NYSE:PRO 2008 Annual Report

Company Information

Annual Meeting
The annual stockholders meeting will be held on Thursday,
June 4, 2009 at 8:00 a.m. CST at our corporate headquarters
located at 3100 Main Street, Suite 900, Houston, Texas 77002.
Only stockholders of record at the close of business on
April 9, 2009 will be entitled to vote at the Annual Meeting.

Common Stock Data
The Company’s stock trades on the New York Stock Exchange
under the symbol PRO.
As of February 20, 2009, there were outstanding 25,691,735
shares of common stock, par value $0.001, of the registrant.

Transfer Agent
Computershare
P.O. Box 43070
Providence, RI 02940-3070
www.computershare.com
Inside U.S. 800-962-4284
Outside U.S. 781-575-3120

Corporate Headquarters
3100 Main Street, Suite 900
Houston, TX 77002
Phone: (713) 335-5151
www.prospricing.com

Investor Relations
Contact us at: (713) 335-5879
IR@prospricing.com

Corporate Communications
Contact us at (713) 335-5197
CorpComm@prospricing.com

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K
(MARK ONE)

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 2008
OR

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 333-141884

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 900 77002
Houston, Texas (Zip code)
(Address of principal executive offices)
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
Common Stock, par value $0.001 per share Registered
New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes
No

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting
company. See definition of “large accelerated filer, “” accelerated filer” and “smaller reporting company" in Rule 12b-2 of the Exchange Act.
(Check one):
Large Accelerated Filer Accelerated Filer Non-Accelerated Filer Smaller Reporting Company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

The aggregate market value of voting and non-voting common equity held by non-affiliates of the registrant was approximately $215,126,574 as
of June 30, 2008 based upon the closing sale price of the common stock on the New York Stock Exchange reported such date. Shares of common
stock held by each officer and director and by each person who owns 5% or more of the outstanding Common Stock have been excluded in that
such persons may be deemed to be affiliates. This determination of affiliate status was based on publicly filed documents and is not necessarily a
conclusive determination for other purposes.

As of February 20, 2009, there were outstanding 25,691,735 shares of common stock, par value $0.001, of the registrant.

DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrant’s Proxy Statement relating to its 2009 Annual Stockholders Meeting, to be filed subsequently are
incorporated by reference into Part III.

PROS Holdings, Inc.
Annual Report on Form 10-K
Table of Contents

Page
Part I
Item 1. Business 2
Item 1A. Risk factors 10
Item 1B. Unresolved staff comments 21
Item 2. Properties 21
Item 3. Legal proceedings 21
Item 4. Submission of matters to a vote of security holders 21

Part II
Item 5. Market for registrant’s common equity, related stockholder
matters and issuer purchases of equity securities 22
Item 6. Selected financial data 24
Item 7. Management’s discussion and analysis of financial condition
and results of operations 25
Item 7A. Quantitative and qualitative disclosures about market risk 37
Item 8. Financial statements and supplementary data 38
Item 9. Changes in and disagreements with accountants on accounting
and financial disclosure 38
Item 9A. Controls and procedures 38
Item 9B. Other information 39

Part III
Item 10. Directors, executive officers and corporate governance 39
Item 11. Executive compensation 39
Item 12. Security ownership of certain beneficial owners and management
and related stockholder matters 39
Item 13. Certain relationships, related transactions and director
independence 39
Item 14. Principal accountant fees and services 39

Part IV
Item 15. Exhibits and financial statement schedules 39

1

SIGNIFICANT RELATIONSHIPS REFERENCED IN THIS ANNUAL REPORT

The terms “we,” “us,” and “our” refers to PROS Holdings Inc. and all of its subsidiaries that are
consolidated in conformity with the accounting principles generally accepted in the United States of America
(“GAAP”).

CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS

This annual report on Form 10-K contains certain statements that may be deemed to be “forward-looking
statements” that anticipate results based on our estimates, assumptions and plans that are subject to uncertainty.
These statements are made subject to the safe-harbor provisions of the Private Securities Litigation Reform Act of
1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All
statements in this report not dealing with historical results or current facts are forward-looking and are based on
estimates, assumptions and projections. Statements which include the words “believes,” “seeks,” “expects,” “may,”
“should,” “intends,” “likely,” “targets,” “plans,” “anticipates,” “estimates,” or the negative version of those words
and similar statements of future or forward-looking nature identify forward-looking statements.

Numerous important factors, risks and uncertainties affect our operating results, including, without
limitation, those contained in this Report, and could cause our actual results to differ materially, from the results
implied by these or any other forward-looking statements made by us or on our behalf. There can be no assurance
that future results will meet expectations. You should pay particular attention to the important risk factors and
cautionary statements described in the section of this Report entitled Risk Factors. You should also carefully review
the cautionary statements described in the other documents we file from time to time with the Securities and
Exchange Commission (“SEC”), specifically all Quarterly Reports on Form 10-Q and Current reports on Form 8-K.
Information contained on our website is not part of this report.

Part I

Item 1. Business

Overview

We are a leading provider of pricing and margin optimization software, an emerging category of enterprise
applications designed to allow companies to improve financial performance by implementing pricing excellence best
practices through the use of our software products. We were founded in 1985 and initially focused our efforts on
providing complex, science-based revenue management solutions to the global airline industry. In 1999, we began
to consider ways to diversify our product offering to include a broader suite of pricing and margin optimization
functionality. We expanded our focus beyond the airline industry to include other industries that we believed to
have similar pricing challenges and a need for advanced pricing and margin optimization solutions. In July 2007,
we completed our initial public offering (“IPO”) of our common stock in which we sold and issued 5,118,750 shares
of common stock and selling stockholders sold an additional 1,706,250 shares of common stock. In addition, in
December 2007, we completed a follow on offering of 5,000,000 shares of our common stock in which we sold and
issued 65,000 shares of common stock and selling stockholders sold an additional 4,935,000 shares of common
stock.

By using our software products, our customers gain insight into their pricing strategies, identify detrimental
pricing practices, optimize their pricing decision-making and improve their business processes and financial
performance. Our software products incorporate advanced pricing science, which includes operations research,
forecasting and statistics. Our innovative science-based software products analyze, execute and optimize pricing
strategies using data from traditional enterprise applications, often augmenting it with real-time and historical data.
Our software also uses data elements that are determined using advanced pricing science and are stored in our
database. Our high performance software architecture supports real-time high volume transaction processing and
allows us to handle the processing and database requirements of the most sophisticated and largest customers,
including customers with hundreds of simultaneous users and sub-second electronic transactions. We provide
professional services to configure our software products to meet the specific pricing needs of each customer. Our
software products have a single code base and a single integrated database.

Many of our customers process large volumes of individually priced business-to-consumer and business-to-
business transactions every day. Our high-performance, real-time, dynamic pricing products differ from static retail
pricing products by delivering the relevant pricing information at the time the price is quoted, the deal is negotiated
and the sale transaction is made. Our software products are also used to provide optimized price lists and goal-driven
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price guidance. While companies in our target industries differ in the wide range of business-to-business and
business-to-customer products and services that they provide, many are similar in their need to optimally and
dynamically price each individual transaction. We have installed over 200 solutions for over 100 customers across a
range of industries in more than 40 countries.

