Vendor of the Year ©2011 PROS Holdings, Inc. All rights reserved.63
    • NAPA PROS Implementation in progress Scientific Analytics Price Optimizer ©2011 PROS Holdings, Inc. All rights reserved.64
    • Northeast Division Vice President Pricing Dept ©2011 PROS Holdings, Inc. All rights reserved.65
    • Questions? Wilbur Reid Director of Strategic Pricing ©2011 PROS Holdings, Inc. All rights reserved.66
    • Sales UpdateChris Jones, Chief Sales Officer Leading Provider ofEnterprise Pricing Software ©2011 PROS Holdings, Inc. All rights reserved. 67
    • Executive Summary-What has changed Early majority buyer focus Go to market Processes and infrastructure scalability Clear repeatable winning formula ©2011 PROS Holdings, Inc. All rights reserved. 68
    • Early Majority Buyer-What they valueFrom Jeffrey Moore’s Crossing the Chasm Incremental, measurable, predictable progress Highly reference oriented Risk is negative to them Like to see competition Want to buy from the proven market leader ©2011 PROS Holdings, Inc. All rights reserved. 69
    • Go-to-Market Inside Sales Customer Outside Executive Sales Delivery Strategic Team Consulting Value Engineering ©2011 PROS Holdings, Inc. All rights reserved. 70
    • Winning Formula Strong messaging to match superior product Strong sales playbook execution Rigorous pipeline management Thorough win/loss analysis Exceptional references ©2011 PROS Holdings, Inc. All rights reserved. 71
    • Voice of the Customer - Why They Select PROS Prescriptive product and services References indicate unparalleled level of commitment to their success Superior capabilities ©2011 PROS Holdings, Inc. All rights reserved. 72
    • Voice of the Customer - References“….PROS references were also substantially better than any competitor - the biggest differentiator...” ©2011 PROS Holdings, Inc. All rights reserved. 73
    • Voice of the Customer - Ability to Deliver“We felt there would be a huge difference in success of the project with PROS, we gained trust, we were a lot more comfortable with PROS.” ©2011 PROS Holdings, Inc. All rights reserved. 74
    • Voice of the Customer - Superior Capabilities “…the combination of your optimization and no custom code was a big differentiator on the value creation and TCO analysis” ©2011 PROS Holdings, Inc. All rights reserved. 75
    • Financial UpdateCharlie Murphy, EVP and CFO Leading Provider ofEnterprise Pricing Software ©2011 PROS Holdings, Inc. All rights reserved. 76
    • Investment Highlights Differentiated product leadership with proven results Large underpenetrated global market – ~7,500 enterprise targets* Increasing awareness of need for pricing software Strong revenue visibility Mid 90% maintenance renewal rate Strong balance sheet, solid $55.8 million cash position, no debt Q4 2010 record revenue of $20.2 million *Source: Hoovers - December 2010 ©2011 PROS Holdings, Inc. All rights reserved. 77
    • Financial Model Diversified Revenue Mix Across Industries and Geography Manufacturing, Distribution, Services, Travel 58% of FY 2010 revenue came from outside US Customers in 50 countries Historically High Revenue Visibility Revenue recognized using percentage of completion No revenue recognized at contract signing 45 % of FY 2010 revenue was recurring revenue Total FYE 2010 record backlog $107M, up 27% YOY 2011 record backlog anticipated revenue $72M, up 40% YOY FY 2010 maintenance revenue was up 16.5% YOY Strong History of Profitability and Cash Flow 11+ years of non-GAAP profitability and positive cash flow ©2011 PROS Holdings, Inc. All rights reserved. 78
    • Financial Track Record $75.6 $74.2 $62.1 $68.8 YE December, $ in millions License & Implementation Maintenance & Support $46.0 $53.9 $44.9 $43.7 $35.1 $43.2 $29.6 $29.3 $20.2 $25.1 $21.7 $18.9 $16.4 $14.9 2005 2006 2007 2008 2009 FY 2010 Gross Margin* 61.9% 66.1% 71.5% 75.3% 74.2% 73.5% Operating Margin* 9.5% 14.8% 20.3% 23.8% 18.7% 12.9% SG&A* - $ $12.0 $13.3 $15.5 $19.9 $19.7 $25.5 SG&A* - % 34.2% 28.9% 25.0% 26.3% 28.6% 34.4%* Non-GAAP R&D* - $ $6.4 $10.3 $16.3 $19.0 $18.5 $19.4 R&D* - % 18.2% 22.4% 26.3% 25.1% 26.9% 26.2% ©2011 PROS Holdings, Inc. All rights reserved. 79
    • Backlog GrowthYE December, $ in millions Backlog at 12/31 Estimated Revenue from Backlog FY Total Revenue $107.0 $83.6 $84.3 $75.6 $68.8 $74.2 $72.0 $51.3 2008 2009 2010 2011 ©2011 PROS Holdings, Inc. All rights reserved. 80
    • Financial Highlights - Growth TrendNon-GAAP, $ in millions 1Q10 2Q10 3Q10 Q410 FYE2010 Revenue $17.3 $17.8 $18.8 $20.2 $74.2 YOY ∆ -3.9% 3.0% 14.0% 19.0% 7.8% Operating 12.6% 11.5% 12.8% 14.3% 12.9% Income Trend in Revenue Growth thru 12/31/10 Q410 $20.2M record revenue 5th consecutive quarter of sequential revenue growth 3rd consecutive quarter of YOY revenue growth, believe trend will continue Operating Income Strategically investing for revenue growth, scalability and market share Continued to increase expenses during recession and recovery ©2011 PROS Holdings, Inc. All rights reserved. 81
    • Cash Flow and CapEx Spending2010 Cash flow from operations below historical level Lower operating income - invested for what we believe is a big market opportunity Higher level of bookings in 2009 were term contracts which result in cash flow over a longer term than a perpetual license First year with stock settled stock appreciation and restricted stock units settling net of tax – use of cash of $1.M Variability in cash flow depending on timing of milestone billings and timing of expenses No federal tax payments2011 Cash flow from operations expected to approximate net income Continued investment for what we believe is a big market opportunity Bookings expected to be predominately perpetual license contracts Continuation of settlement of options net of tax estimated at $2.0M Federal tax refund of approximately $3.6M in 2011 Federal tax payments of approximately 34% of pretax income Variability in cash flow depending on timing of milestone billings and timing of expensesCapEx spending 2010 - $1.6M for IT infrastructure and software 2011 – Estimated $3.4M for IT infrastructure and software; systems upgrade and facility improvements ©2011 PROS Holdings, Inc. All rights reserved. 82
    • PROS Leadership Q&A PanelPROS Executive Team Leading Provider ofEnterprise Pricing Software ©2011 PROS Holdings, Inc. All rights reserved. 83