NYSE:PRO Analyst Day Presentation - 4Mar11

PROS Analyst Day 20114 March 2011

Leading Provider of

Enterprise Pricing Software

Included in this material are forward-looking statements including,

but not limited to, those related to earnings and other financial

projections. These predictions, estimates, and other forward-

looking statements involve known and unknown risks and

uncertainties that may cause actual results to differ materially

from those expressed or implied in this presentation. We refer

you to the documents we file with the Securities and Exchange

Forward-looking Statements

you to the documents we file with the Securities and Exchange

Commission, which identify and discuss important factors that

could cause actual results to differ materially from those

discussed in these forward-looking statements. All statements

included in these materials are based upon information known at

the time, and PROS Holdings assumes no obligation to update

any such statements.

Agenda

Time Speaker Topic

8:30 am Andres Reiner, President & CEO Welcome and PROS Update

9:00 am Craig Zawada, SVP Pricing Excellence The Current and Future State of Pricing

9:30 am Tim Girgenti, Chief Marketing Officer Marketing Overview

10:00 am BREAK

10:15 amWilbur Reid, Director of Strategic

Pricing SP Richards SP Richards and PROS

11:00 am Chris Jones, Chief Sales Officer Sales Overview

11:30 am Charlie Murphy, EVP & CFO Financial Update

12:00 pm PROS Executive Team PROS Leadership Q&A Panel

PROS UpdateAndres Reiner, President and CEO

Leading Provider of

Company Overview

� FY 2010 revenue $74.2 million up 8% YOY, Q4 up 19% YOY

to leverage the power of pricing to

improve

� 500+ implementations in 50 countries over 25 year history

� $2M average sales price

� Serve four major verticals across B2B & B2C

� ~95% maintenance renewal rate

Limited Visibility

Why Pricing Software?

Pricing Complexity

Limited Visibility

Dynamic Markets

Improve

Market Share

Improve

PROS Prescriptive Pricing Software

~7,500 Targets

Large Market Opportunity

Enterprise

$500M+

~ 18,000 Targets

Enterprise B2B Market Penetration: 3% to 5% -Gartner

Mid-Market

$100-500M

Market Data Source: Hoovers December 2010

Why We’re Confident

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%

Maturing Buying Process Favors PROS

� Increased activity

� More emphasis on

“Tata Steel Profit Misses Estimates on

higher European Raw Material Costs”

Intensifying Market Dynamics

Wall Street Journal

Feb 11, 2011

higher European Raw Material Costs”Bloomberg

Feb 15, 2011

“Valspar First Quarter Margins

Down to Raw Material Pricing ”Toronto Star

Feb 15, 2011“Electrolux operating income declined

due to rising raw material costs”Wall Street Journal

Feb 2, 2011

Increased Visibility of Pricing Success

“We expect our annual big book pricing

cycle to provide gross margin expansion in

excess of 100 basis points for 2011 first

quarter vs. 4th quarter.”

–MSC

“With strict cost and pricing discipline, we

were able to increase earnings considerably

despite the difficult market environment.”

- BASF

Top Concerns of CFOs for 2011

• Ability to maintain margins

• Ability to forecast results

• Deal with rice pressure from competitors

February 2011

Investing for Long-term Growth

sales and marketing

innovation

partner ecosystem, M&A

The Current and Future State of Pricing Craig Zawada, SVP Pricing Excellence

Leading Provider of

Contents

2. The rising

importance of

software – in

getting it right

3. Implications for

1. Rising importance

of pricing

Comparison of Profit Levers

Increase in

Revenuefocused

*Source: Baker, Marn, Zawada,

McKinsey & Company –

The Price Advantage (2nd Edition 2010)

John Wiley & Sons

Why is pricing strategic?Price is the Most Powerful Lever to Drive Profits

1.8%2.8%

Improve by 1%

Increase in Operating

Profit

FixedCosts

Volume VariableCosts

John Wiley & Sons

B2B pressures intensifying…

Channel

concentration

sourcing

Increased

volatility

Increased

sophistication

Excess

capacity

costing

Higher price

transparency

Source: The Price Advantage, McKinsey & Company

… as well as B2C pressures

Graying

boomers

Increased

quality

private

brands

Growing Frugal Higher price

Source: The Price Advantage, McKinsey & Company

Growing

Discount

chains

Frugal

Gen-X and

Millennials

Higher price

trans-

parency

Sophisticated buyersSpend on software tools – ($ Millions)

E-Procurement Pricing

Source: McKinsey & Company Research (2009), Gartner Research (2010)