Industry background

Pricing is an important component of an enterprise's business processes and financial performance.
Companies in the manufacturing, distribution, services, hotel and cruise, and airline industries can face a variety of
pricing problems such as unnecessary discounting and quoting prices below breakeven. We believe that improving
pricing is one of the most strategic and powerful ways for companies to improve their business and financial
performance.

A variety of trends are accelerating the need for better pricing. They include increasingly complex markets
and business models as is evidenced through uncertain demand for products and services and volatile costs, greater
sophistication of purchasers, proliferation of pricing entities and competitive alternatives, growing quantities of
enterprise data and diminishing returns from traditional enterprise applications. One element contributing to pricing
problems is the limited visibility into effective prices and margins after accounting for discounts, promotions, rebates
and allowances. In addition, a lack of uniform pricing and goals, an unscientific, ad-hoc approach to pricing and a lack
of complete, relevant and timely data further add to the pricing problems that we believe most companies in our target
industries face. We believe most companies in our target industries have yet to develop or systematically implement
pricing technology solutions that can best meet business goals and generate optimal prices.

We believe the market for pricing and margin optimization software is a large and rapidly growing
opportunity that spans most major industries. We are a leading provider of pricing and revenue optimization solutions
and we implement and support our products on a global basis across multiple industries and in complex and changing
information technology and business environments.

Our solution

Our software solutions are not like ERP, SCM and CRM which automate a paper intensive current process
or a people intensive current process. The goal of a pricing and margin optimization software implementation for
analytics, execution, or optimization is to improve pricing processes in an effort to achieve pricing excellence. Our
software products currently operate in some of the largest, most complex and demanding information technology
environments.

The PROS Pricing Solution Suite is our set of integrated software products that enables enterprises in the
manufacturing, distribution, services, hotel and cruise, and airline industries to apply pricing science to determine,
analyze and execute optimal pricing strategies. Our software products support pricing decisions through the
aggregation and analysis of extensive enterprise application data, transactional data and market information. Our
software also uses data elements that are determined using advanced pricing science and are stored in our database.
Our high performance software architecture supports real-time high volume transaction processing and allows us to
handle the processing and database requirements of the most sophisticated and largest customers, including
customers with hundreds of simultaneous users and sub-second electronic transactions. We provide professional
services to configure our software products to meet the specific pricing needs of each customer. Our software
products have a single code base and a single integrated database.

Our PROS Pricing Solution Suite provides science-based software solutions that address three areas
necessary to implement and execute an effective pricing solution:

• Scientific analytics. Our Scientific Analytics software product provides dynamic visibility into
pricing data and performance across pricing the different segments of a business including markets,
customers, products, distribution channels, divisions, etc. These analytics help companies understand
the pocket margin and its components and locate detrimental pricing trends and underperforming
segments of their businesses that might otherwise be hard to identify.

• Pricing execution. Our pricing execution software products (Deal Optimizer and Price Optimizer) help
companies set and implement pricing policies throughout an enterprise and improve execution through
pricing decision and negotiation support. Our software products give our customers the ability to propagate
pricing decisions to either users or to another enterprise application, such as a CRM or ERP application. Our
execution software products allow our customers to strategically manage a large number of prices, which
helps to institutionalize pricing best practices and enforce compliance with pricing policies.
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• Pricing optimization. Our pricing optimization software products provide companies with pricing-
related predictive analytics in the form of science-based price guidance in order to offer frontline
sales representatives easy-to-use guidelines that help them in quoting a profitable price and to
optimize their pricing decision-making. Using market and company data, our optimization software
products enable our customers to forecast and determine an optimal price within a given set of
objectives, such as maximizing market share, revenue or profit.

Products

Our software products help our customers improve their business and financial performance through
several key benefits, which include:

• 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.

Our PROS Pricing Solution Suite consists of our scientific pricing analytics, pricing execution and pricing
optimization software products. The design of our PROS Pricing Solution Suite allows our customers to deploy all
of the products at once or to implement our products incrementally. Our scientific analytics software product is the
base product that is present in all implementations. Our pricing execution products, price optimizer and deal
optimizer, extend the usability of the base analytics product and provide real-time transaction level optimized prices
by customer and product. Our pricing optimization products help companies arrive at an optimal price by analyzing
the relationships among demand, price and profit margin to provide pricing-related predictive analytics in the form
of science-based price guidance in order to offer frontline sales representatives easy-to-use guidelines that help them
in quoting a profitable price and to optimize their pricing decision-making. By deploying multiple products, our
customers can analyze their pricing trends, execute consistent pricing policies, effectively negotiate prices and
optimize their prices to support organizational goals.

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Our PROS Pricing Solution Suite uses our PROS Database, which includes pricing data elements
determined using advanced pricing science, including the pocket price, pocket margin, customer willingness-to-pay,
customer cost-to-serve, win-loss ratios, market price, stretch price and other relevant information. Data sources also
include our customers' enterprise applications and external market data sources. Our PROS Database uses our
internally developed data loaders to import data from these data sources for access by our PROS Pricing Solution
Suite. The users of our PROS Pricing Solution Suite include executives, sales and marketing personnel, pricing
managers and finance personnel.

Hundreds of man-years of development and science effort are contained in one common set of code, which
we believe allows us to configure our software products to meet each of our customer's unique requirements and
enables us to effectively support a global customer base. The PROS Configurator allows the PROS Pricing Solution
Suite to be configured to meet the specific needs of each customer without writing any customer-specific code. The
configuration capabilities include defining business rules, user workflows, executive dashboards, analytic views,
approval processes, alerts and data, including hierarchical dimensions and measures.

Scientific analytics

Our Scientific Analytics software product helps companies gain insight into their pricing performance,
allowing them to take action to correct poor performance and take advantage of time-sensitive opportunities. Our
Scientific Analytics software product enables our customers to:

• determine pocket price and pocket margins by discrete metrics, such as by customer, product, channel,
plant, sales territory and country;

• understand how various price and cost elements contribute to the pocket margin;

• identify and understand detrimental pricing trends;

• understand the components of margin variance, including price, cost, volume, product mix and exchange
rate effects;

• understand differences in segment purchasing behavior;

• proactively monitor pricing performance and market conditions; and

• determine how individual customers contribute to overall revenue and profitability.

5

Pricing execution

Our pricing execution software products consist of the Price Optimizer and Deal Optimizer products.

Price Optimizer. Our Price Optimizer product allows companies to streamline pricing processes and
institute control of pricing policies to support corporate business goals. It allows organizations to create multiple
rules-based price lists and quickly modify prices or guidelines in response to changes in business conditions or
strategy. Our Price Optimizer product enables our customers to:

• 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; and

• manage pricing approval and exception thresholds and the pricing approval workflow to ensure
consistency in the pricing process and maintain transaction histories.

Deal Optimizer. Our Deal Optimizer product provides a sales force with the guidelines, additional context
and information to negotiate better prices over the entire deal horizon. Specifically, the Deal Optimizer product
enables our customers to:

• 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.

