Press Release

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Jun 27, 2019

Progress 2019 Second Quarter Results Exceed Guidance

Raises Guidance for Operating Margin and Earnings per Share

Completes Ipswitch Acquisition and New Credit Facility

BEDFORD, Mass.--(BUSINESS WIRE)--Jun. 27, 2019-- Progress (NASDAQ: PRGS), the leading provider of application development and digital experience technologies, today announced results for its fiscal second quarter ended May 31, 2019.

On a GAAP basis, revenue was $100.0 million during the quarter compared to $92.9 million in the same quarter last year, a year-over-year increase of 8% on an actual currency basis, and 10% on a constant currency basis. On a non-GAAP basis, revenue was $103.5 million during the quarter compared to $93.0 million in the same quarter last year, an increase of 11% on an actual currency basis and 14% on a constant currency basis.

On a GAAP basis, diluted earnings per share during the quarter was $0.18 compared to $0.28 in the same quarter last year, a decrease of 36%. On a non-GAAP basis, diluted earnings per share during the quarter was $0.65 compared to $0.55 in the same quarter last year, an increase of 18%.

“We exceeded both our revenue and EPS guidance for Q2, and also completed the acquisition of Ipswitch during the quarter,” said Yogesh Gupta, CEO at Progress. “I'm very pleased with the integration so far, and we are focused on achieving our targeted shareholder returns for this acquisition even earlier than we had anticipated. Our businesses are performing well, and we are on track to achieve our financial goals for 2019, including our increased guidance for margin and earnings per share.”

Additional financial highlights included(1):

 

Three Months Ended

 

GAAP

 

Non-GAAP

(In thousands, except percentages and per share amounts)

May 31,
2019

 

May 31,
2018

 

% Change

 

May 31,
2019

 

May 31,
2018

 

% Change

Revenue

$

99,995

 

 

$

92,864

 

 

8

%

 

$

103,475

 

 

$

92,956

 

 

11

%

Income from operations

14,741

 

 

18,550

 

 

(21

)%

 

38,888

 

 

34,122

 

 

14

%

Operating margin

15

%

 

20

%

 

(25

)%

 

38

%

 

37

%

 

3

%

Net income

8,181

 

 

12,904

 

 

(37

)%

 

29,417

 

 

25,302

 

 

16

%

Diluted earnings per share

0.18

 

 

0.28

 

 

(36

)%

 

0.65

 

 

0.55

 

 

18

%

Cash from operations (GAAP) /Adjusted free cash flow (Non-GAAP)

$

40,674

 

 

$

42,129

 

 

(3

)%

 

$

40,438

 

 

$

42,761

 

 

(5

)%

(1)The Company adopted the new accounting standard related to revenue recognition ("ASC 606") effective December 1, 2018, using the full retrospective method. Prior period results have been adjusted to reflect the adoption of this standard.

Paul Jalbert, CFO, said: “I’m very pleased with our second quarter performance, including our strong cash flow generation. Our continued strong execution gives us confidence to raise our full year guidance for both operating margin and EPS, and I look forward to sustaining our momentum in the second half of the year.”

Other fiscal second quarter 2019 metrics and recent results included:

  • Cash, cash equivalents and short-term investments were $128.6 million at the end of the quarter;
  • DSO was 42 days compared to 40 days in the fiscal second quarter of 2018 and 56 days in the fiscal first quarter of 2019; and
  • On June 25, 2019, our Board of Directors declared a quarterly dividend of $0.155 per share of common stock that will be paid on September 16, 2019 to shareholders of record as of the close of business on September 2, 2019.

Ipswitch Acquisition

As previously disclosed, Progress completed the acquisition of privately held Ipswitch, Inc. during the second quarter of fiscal year 2019 for approximately $225 million in cash. Ipswitch provides Progress with leading network management and secure data file transfer capabilities for small and medium-sized businesses and enterprises. Progress expects Ipswitch to meaningfully contribute to non-GAAP revenue, profitability and cash flow in fiscal 2019. The acquisition was accounted for as a business combination, and accordingly, the results of operations of Ipswitch are included in our operating results as part of the OpenEdge business segment from the date of acquisition. Progress funded the purchase price from a combination of existing cash resources and a $185.0 million term loan, which is part of a new $401.0 million term loan and revolving credit facility with JPMorgan Chase Bank, N.A. and a syndicate of other lenders. This new credit facility replaced Progress' prior revolving credit facility.

2019 Business Outlook

Progress provides the following revised guidance for the fiscal year ending November 30, 2019 and the fiscal third quarter ending August 31, 2019:

(In millions, except percentages and per share amounts)

FY 2019

GAAP

 

FY 2019

Non-GAAP

 

Q3 2019

GAAP

 

Q3 2019

Non-GAAP

Revenue

$404 - $410

 

$422 - $428

 

$101 - $104

 

$109 - $112

Diluted earnings per share

$0.73 - $0.79

 

$2.52 - $2.57

 

$0.15 - $0.17

 

$0.68 - $0.70

Operating margin

14% - 15%

 

36% - 37%

 

*

 

*

Cash from operations (GAAP) /Adjusted free cash flow (Non-GAAP)

$128 - $133

 

$125 - $130

 

*

 

*

Effective tax rate

27%

 

19%

 

*

 

*

* We do not provide guidance for this financial measure.