Finding cost savings more difficult

Copper smelting and refining cost curve

Cents/lb

Cumulative capacity

Kilo tons

Source: Brook Hunt Report

0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000

Contents

3. Rising to the

challenge – by

raising the profile

of pricing in your

company

of pricing2. The rising

importance of

software – in

getting it right

Shorter product

lifecycles

Volatile input costs

Pricing problems much more complex…

Segment proliferation

Multi-country pricing

Distributed decision

making

“Eastman deals with Rising Raw-Material Costs”Morningstar

Feb 1, 2011

Increased volatility of input costs

higher European Raw Material Costs”Bloomberg

Feb 15, 2011 “Valspar First Quarter Margins

Down to Raw Material Pricing ”Toronto Star

Feb 15, 2011

“Electrolux operating income declined

due to rising raw material costs”Wall Street Journal

Feb 2, 2011

“DSM looks to price hikes after

Q4 slightly misses”Reuters

Feb 22, 2011

3.844.09

Average month to month price change across 20 commodities

Percent

Increased volatility of input costs (2)

3.844.09

1981-1990 1991-2000 2001-2010

Average monthly

price change

Std. Deviation

Source: Indexmundi.com, PROS analysis

<0 0-5 5-10 10-15 15-20 20-25 >25

Segmentation challenge - examplePercent of revenue

Overall goal: Move the curve and

increase profits

PRECONDITION: Develop a superior fact

base on account and transaction

profitability and source of leakage

Account net

pocket margin

Difficult

<0 0-5 5-10 10-15 15-20 20-25 >25

pocket margin

Percent Easy

Actions1. Cut off the losers or make

them profitable

2. Raise average though improved

customer insight

3. Increase share of attractive

customers

4. Reduce Churn

Typical % of impact 20-30% 60-70% 10-15%

Relative challenge

Rationale� Difficult to argue with outliers

� Policy-based changes easier

than behavior-based

� Difficult to identify

� Harder to convince sales force;

requires behavior change

� A “hunting license” for

increasing revenue is welcome

� However, often difficult to

identify true, at-risk customers

<0 0-5 5-10 10-15 15-20 20-25 >25

Pricing software is keyPercent of revenue

Overall goal: Move the curve and

increase profits

Account net

pocket margin

Provide on-going access to account and transaction profitability and salesperson performance

Difficult

<0 0-5 5-10 10-15 15-20 20-25 >25

pocket margin

Percent

Actions1. Cut off the losers or make

them profitable

2. Raise average though improved

customer insight

3. Increase share of attractive

customers

4. Reduce Churn

� Floor prices, approval flow

� Audit trail� Accountability

� Scientific segmentation

� Target and stretch prices

� At risk customer assessment

� High value account identification

Shorter product

lifecycles

Volatile input costs

The role of pricing software…

� Ensure cost recovery, react to changes

� Decipher trends

� Quickly react to changes

Segment proliferation

Multi-country pricing

Distributed decision

making

� Identify underpriced segments

� Quickly react to market trends

� Provide transparency to performance

� Provide guidance to decision-makers

� Bring accountability to actions

Good news: Pricing organizations

Number of pricing dedicated professionals per $ billion in revenue

Ten years ago TodaySource: PROS analysis

Contents

3. Implications for

of pricing2. The rising bar –

for getting it right

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

Marketing UpdateTim Girgenti, Chief Marketing Officer

Leading Provider of

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

PROS Differentiation

Prescriptive Sustainable

Unparalleled

Experience &

Financial Stability

Most Advanced

Pricing ScienceUnmatched

Commitment to

Customer Success

Most Complete

Solution

Marketing Objectives

Segmented Approach

• Pricing

• Marketing

• Sales

• CFO

• Manufacturing

• Distribution

Industries• Distribution

• Services

• Travel

Technology • ERP

• CRM

Project 95

� Create provocative messages

� Target the office of the CFO

� Tap into markets already in motion

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

Target the Office of the CFO

• Ability to maintain margins

• Price pressure from competitors

Tap into Markets Already in Motion

System Integrators Technology Partners

Global Partner Ecosystem

SP Richards and PROS

Wilbur Reid

Director of Strategic Pricing43

Time Tellersvs

Clock Builders

Agenda

Overview of SP Richards / Genuine Parts

SP Richards Pricing Challenges

� Understanding Profitability

� Segmented Pricing Strategy

� Pricing Complexity

� Dealer Challenges: MyAnalystPro

Positive Results

Genuine Parts Overview

2010 Revenue: $11.2 billion

Fortune 500: ranked #236

55 Consecutive Years of Increased

Dividends

SP RichardsFounded 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

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.