Pricing optimization

Our pricing optimization software products help companies arrive at an optimal price by analyzing the
relationships among demand, price and profit margin taking into account operational and financial constraints. Our
pricing optimization software products use advanced statistical techniques to determine optimal prices consistent
with pricing strategies to provide pricing-related predictive analytics in the form of science-based price guidance.
This guidance can be offered frontline sales representatives as easy-to-use guidelines that help them in quoting a
profitable price and to optimize their pricing decision. These products utilize optimization and forecasting engines to
solve many distinct pricing problems. Our pricing optimization software products enable our customers to:

• analyze and understand factors that influence demand in conjunction with price;

• understand customer or segment price elasticities and customer indifferences which supports the ability to
cluster customers into segments based on purchasing behavior;

• construct and execute price testing to systematically manage and evaluate results of price changes;

• forecast demand and response to demand using a library of forecasting algorithms that support a vast
number of business scenarios and that consider relevant variables; and

• run optimization algorithms and apply appropriate methodology to recommend optimized prices or other
business controls.

6

Technology

Software architecture. Our software architecture is based on open standards such as Java, XML and
HTTP. We have created a component-based design in a service-oriented architecture to develop a flexible, layered
framework. This framework supports evolution and innovation in technologies and product features.

Optimization. We have developed robust science-based forecasting and optimization engines, leveraging
the deep expertise and research of our science and research group. These engines are industry-independent and are
validated using our internally-developed verification and testing processes.

Configuration vs. customization. Rather than developing custom code for each customer, our PROS
Pricing Solution Suite can be configured to meet each customer's business needs. The configuration capabilities
include defining user workflows, executive dashboards, analytic views, approval processes, alerts and configuring
data, including hierarchical dimensions and measures.

Performance and scalability. Our solutions operate in some of the largest and most demanding enterprise
environments. The scalability of our technology has been tested at leading vendor benchmark performance centers,
which validated the ability of our software products to scale to large data volumes and high request rates. For
example, in one implementation of our real-time pricing execution product, our software products handled over 300
requests per second with 250 millisecond average response times. Another implementation of our pricing execution
product handles 750 concurrent users. Also, an implementation of our pricing optimization product refreshes and
maintains a data set with over one billion forecast entries and 150 million optimization results.

Data integration. The data needed to execute pricing and margin optimization functionality typically
resides in a company's ERP, SCM and CRM systems, industry-specific transaction systems, office productivity tools
such as spreadsheets and external market data sources. Rarely can the data needed to formulate and execute optimal
pricing strategies be found in a single data source within a company. Our data integration capabilities utilize web
services and file-based data interfacing to bring data from these disparate sources together into a single cohesive
database to support our PROS Pricing Solution Suite. Our data integration capabilities allow us to quickly deploy
our solutions to our customers.

User interface. Our technology provides a rich, browser-based interface that supports local and remote
users. The user interface supports a wide variety of highly interactive charts and other data views and provides a
comprehensive data security model based on user roles and scope of responsibility.

Platform support. Our software products run on most standard information technology platforms
including Microsoft SQL Server and Oracle databases, 32-bit and 64-bit processors from HP, SUN, Intel, AMD and
IBM, and the HP-UX, Solaris, Linux, Windows and AIX operating systems.

Science and research

We believe that our long-term investment in pricing science differentiates us from our competitors. We are
committed to developing high value science-based pricing and margin optimization software products as is evident
by our continued investment in research and development. Research and development spending was 27% of total
revenue for the year ended December 31, 2008.

We employ 30 scientists, of which 16 are PhDs, and all of whom are engaged to the advancement of
pricing and margin optimization technology and its implementation in our software products. These scientists have
specialties including but not limited to operations research, management science, statistics, econometrics and
computational methods. Our scientists regularly interact with our customers, and our product development, sales and
marketing, and professional services staff, to keep our science efforts relevant to real-world demands.

Services

Pricing and implementation professional services

Our software product implementations are different from most IT projects. We have developed a
standardized and tested implementation process and have experience implementing our software products in global
enterprises across multiple industries. We have implemented over 200 solutions across a range of industries in more
than 40 countries.

7

Our pricing services personnel are responsible for planning the implementations of our software products and
they accelerate time to value realization for our customers by starting with industry based pricing best practices
already embedded in our products. Our pricing professional services include analyzing a customer’s current pricing
processes, identifying specific high-value pricing needs and relevant pricing data and initial configuration of our
software products to meet the requirements of the customer’s specific business. Our implementation services
personnel are responsible for the configuration and the technical deployment of our software products. Our
implementation professional services include implementing our software products to configuration specifications,
assisting customers in loading and validating pricing data and supporting organizational activities to assist our
customers’ transition from awareness of their pricing challenges to adoption of pricing excellence best practices.

Customer support

After our software products are installed and training is complete, our customer support personnel provide
ongoing support and maintenance of our software products. Our customer support personnel are responsible for
providing product support for our customers through our SupportWeb Portal, a web-based interface for submitting
and tracking issues, distributing software releases and bug fixes and hosting our knowledge base. In addition, our
customer support personnel respond to customer issues promptly using an escalation process that prioritizes reported
issues based on a defined set of severity levels and assist customers in deploying our standard releases for each
software product by providing release web seminars and documentation.

Customers

We provide our software products to customers in the manufacturing, distribution, services, hotel and
cruise, and airline industries. Our customers are generally large global enterprises, although we have customers that
are smaller in scope of operations. Approximately 54% of our total revenue came from customers outside the
United States for the years ended December 31, 2008 and approximately 63% of our total revenue came from
customers outside the United States for the year ended December 31, 2007 and 2006. In 2008, 2007 and 2006, we
had no single customer that accounted for 10% or more of revenue.

Sales and marketing

We sell and market our software products primarily through our direct sales force from our headquarters in
Houston, Texas. Our sales force is organized by our target markets of manufacturing, distribution, services, hotel
and cruise, and airline and is responsible for the worldwide sale of our products to new customers. Our sales force
works in concert with our pricing solutions personnel for selling and product demonstrations to new customers.
Sales to our existing customers are generally the responsibility of our pricing professional services personnel.

Our marketing activities consist of a variety of programs designed to generate sales leads and build
awareness of PROS and our pricing and margin optimization software products. We host conferences for pricing
and margin optimization professionals, host informational web seminars and we participate in and sponsor other
industry conferences and organizations.

Competition

The market for price and margin optimization solutions is competitive, fragmented and rapidly evolving.
We believe the following factors are the principal basis of competition in the pricing and margin optimization
software market:

• 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;

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• existing enterprise relationships;

• large and referenceable customer base;

• vendor viability; and

• price.

We compete with a number of larger and smaller companies and in the future we expect competition will
increase as companies come into this market segment. We believe we are able to compete successfully with these
vendors due to our long history of providing pricing and margin optimization software products, the scope of our
offerings and the flexibility and scalability of our architecture.

There are also several large enterprise application providers, such as JDA Software, Oracle and SAP that
have developed offerings that include pricing and margin optimization functionality. JDA Software and Oracle
entered the market primarily through their acquisitions of Manugistics and Siebel Systems, respectively, and SAP
resells Vendavo's products. We believe these vendors do not provide all of the pricing and margin optimization
functionality needed to support a pricing excellence-focused organization. These vendors may seek to compete on
price and by bundling their pricing and margin optimization applications with other enterprise applications. We
distinguish ourselves from these vendors with the breadth and depth of the functionality of our products and
providing high-value pricing and margin optimization software to a global customer base in multiple industries.