Based on current exchange rates, the expected negative currency translation impact on Progress' fiscal year 2019 business outlook compared to 2018 exchange rates is approximately $6.2 million on GAAP and non-GAAP revenue, and approximately $0.05 on GAAP and non-GAAP diluted earnings per share. The expected negative currency translation impact on Progress' fiscal Q3 2019 business outlook compared to 2018 exchange rates on GAAP and non-GAAP revenue, and on GAAP and non-GAAP diluted earnings per share is approximately $1.0 million and $0.01, respectively. To the extent that there are changes in exchange rates versus the current environment, this may have an impact on Progress' business outlook.

Conference Call

Progress will hold a conference call to review its financial results for the fiscal second quarter of 2019 at 5:00 p.m. ET on Thursday, June 27, 2019. The call can be accessed on the investor relations section of the company’s website, located at www.progress.com. Additionally, you can listen to the call by telephone by dialing 1-800-458-4121, pass code 7312666. The conference call will include comments followed by questions and answers. An archived version of the conference call and supporting materials will be available on the Progress website within the investor relations section after the live conference call.

Legal Notice Regarding Non-GAAP Financial Information

Progress provides non-GAAP financial information as additional information for investors. These non-GAAP measures are not in accordance with, or an alternative to, generally accepted accounting principles in the United States ("GAAP"). Progress believes that the non-GAAP results described in this release are useful for an understanding of its ongoing operations and provide additional detail and an alternative method of assessing its operating results. A reconciliation of non-GAAP adjustments to the company's GAAP financial results is included in the tables below and is available on the Progress website at www.progress.com within the investor relations section. Additional information regarding the company's non-GAAP financial information is contained in the company's Current Report on Form 8-K furnished to the Securities and Exchange Commission in connection with this press release, which is also available on the Progress website within the investor relations section.

Note Regarding Forward-Looking Statements

This press release contains statements that are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Progress has identified some of these forward-looking statements with words like “believe,” “may,” “could,” “would,” “might,” “should,” “expect,” “intend,” “plan,” “target,” “anticipate” and “continue,” the negative of these words, other terms of similar meaning or the use of future dates.

Forward-looking statements in this press release include, but are not limited to, statements regarding Progress' business outlook and financial guidance. There are a number of factors that could cause actual results or future events to differ materially from those anticipated by the forward-looking statements, including, without limitation:

(1) Economic, geopolitical and market conditions can adversely affect our business, results of operations and financial condition, including our revenue growth and profitability, which in turn could adversely affect our stock price. (2) We may fail to achieve our financial forecasts due to such factors as delays or size reductions in transactions, fewer large transactions in a particular quarter, fluctuations in currency exchange rates, or a decline in our renewal rates for contracts. (3) Our ability to successfully manage transitions to new business models and markets, including an increased emphasis on a cloud and subscription strategy, may not be successful. (4) If we are unable to develop new or sufficiently differentiated products and services, or to enhance and improve our existing products and services in a timely manner to meet market demand, partners and customers may not purchase new software licenses or subscriptions or purchase or renew support contracts. (5) We depend upon our extensive partner channel and we may not be successful in retaining or expanding our relationships with channel partners. (6) Our international sales and operations subject us to additional risks that can adversely affect our operating results, including risks relating to foreign currency gains and losses. (7) If the security measures for our software, services or other offerings are compromised or subject to a successful cyber-attack, or if such offerings contain significant coding or configuration errors, we may experience reputational harm, legal claims and financial exposure. (8) We have made acquisitions, including our recent acquisition of Ipswitch, and may make acquisitions in the future, and those acquisitions may not be successful, may involve unanticipated costs or other integration issues or may disrupt our existing operations. For further information regarding risks and uncertainties associated with Progress' business, please refer to Progress' filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the fiscal year ended November 30, 2018. Progress undertakes no obligation to update any forward-looking statements, which speak only as of the date of this press release.

About Progress

Progress (NASDAQ: PRGS) offers the leading platform for developing and deploying strategic business applications. We enable customers and partners to deliver modern, high-impact digital experiences with a fraction of the effort, time and cost. Progress offers powerful tools for easily building adaptive user experiences across any type of device or touchpoint, award-winning machine learning that enables cognitive capabilities to be a part of any application, the flexibility of a serverless cloud to deploy modern apps, business rules, web content management, plus leading data connectivity technology. Over 1,700 independent software vendors, 100,000 enterprise customers, and 2 million developers rely on Progress to power their applications. Learn about Progress at www.progress.com or +1-800-477-6473.