Sales Breakdown

Technology

Products

Furniture

Cleaning and

Breakroom

Office Supplies

Breakroom Supplies

Sales by Product Category

PowerChannel

Independent Dealers

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

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

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.

SPR Peer Groups

BookstoresPower

ChannelInternet Resellers

Independent Dealers

Committed

Stocking Stockless

Not Committed

Regular

Other customer

attributes to consider in

future segmentations:

geography, life cycle,

1 Small

2 Medium

3 Large

4 Super

5 Small

6 Medium

7 Large

8 Super

Penetration

geography, life cycle,

buying group, etc.

Move away from one-size-fits-all pricing53

Institutional memory needs to be captured

� Chuck

Solution: utilize Price Policies in PROS Price Optimizer

Challenge #3: Pricing Complexities Too Much For Excel or Human Brain

Product Relationships

Identifying product strategy by brand and category

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

DRA90135

Windex product

− As long as margin is at least 20%

− And within 3% of the competitive equivalent

� Multi-packs

� Good/better/best

� More profitable optionsGJO10350

SPR04501 BINDER,3-RNG,LBLHLD,2"-BK 2.64$ AVE04501 3.49$ -24.4%

SPR03602 BINDER,3-RNG,3"-BK 3.07$ AVE03602 4.66$ -34.1%

SPR05711 BINDER,VUE,3-RNG,1"-WE 1.37$ AVE05711 2.49$ -45.1%

SPR09700 BINDER,VUE,S-RNG,3"-BK 3.79$ AVE09700 7.22$ -47.6%

Product Relationships

Scientific Analysis – Demand and Price Modeling

Promotional Analysis

PROS Scientific Analytics for Dealers

• Patent Pending

“… a stunning success”

- OPI Magazine

MyAnalystPro™ Dashboard

Period over period

sales and marginsTop

Customers, period to

sales and marginsCustomers, period to

Monthly Sales and

Margin Trend

Market Price Points

SP Richards 2010 Service Vendor of the Year

PROS Implementation in progress

� Scientific Analytics

� Price Optimizer

Northeast Division

Vice President

Pricing

Questions?

Wilbur Reid

Director of Strategic Pricing

Sales UpdateChris Jones, Chief Sales Officer

Leading Provider of

� Early majority buyer focus

� Go to market

� Processes and infrastructure scalability

Executive Summary-What has changed

� Clear repeatable winning formula

� Incremental, measurable,

predictable progress

� Highly reference oriented

� Risk is negative to them

Early Majority Buyer-What they valueFrom Jeffrey Moore’s Crossing the Chasm

� Risk is negative to them

� Like to see competition

� Want to buy from the

proven market leader

Inside Sales

Outside Sales

Customer Executive

Go-to-Market

Strategic Consulting

Value Engineering

Delivery Team

� Strong messaging to match superior product

� Strong sales playbook execution

� Rigorous pipeline management

Winning Formula

� Thorough win/loss analysis

� Exceptional references

� Prescriptive product and

services

� References indicate

unparalleled level of

Voice of the Customer - Why They Select PROS

unparalleled level of

commitment to their success

� Superior capabilities

Voice of the Customer - References

“….PROS references were also substantially

better than any competitor

- the biggest differentiator...”

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.”

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”

Financial UpdateCharlie Murphy, EVP and CFO

Leading Provider of

� Differentiated product leadership with proven results

� Large underpenetrated global market – ~7,500 enterprise targets*

� Increasing awareness of need for pricing software

� Strong revenue visibility

Investment Highlights

� 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

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

Financial Model

� 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

License & Implementation

Maintenance & Support

YE December, $ in millions

Financial Track Record$74.2

$44.9$46.0

$43.7$35.1

FY 20102006 2007 2008 20092005

SG&A* - $

SG&A* - %

R&D* - $

R&D* - %

$16.4$14.9

* Non-GAAP

Gross Margin*

Operating Margin*

Backlog Growth

$107.0

$83.6$84.3

Backlog at 12/31

Estimated Revenue from Backlog

YE December, $ in millions

FY Total Revenue

$83.6$84.3

$75.6$68.8

20102008 2009 2011

Financial Highlights - Growth Trend Non-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

Income12.6% 11.5% 12.8% 14.3% 12.9%

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

Cash Flow and CapEx Spending

2010 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 payments

2011 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 expenses

CapEx spending

� 2010 - $1.6M for IT infrastructure and software

� 2011 – Estimated $3.4M for IT infrastructure and software; systems upgrade and facility

improvements

PROS Leadership Q&A Panel PROS Executive Team

Leading Provider of

NYSE:PRO Analyst Day Presentation - 4Mar11

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