In addition, there are a number of vendors that provide pricing and margin optimization software for
specific industries. In the hotel industry, we compete with IDeaS and Easy RMS, and in the airline industry, we
compete with Sabre Airline Solutions and Lufthansa Systems. One industry in which we do not compete is retail,
where vendors include DemandTec, JDA Software, Oracle and SAP. Oracle and SAP entered this retail market
through their acquisitions of ProfitLogic and Khimetrics, respectively.

Our products also compete with solutions developed internally by businesses. These businesses rely upon a
combination of manual processes, external consultants, spreadsheets or internally developed software tools to
conduct pricing activities.

Intellectual property

Our success and ability to compete is dependent in part on our ability to develop and maintain the
proprietary aspects of our technology and operate without infringing upon the proprietary rights of others. We rely
primarily on a combination of copyright, trade secret, confidentiality procedures, contractual provisions and other
similar measures to protect our proprietary information. Due to the rapidly changing nature of applicable
technologies, we believe that the improvement of existing products, reliance upon trade secrets and unpatented
proprietary know-how and development of new products are generally more advantageous than patent and
trademark protection.

Research and development

Our research and development program involves enhancing existing products to add new functionality and
creating new products to meet other market demands. Our research and development expenses include costs
associated with our product management, product development and science and research groups. Our research and
development expenses were $20.3 million, $16.8 million and $10.3 million for the years ended December 31, 2008,
2007 and 2006, respectively.

Employees

As of December 31, 2008, we had 381 full-time personnel which include 351 employees and 30
independent contractors. None of our employees are represented by a labor union or covered by a collective
bargaining agreement. We have not experienced any work stoppages and consider our employee relations to be
good. We expect that our continued success will depend in part on our ability to attract and retain highly skilled
technical, sales, marketing and management personnel.

9

Where you can find additional information

Our website address is www.prospricing.com. We make available free of charge through our website our
Annual Reports on Form10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments
to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the
SEC. In addition, you may read and copy all or any portion of the registration statement or any reports, statements
or other information in the files at the public reference room of the SEC located at 100 F Street, N.E.,
Washington, D.C. 20549. You can request copies of these documents upon payment of a duplicating fee by writing
to the SEC. You may call the SEC at 1-800-SEC-0330 for further information on the operation of its public
reference room. Our filings, including our registration statement, will also be available to you on the web site
maintained by the SEC at http://www.sec.gov. No information on our website is incorporated by reference herein.

Annual CEO Certification

Pursuant to Section 303A.12(a) of the New York Stock Exchange Listed Company Manual, we submitted to
the New York Stock Exchange an annual certification signed by our Chief Executive Officer certifying that he was
not aware of any violation by us of New York Stock Exchange corporate governance listing standards on June 9,
2008.

Item 1A. Risk factors

We operate in a dynamic environment that involves numerous risks and uncertainties. The following
section describes some of the risks that may adversely affect our business, financial condition or results of
operations; these are not necessarily listed in terms of their importance or level of risk.

Risks relating to our business and industry:

The continued deterioration of general U. S. and global economic conditions could adversely affect our
sales and operating results.

The implementation of our software products, which is often accompanied by hardware purchases and
other capital commitments, involves significant capital expenditure by our customers. Customers may reduce or
defer their spending on technology during the current economic downturn. In addition, the weak and uncertain U.S.
and global economic conditions could impair our customers’ ability to pay for our products or services. Any of
these factors could adversely impact our business, quarterly or annual operating results and financial condition.

Periodic fluctuations in the U.S. Dollar, corporate profits, lower spending, the availability of credit, the
impact of conflicts throughout the world, terrorist acts, natural disasters, volatile energy costs, the outbreak of
diseases and other geopolitical factors have had, and may continue to have, a negative impact on the U.S. and global
economies. Our customers and prospects may experience consolidation or bankruptcies in their industries which
may result in project delays or cancellations. We are unable to predict the strength or duration of current market
conditions or effects of consolidation. Uncertainties in anticipated spending levels or further consolidation may
adversely affect our business, financial condition and results of operations.

A significant or prolonged economic downturn in industries in which we focus, may result in our
customers reducing or postponing spending on the products we offer.

There are a number of factors, other than our performance, that could affect the size, frequency and renewal
rates of our customer contracts. For instance, if economic conditions weaken in any industry in which we focus, our
customers may reduce or postpone their spending significantly which may, in turn, lower the demand for our
products and negatively affect our revenue and profitability. As a way of dealing with a challenging economic
environment, customers may change their purchasing strategy, including increased negotiation of price or deciding
to license one product rather than multiple products. Customers could also terminate or delay their implementations
or maintenance contracts. The loss of, or any significant decline in business from, one or more of our customers
likely would lead to a significant decline in our revenue and operating margins, particularly if we are unable to make
corresponding reductions in our expenses in the event of any such loss or decline. Moreover, a significant change in
the liquidity or financial position of any of these customers could have a material adverse effect on the collectability
of our accounts receivable, liquidity, customers’ ability to complete implementation and future operating results.

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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.

A significant portion of our working capital consists of accounts receivable from customers. If customers
responsible for a significant amount of accounts receivable were to become insolvent or otherwise unable to pay for
products and services, or were to become unwilling or unable to make payments in a timely manner, our business,
results of operations, financial condition or liquidity could be adversely affected.

We focus exclusively on the pricing and revenue optimization software market, and if this market develops
more slowly than we expect, our business will be harmed.

We derive, and expect to continue to derive, all of our revenue from providing pricing and revenue
optimization software products, implementation services and ongoing customer support. The pricing and revenue
optimization software market is relatively new and still evolving, and it is uncertain whether this software will
achieve and sustain high levels of demand and market acceptance. Our success will depend on the willingness of
businesses in the manufacturing, distribution, services, hotel and cruise, and airline industries to implement pricing
and revenue optimization software.

Some businesses may be reluctant or unwilling to implement pricing and revenue optimization software for
a number of reasons, including failure to understand the potential returns of improving their pricing processes and
lack of knowledge about the potential benefits that such software may provide. Even if businesses recognize the
need for improved pricing processes, they may not select our pricing and revenue optimization software products
because they previously have made investments in internally developed pricing and revenue optimization solutions.
Some businesses may elect to improve their pricing processes through solutions obtained from their existing
enterprise software providers, whose solutions are designed principally to address one or more functional areas other
than pricing. These enterprise solutions may appeal to customers that wish to limit the number of software vendors
on which they rely and the number of different types of solutions used to run their businesses.

If businesses do not perceive the benefits of pricing and revenue optimization software, the pricing and
revenue optimization software market may not continue to develop or may develop more slowly than we expect,
either of which would significantly and adversely affect our revenue and operating results. Because the pricing and
revenue optimization software market is developing and the manner of its development is difficult to predict, we
may make errors in predicting and reacting to relevant business trends, which could harm our operating results.

Any downturn in sales to our target markets of manufacturing, distribution, services, hotel and cruise, and
airline would adversely affect our operating results.

Our success is highly dependent upon our ability to sell our software products to customers in the
manufacturing, distribution, services, hotel and cruise, and airline industries. If we are unable to market and sell our
software products effectively to customers in these industries, we may not be able to grow our business. It is
uncertain whether our software products will achieve and sustain the levels of demand and market acceptance that
we anticipate. Such uncertainty is attributable to, among other factors, the following:

· 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.

Revenue from customers in the airline industry accounted for 40%, 43% and 44% of our total revenue for
the years ended December 31, 2008, 2007, and 2006, respectively. Our revenue growth has been derived principally
from customers in the manufacturing, distribution, services and hotel and cruise industries, where our products have
recently begun to achieve market acceptance. Our revenue growth is highly dependent upon continued growth of
market acceptance in all of these industries, and there is no assurance our products will achieve or sustain
widespread acceptance among these potential customers. Failure to expand market acceptance of our products in the
manufacturing, distribution, services and hotel and cruise industries or to maintain sales in the airline industry would
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adversely affect our operating results and financial condition.

Our software products require implementation projects that are subject to significant risks and delays, the
materialization of which could negatively impact the effectiveness of our solutions, resulting in harm to our
reputation, business and financial performance.

The implementation of our software products can involve complex, large-scale projects that require
substantial support operations, significant resources and reliance on certain factors that may not be under our
control. For example, the success of our implementation projects is heavily dependent upon the quality of data used
by our software products, the commitment of customers’ resources and personnel to the projects and the stability,
functionality and scalability of the customer’s information technology infrastructure. If weaknesses or problems in
infrastructure or data or our customers’ commitment and investment in personnel and resources exist, we may not be
able to correct or compensate for such weaknesses. In addition, implementation of our software products can be
highly complex and require substantial efforts and cooperation on the part of our customers and us. If we are unable
to successfully manage the implementation of our software products such that those products do not meet customer
needs or expectations, we may become involved in disputes with our customers and our business, reputation and
financial performance may be significantly harmed. We recognize our license and implementation revenues as
implementation services are performed. Any delays in an implementation project or changes in the scope or timing
of an implementation project would delay or alter the corresponding revenue recognition and could adversely affect
our operating results. If an implementation project for a large customer or a number of customers is substantially
delayed or cancelled, our ability to recognize the associated revenue and our operating results would be adversely
affected.

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.

The pricing and revenue optimization software market is competitive, fragmented and rapidly evolving.
Our software products compete with solutions developed internally by businesses as well as solutions offered by
competitors. Our principal competition consists of:

· pricing and revenue optimization software vendors, including a number of vendors that provide pricing
and revenue optimization software for specific industries; and

· large enterprise application providers that have developed offerings that include pricing and revenue
optimization functionality.

We expect additional competition from other established and emerging companies to the extent the pricing
and revenue optimization software market continues to develop and expand. We also expect competition to increase
as a result of the entrance of new competitors in the market and industry consolidation, including through a merger
or partnership of two or more of our competitors or the acquisition of a competitor by a larger company. A number
of our current and potential competitors have larger installed bases of users, longer operating histories and greater
name recognition than we have. In addition, many of these companies have significantly greater financial, technical,
marketing, service and other resources than we have. As a result, these companies may be able to respond more
quickly to new or emerging technologies and changes in customer demands and to devote greater resources to the
development, promotion and sale of their products than we can.

Competition could seriously impede our ability to sell additional software products and related services on
terms favorable to us. We do not know how our competition will set prices for their products during a period of
economic downturn. Businesses may continue to enhance their internally developed solutions, rather than investing in
commercially-available solutions such as ours. Our current and potential competitors may develop and market new
technologies that render our existing or future products obsolete, unmarketable or less competitive. In addition, if these
competitors develop products with similar or superior functionality to our products, or if they offer products with
similar functionality at a substantially lower price than our products, we may need to decrease the prices for our
products in order to remain competitive. If we are unable to maintain our current product, services and maintenance
pricing due to competitive pressures, our margins will be reduced and our operating results will be adversely affected.
We cannot assure you that we will be able to compete successfully against current or future competitors or that
competitive pressures will not materially and adversely affect our business, financial condition and operating results.

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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.

We generally recognize revenue from our software licenses and implementation services over the period
during which such services are performed using the percentage-of-completion method. The length of this period
depends on the number of licensed software products and the scope and complexity of the customer’s deployment
requirements. Under the percentage-of-completion method, the revenue we recognize during a reporting period is
based on the percentage of man-days incurred during the reporting period as compared to the estimated total man-
days required to implement our software products. If we are unable to accurately estimate the overall total man-days
required to implement our software products, such inaccuracies could have a material effect on the timing of our
revenue. Any change in the timing of revenue recognition as a result of inaccurate estimates could adversely impact
our quarterly or annual operating results.

Failure to sustain our historical maintenance and support renewal rates and pricing would adversely
affect our operating result.

Maintenance and support agreements are typically for a term of one to two years. Historically,
maintenance and support revenue has represented a significant portion of our total revenue, including approximately
29%, 30% and 36% of our total revenue for the years ended December 31, 2008, 2007 and 2006, respectively. If
our customers choose not to renew their maintenance and support agreements with us on favorable terms or at all,
our business, operating results and financial condition could be harmed.

Our Global Growth is Subject to a Number of Economic Risks

As widely reported, global financial markets have been experiencing extreme disruption in recent months,
including, among other things, extreme volatility in security prices, limited ability to raise capital in public financial
markets, severely diminished liquidity, credit unavailability and company rating downgrades. These conditions
have a negative impact on our prospects' and customers' ability to raise capital and operate their businesses. This
global financial crisis and economic recessions will negatively affect our business although the extent to which it
will do so and our ability to manage the business in the face of those challenges are uncertain. For example, a
contraction in spending by our prospects or customers, including reduced spending on products such as ours, would
have a negative effect on our operating results and our business would suffer.

We might not generate increased business from our current customers, which could limit our revenue in
the future.

We sell our software products to both new customers and existing customers. Many of our existing
customers initially purchase our software products for a specific business segment or a specific geographic location
within their organization and later purchase additional software products for the same or other business segments
and geographic locations within their organization. These customers might not choose to make additional purchases
of our software products or to expand their existing software products to other business segments. In addition, as we
deploy new applications and features for our software products or introduce new software products, our current
customers could choose not to purchase these new offerings. If we fail to generate additional business from our
existing customers, our revenue could grow at a slower rate or even decrease.

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.

Our sales cycle may take several months to over a year. To sell our products successfully and obtain an
executed contract, we generally have to educate our potential customers about the use and benefits of our products,
which can require significant time, expense and capital without the ability to realize any revenue. During this sales
cycle, we may expend substantial resources with no assurance that a sale will ultimately result. The length of a
customer’s sales cycle depends on a number of factors, many of which we may not be able to control. These factors
include the customer’s product and technical requirements and the level of competition we face for that customer’s
business. Any unexpected lengthening of the sales cycle would negatively affect the timing of our revenue, and
hinder our revenue growth. Furthermore, a delay in our ability to obtain a signed agreement or other persuasive
evidence of an arrangement or to complete certain contract requirements in a particular quarter could reduce our
revenue in that quarter. Overall, any significant failure to generate revenue or delays in recognizing revenue after
incurring costs related to our sales or services process could have a material adverse effect on our business, financial
condition and results of operations.
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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.

The majority of our license and implementation arrangements are priced on a fixed-fee basis. If we
underestimate the amount of effort required to implement our software products, our profitability could be reduced.
Moreover, if the actual costs of completing the implementation exceed the agreed upon fixed price, we would incur
a loss on the arrangement.

Our revenue recognition policy may cause any decreases in sales not to be reflected in our revenue
immediately.

The period over which we recognize license and implementation revenue for an implementation depends
on the number of licensed software products and the scope and complexity of the customer’s deployment
requirements which may range from six months to several years. As a result, a significant majority of our revenue is
recognized on arrangements that were executed in previous periods. Any shortfall in new sales of our software
products may not be reflected in our revenue for several quarters, and as such the adverse impact on our business
may not be readily apparent.

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 new compliance initiatives.

As a public company, we incur significant legal, accounting and other expenses that we did not incur as a
private company. SEC and New York Stock Exchange (“NYSE”) rules and regulations impose heightened
requirements on public companies, including requiring changes in corporate governance practices. Our management
and other personnel devote a substantial amount of time to these compliance initiatives. We may also need to hire
additional finance and administrative personnel to support our compliance requirements. Moreover, these rules and
regulations increase our legal and financial costs and make some activities more time-consuming.

In addition, we are required to maintain effective internal controls for financial reporting and disclosure
controls and procedures. In particular, we are required to perform system and process evaluation and testing of our
internal controls over financial reporting to allow management to report on, and our independent registered public
accounting firm to report on, the effectiveness of our internal controls over financial reporting, as required by
Section 404 of the Sarbanes-Oxley Act. Our testing, or the subsequent testing by our independent registered public
accounting firm, may reveal deficiencies or material weaknesses in our internal controls over financial reporting.
Our compliance with Section 404 will require that we incur substantial accounting expense and expend significant
management efforts. We may need to hire additional accounting and financial staff or a third party firm with
appropriate public company experience and technical accounting knowledge. Moreover, if we are not able to
comply with the requirements of Section 404 in a timely manner, or if we or our independent registered public
accounting firm identifies deficiencies or material weaknesses in our internal controls over financial reporting, the
market price of our stock could decline and we could be subject to sanctions or investigations by the NYSE, SEC or
other regulatory authorities, which would require additional financial and management resources.

If we fail to develop or acquire new pricing and revenue optimization functionality to enhance our existing
software products, we will not be able to grow our business and it could be harmed.

The pricing and revenue optimization software market is characterized by:

· rapid technological developments;

· newly emerging and changing customer requirements; and

· frequent product introductions, updates and functional enhancements.

We must introduce new pricing and revenue optimization functionality that enhances our existing software
products in order to meet our business plan, maintain or improve our competitive position, keep pace with
technological developments, satisfy increasing customer requirements and increase awareness of pricing and
revenue optimization software generally and of our software products in particular. Any new functionality we
develop may not be introduced in a timely manner and may not achieve market acceptance sufficient to generate
material revenue. Furthermore, we believe our competitors are heavily investing in research and development, and
may develop and market new solutions that will compete with, and may reduce the demand for, our software
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products. We cannot assure you that we will be successful in developing or otherwise acquiring, marketing and
licensing new functionality, or delivering updates and upgrades that meet changing industry standards and customer
demands. In addition, we may experience difficulties that could delay or prevent the successful development,
marketing and licensing of such functionality. If we are unable to develop or acquire new functionality, enhance our
existing software products or adapt to changing industry requirements to meet market demand, we may not be able
to grow our business and our revenue and operating results would be adversely affected.

In addition, because our software products are intended to operate on a variety of technology platforms, we
must continue to modify and enhance our software products to keep pace with changes in these platforms. Any
inability of our software products to operate effectively with existing or future platforms could reduce the demand
for our software products, result in customer dissatisfaction and limit our revenue.

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.

Our pricing and revenue optimization software products are complex and may contain undetected defects
or errors. Several of our products have recently been developed and may therefore be more likely to contain
undetected defects or errors. In addition, we frequently develop enhancements to our software products that may
contain defects. We have not suffered significant harm from any defects or errors to date, but we have found defects
in our software products from time to time. We may discover additional defects in the future, and such defects
could be material. We may not be able to detect and correct defects or errors before the final implementation of our
software products. Consequently, we or our customers may discover defects or errors after our software products
have been implemented. We have in the past issued, and may in the future need to issue, corrective releases of our
products to correct defects or errors. The occurrence of any defects or errors could result in:

· 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.

Our license agreements with our customers typically contain provisions designed to limit our liability for
defects and errors in our software products and damages relating to such defects and errors, but these provisions may
not be enforced by a court or otherwise effectively protect us from legal claims. Our liability insurance may not be
adequate to cover all of the costs resulting from these legal claims. Moreover, we cannot assure you that our current
liability insurance coverage will continue to be available on acceptable terms. In addition, the insurer may deny
coverage on any future claim. The successful assertion against us of one or more large claims that exceeds available
insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the
imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business
and operating results. Furthermore, even if we prevail in any litigation, we are likely to incur substantial costs and
our management’s attention will be diverted from our operations.

If we fail to retain our key personnel or if we fail to attract additional qualified personnel, our operating
results could be adversely affected.

Our future success depends upon the continued service of our executive officers and other key sales,
development, science and professional services staff. The loss of the services of our executive officers and other
key personnel would harm our operations. In addition, our future success will depend in large part on our ability to
attract and retain a sufficient number of highly qualified personnel, and there can be no assurance that we will be
able to do so. In particular, given the highly sophisticated pricing science included in our products, the pool of
scientists and software developers qualified to work on our products is limited. In addition, the implementation of
our software products requires highly-qualified personnel, and hiring and retaining such personnel to support our
growth may be challenging. Competition for such qualified personnel is intense, and we compete for these
individuals with other companies that have greater financial, technical, marketing, service and other resources than
15

we do. If we fail to retain our key personnel and attract new 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.

Our industry is characterized by the existence of a large number of patents, trademarks and copyrights, and
by frequent litigation based on allegations of infringement or other violations of intellectual property rights. A third
party may assert that our technology violates its intellectual property rights, or we may become the subject of a
material intellectual property dispute. Pricing and revenue optimization solutions may become increasingly subject
to infringement claims as the number of commercially available pricing and revenue optimization solutions
increases and the functionality of these solutions overlaps. Future litigation may involve patent holding companies
or other adverse patent owners who have no relevant product revenue and against whom our own potential patents
may therefore provide little or no deterrence. Regardless of the merit of any particular claim that our technology
violates the intellectual property rights of others, responding to such claims may require us to:

· 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.

Any license required as a result of litigation under any patent may not be made available on commercially
acceptable terms, if at all. In addition, some licenses may be nonexclusive, and therefore our competitors may have
access to the same technology licensed to us. If we fail to obtain a required license or are unable to design around a
patent, we may be unable to effectively develop or market our products, which could limit our ability to generate
revenue or maintain profitability.

We may also be required to indemnify our customers for their use of the intellectual property associated
with our current product suite or for other third-party products that are incorporated into our solutions and that
infringe the intellectual property rights of others. If we are unable to resolve our legal obligations by settling or
paying an infringement claim or a related indemnification claim as described above, we may be required to
compensate our customers under the contractual arrangement with the customers. Some of our intellectual property
indemnification obligations are contractually capped at a very high amount or not capped at all.

If we fail to protect our proprietary rights and intellectual property adequately, our business and prospects
may be harmed.

Our success will depend in part on our ability to protect our proprietary methodologies and intellectual
property. We rely upon a combination of trade secrets, confidentiality policies, nondisclosure and other contractual
arrangements, and patent, copyright and trademark laws to protect our intellectual property rights. We cannot,
however, be sure that steps we take to protect our proprietary rights will prevent misappropriation of our intellectual
property, or the development and marketing of similar and competing products and services by third parties.

We rely, in some circumstances, on trade secrets to protect our technology. Trade secrets, however, are
difficult to protect. In addition, our trade secrets may otherwise become known or be independently discovered by
competitors, and in such cases, we could not assert such trade secret rights against such parties. We seek to protect
our proprietary technology and processes, in part, by confidentiality agreements with our employees, consultants,
customers, scientific advisors and other contractors. These agreements may be breached, and we may not have
adequate remedies for any breach. To the extent that our employees, consultants or contractors use intellectual
property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how
and inventions.

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As of the date of this filing, we have 2 issued U.S. patents and 7 pending U.S. patent applications. We have
not pursued patent protection in any foreign countries. Our pending patent applications may not result in issued
patents. The patent position of technology-oriented companies, including ours, is generally uncertain and involves
complex legal and factual considerations. The standards that the United States Patent and Trademark Office use to
grant patents are not always applied predictably or uniformly and can change. Accordingly, we do not know the
degree of future protection for our proprietary rights or the breadth of claims allowed in any patents that may be
issued to us or to others. If any of our patent applications issue, they may not contain claims sufficiently broad to
protect us against third parties with similar technologies or products, or provide us with any competitive advantage.
Moreover, once they have been issued, our patents and any patent for which we have licensed or may license rights
may be challenged, narrowed, invalidated or circumvented. If our patents are invalidated or otherwise limited, other
companies will be better able to develop products that compete with ours, which could adversely affect our
competitive business position, business prospects and financial condition.

Patent applications in the U.S. are typically not published until 18 months after filing or in some cases not
at all, and publications of discoveries in industry-related literature lag behind actual discoveries. We cannot be
certain that we were the first to make the inventions claimed in our pending patent applications or that we were the
first to file for patent protection. Additionally, the process of obtaining patent protection is expensive and time-
consuming, and we may not be able to prosecute all necessary or desirable patent applications at a reasonable cost or
in a timely manner. As a result, we may not be able to obtain adequate patent protection.

In addition, despite our efforts to protect our proprietary rights, unauthorized parties may be able to obtain
and use information that we regard as proprietary. The issuance of a patent does not guarantee that it is valid or
enforceable. As such, even if we obtain patents, they may not be valid or enforceable against third parties. In
addition, the issuance of a patent does not guarantee that we have a right to practice the patented invention. Third
parties may have blocking patents that could be used to prevent us from marketing or practicing our potentially
patented products. As a result, we may be required to obtain licenses under these third-party patents. If licenses are
not available to us on acceptable terms, or at all, we will not be able to make and sell our software products and
competitors would be more easily able to compete with us.

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.

We use open source software in our products and may use more open source software in the future. From
time to time, there have been claims challenging the ownership of open source software against companies that
incorporate open source software into their products. As a result, we could be subject to suits by parties claiming
ownership of what we believe to be open source software. Some open source licenses contain requirements that we
make available source code for modifications or derivative works we create based upon the open source software
and that we license such modifications or derivative works under the terms of a particular open source license or
other license granting third parties certain rights of further use. If we combine our proprietary software products
with open source software in a certain manner, we could, under certain of the open source licenses, be required to
release the source code of our proprietary software products. In addition to risks related to license requirements,
usage of open source software can lead to greater risks than use of third party commercial software, as open source
licensors generally do not provide warranties or controls on origin of the software. In addition, open source license
terms may be ambiguous and many of the risks associated with usage of open source cannot be eliminated, and
could, if not properly addressed, negatively affect our business. If we were found to have inappropriately used open
source software, we may be required to re-engineer our products, to discontinue the sale of our products in the event
re-engineering cannot be accomplished on a timely basis or take other remedial action that may divert resources
away from our development efforts, any of which could adversely affect our business, operating results and financial
condition.

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.

We incorporate and include third-party software into our software products. If our relations with any of
these third parties are impaired, or if we are unable to obtain or develop a replacement for the software, our business
could be harmed. The operation of our products could be impaired if errors occur in the third-party software that we
utilize. It may be more difficult for us to correct any defects in third-party software because the software is not
within our control. Accordingly, our business could be adversely affected in the event of any errors in this software.
There can be no assurance that these third parties will continue to invest the appropriate levels of resources in their
products and services to maintain and enhance the capabilities of their software.

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New accounting standards or interpretations of existing accounting standards, including those related to
revenue recognition, could adversely affect our operating results.

GAAP in the United States are subject to interpretation by the Financial Accounting Standards Board, the
American Institute of Certified Public Accountants, the SEC and various bodies formed to promulgate and interpret
appropriate accounting principles. A change in principles or interpretations, in particular those related to revenue
recognition, could have an adverse effect on our reported financial results.

Our international sales subject us to risks that may adversely affect our operating results.

Over the last several years, we derived a significant portion of our revenue from customers outside the
United States. For the years ended December 31, 2008, 2007, and 2006, approximately 54%, 63% and 63% of our
total revenue, respectively, was derived from outside the United States. We may not be able to maintain or increase
international market demand for our products. Managing overseas growth could require significant resources and
management attention and may subject us to new or larger levels of regulatory, economic, foreign currency
exchange, tax and political risks. Among the risks we believe are most likely to affect us with respect to our
international sales and operations are:

· 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 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.

If we continue to expand our business globally, our success will depend, in large part, on our ability to
anticipate and effectively manage these and other risks associated with our international operations. Our failure to
manage any of these risks successfully could harm our international operations and reduce our international sales,
adversely affecting our business, operating results and financial condition.

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.

We currently do not have any agreements with respect to any acquisitions, but in the future we may pursue
acquisitions of businesses, technologies and products that we intend to complement our existing business, products
and technologies. We cannot assure you that any acquisition we make in the future will provide us with the benefits
we anticipated in entering into the transaction. Acquisitions are typically accompanied by a number of risks,
including:

· 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;

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· 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.

In addition, acquisitions may result in the incurrence of debt, restructuring charges and write-offs.
Acquisitions may also result in goodwill and other intangible assets that are subject to impairment tests, which could
result in future impairment charges. Furthermore, if we finance acquisitions by issuing convertible debt or equity
securities, our existing stockholders may be diluted and earnings per share may decrease. To the extent we finance
future acquisitions with debt; such debt could include financial or operational covenants that restrict our business
operations.

We may enter into negotiations for acquisitions that are not ultimately consummated. Those negotiations
could result in diversion of management time and significant out-of-pocket costs. If we fail to evaluate and execute
acquisitions successfully, we may not be able to achieve our anticipated level of growth and our business and
operating results could be adversely affected.

Our operations might be affected by the occurrence of a natural disaster or other catastrophic event in
Houston, Texas.

Our headquarters are located in Houston, Texas, from which we base our operations. Although we have
contingency plans in effect for natural disasters or other catastrophic events, these events, including terrorist attacks
and natural disasters such as hurricanes, could disrupt our operations. Even though we carry business interruption
insurance and typically have provisions in our contracts that protect us in certain events, we might suffer losses as a
result of business interruptions that exceed the coverage available under our insurance policies or for which we do
not have coverage. For example, even a temporary disruption to our business operations may create a negative
perception in the marketplace. Any natural disaster or catastrophic event affecting us could have a significant
negative impact on our operations.

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 growth strategy.

We believe that our existing cash and cash equivalents and our cash flow from future operating activities
will be sufficient to meet our anticipated cash needs for the foreseeable future. The timing and amount of our
working capital and capital expenditure requirements may vary significantly depending on numerous factors,
including the other risk factors described in this Annual Report on Form 10-K. In addition, we may require
additional financing to fund the purchase price of future acquisitions. Additional financing may not be available on
terms favorable to us, or at all. Any additional capital raised through the sale of equity or convertible debt securities
may dilute your percentage ownership of our common stock. Furthermore, any new debt or equity securities we
issue could have rights, preferences and privileges superior to our common stock. Capital raised through debt
financings could require us to make periodic interest payments and could impose potentially restrictive covenants on
the conduct of our business.

Risks relating to ownership of our common stock:

Market volatility may affect our stock price and the value of your investment.

The market price for our common stock has been and is likely to continue to be volatile, in part because our
shares has been traded publicly since June 2007. Volatility could make it difficult to trade shares of our common
stock at predictable prices or times.

Many factors could cause the market price of our common stock to be volatile, including the following:

· variations in our quarterly or annual operating results;

· decreases in market valuations of comparable companies;

· fluctuations in stock market prices and volumes;
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· 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.

In the past, securities class action litigation often has been initiated against a company following a period of
volatility in the market price of the company’s securities. If class action litigation is initiated against us, we will
incur substantial costs and our management’s attention will be diverted from our operations. All of these factors
could cause the market price of our stock to decline, and you may lose some or all of your investment.

Shares of our common stock are relatively illiquid

Our common stock is thinly traded and we have a relatively small public float. Our common stock may be
less liquid than the stock of companies with a broader public ownership. In addition, trading of a large volume of
our common stock may also have a significant impact on its trading price.

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.

The trading market for our common stock relies in part on the research and reports that equity research
analysts publish about us and our business. The price of our stock could decline if one or more equity research
analysts downgrade our stock or if those analysts issue other unfavorable commentary or cease publishing reports
about our business.

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.

Our Certificate of Incorporation and by-laws and Section 203 of the Delaware General Corporation Law
contain provisions that might enable our management to resist a takeover of our company. These provisions include
the following:

· 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

· the ability of our board of directors to issue preferred stock without stockholder approval.

In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of
the Delaware General Corporation Law, which limits the ability of stockholders owning in excess of 15% of our
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outstanding voting stock to merge or combine with us. Although we believe these provisions collectively provide
for an opportunity to obtain higher bids by requiring potential acquirors to negotiate with our board of directors, they
would apply even if an offer were considered beneficial by some stockholders. In addition, these provisions may
frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it
more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the
members of our management.

We do not intend to pay dividends on our common stock in the foreseeable future.

We do not anticipate paying any cash dividends on our common stock in the foreseeable future. We
currently anticipate that we will retain all of our available cash, if any, for use as working capital and for other
general corporate purposes. Any payment of future dividends will be at the discretion of our board of directors and
will depend upon, among other things, our earnings, financial condition, capital requirements, level of indebtedness,
statutory and contractual restrictions applying to the payment of dividends and other considerations that the board of
directors deems relevant. Investors seeking cash dividends should not purchase our common stock.

Item 1B. Unresolved staff comments

None.

Item 2. Properties

We lease approximately 73,200 square feet of office space for our headquarters in Houston, Texas. This
lease expires in July 2011. In addition, we lease approximately 4,300 square feet of office space in Austin, Texas.
This lease expires June 2009. We may add new facilities and expand our existing facilities as we add employees,
and we believe that suitable additional or substitute space will be available as needed to accommodate any such
expansion of our operations.

Item 3. Legal proceedings

In the ordinary course of our business, we regularly become involved in contract and other negotiations
and, in more limited circumstances, become involved in legal proceedings, claims and litigation. We periodically
assess our liabilities and contingencies in connection with these matters, based upon the latest information available.
Should it be probable that we have incurred a loss and the loss, or range of loss, can be reasonably estimated, we
will record reserves in the consolidated financial statements. In other instances, because of the uncertainties related
to the probable outcome and/or amount or range of loss, we are unable to make a reasonable estimate of a liability,
no reserve will be recorded. As additional information becomes available, we will adjust our assessment and
estimates of such liabilities accordingly. It is possible that the ultimate resolution of our liabilities and contingencies
could be at amounts that are different from any recorded reserves and that such differences could be material.

In April 2008, a customer delivered a notice of termination of its contract and filed a breach of contract
complaint alleging failure to deliver software the customer purchased. In May 2008, we filed a counterclaim. We
believe the customer’s termination is wrongful and intend to vigorously defend this matter and to seek payment of
remaining amounts owed under the contract. Given the inherent uncertainties in any litigation, we are unable to
make any predictions as to the ultimate outcome and no provision for loss or other costs has been recorded. For
additional information, see Note 10 to our Notes to the Consolidated Financial Statements.

Based on our review of the latest information available, we do not believe any liability, in connection with
current contracts and other negotiations or pending or threatened legal proceedings, claims and litigation would have
a material adverse effect on our financial statements.

Item 4. Submission of matters to a vote of security holders

No matter was submitted to a vote of our shareholders during the fourth quarter of the year ended
December 31, 2008.

Part II
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Item 5. Market for registrant’s common equity, related stockholders matters and issuer purchases of equity
securities

Market information and dividends

Our common stock began trading on the NYSE under symbol “PRO” on June 28, 2007. The following
table sets forth the high and low prices for shares of our common stock, as reported by the NYSE for the periods
indicated.
Price Range of
Common Stock
Low High

Second Quarter (commencing June 28, 2007) $ 11.32 $ 13.64
Third Quarter $ 10.40 $ 14.69
Fourth Quarter $ 12.02 $ 20.71

First Quarter $ 10.40 $ 15.51
Second Quarter $ 9.53 $ 13.50
Third Quarter $ 6.50 $ 12.45
Fourth Quarter $ 3.13 $ 9.40

On February 20, 2008 there were 102 stockholders of record of our common stock. On March 29, 2007,
the Company paid a one-time cash dividend on its common stock of $2.00 per share, totaling $41.3 million. We
currently expect to retain all remaining available funds and any future earnings for use in the operation and
development of our business. Accordingly, we do not anticipate declaring or paying cash dividends on our common
stock in the foreseeable future.

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NYSE:PRO 2008 Annual Report

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NYSE:PRO 2008 Annual Report