Progress and Progress Software are trademarks or registered trademarks of Progress Software Corporation and/or its subsidiaries or affiliates in the U.S. and other countries. Any other names contained herein may be trademarks of their respective owners.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

Three Months Ended

 

Six Months Ended

(In thousands, except per share data)

May 31,
2019

 

May 31,
2018(1)

 

% Change

 

May 31,
2019

 

May 31,
2018(1)

 

% Change

Revenue:

 

 

 

 

 

 

 

 

 

 

 

Software licenses

$

29,728

 

 

$

22,526

 

 

32

%

 

$

52,530

 

 

$

48,580

 

 

8

%

Maintenance and services

70,267

 

 

70,338

 

 

%

 

137,014

 

 

139,694

 

 

(2

)%

Total revenue

99,995

 

 

92,864

 

 

8

%

 

189,544

 

 

188,274

 

 

1

%

Costs of revenue:

 

 

 

 

 

 

 

 

 

 

 

Cost of software licenses

925

 

 

1,233

 

 

(25

)%

 

2,092

 

 

2,494

 

 

(16

)%

Cost of maintenance and services

10,580

 

 

9,511

 

 

11

%

 

20,019

 

 

19,335

 

 

4

%

Amortization of acquired intangibles

6,106

 

 

5,899

 

 

4

%

 

11,539

 

 

11,717

 

 

(2

)%

Total costs of revenue

17,611

 

 

16,643

 

 

6

%

 

33,650

 

 

33,546

 

 

%

Gross profit

82,384

 

 

76,221

 

 

8

%

 

155,894

 

 

154,728

 

 

1

%

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

24,832

 

 

21,658

 

 

15

%

 

47,155

 

 

43,086

 

 

9

%

Product development

21,688

 

 

19,822

 

 

9

%

 

41,578

 

 

40,067

 

 

4

%

General and administrative

12,654

 

 

12,190

 

 

4

%

 

24,939

 

 

23,452

 

 

6

%

Amortization of acquired intangibles

4,585

 

 

3,318

 

 

38

%

 

7,773

 

 

6,637

 

 

17

%

Fees related to shareholder activist

 

 

214

 

 

*

 

 

 

 

1,472

 

 

*

 

Restructuring expenses

2,777

 

 

426

 

 

552

%

 

3,192

 

 

2,247

 

 

42

%

Acquisition-related expenses

1,107

 

 

43

 

 

2,474

%

 

1,107

 

 

86

 

 

1,187

%

Total operating expenses

67,643

 

 

57,671

 

 

17

%

 

125,744

 

 

117,047

 

 

7

%

Income from operations

14,741

 

 

18,550

 

 

(21

)%

 

30,150

 

 

37,681

 

 

(20

)%

Other expense, net

(2,317

)

 

(1,284

)

 

(80

)%

 

(4,320

)

 

(2,869

)

 

(51

)%

Income before income taxes

12,424

 

 

17,266

 

 

(28

)%

 

25,830

 

 

34,812

 

 

(26

)%

Provision for income taxes

4,243

 

 

4,362

 

 

(3

)%

 

8,247

 

 

8,175

 

 

1

%

Net income

$

8,181

 

 

$

12,904

 

 

(37

)%

 

$

17,583

 

 

$

26,637

 

 

(34

)%

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

Basic

$

0.18

 

 

$

0.28

 

 

(36

)%

 

$

0.39

 

 

$

0.58

 

 

(33

)%

Diluted

$

0.18

 

 

$

0.28

 

 

(36

)%

 

$

0.39

 

 

$

0.57

 

 

(32

)%

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

Basic

44,611

 

 

45,531

 

 

(2

)%

 

44,784

 

 

46,030

 

 

(3

)%

Diluted

45,287

 

 

46,087

 

 

(2

)%

 

45,287

 

 

46,781

 

 

(3

)%

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per common share

$

0.155

 

 

$

0.140

 

 

11

%

 

$

0.310

 

 

$

0.280

 

 

11

%

(1)The Company adopted ASC 606 effective December 1, 2018, using the full retrospective method. Prior period results have been adjusted to reflect the adoption of this standard.

Stock-based compensation is included in the condensed consolidated statements of operations, as follows:

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue

$

250

 

 

$

269

 

 

(7

)%

 

$

494

 

 

$

515

 

 

(4

)%

Sales and marketing

1,190

 

 

995

 

 

20

%

 

2,237

 

 

1,365

 

 

64

%

Product development

1,936

 

 

1,984

 

 

(2

)%

 

3,863

 

 

4,030

 

 

(4

)%

General and administrative

2,740

 

 

2,332

 

 

17

%

 

5,327

 

 

4,240

 

 

26

%

Total

$

6,116

 

 

$

5,580

 

 

10

%

 

$

11,921

 

 

$

10,150

 

 

17

%

*Not meaningful

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

(In thousands)

May 31,
2019

 

November 30,
2018(1)

Assets

 

 

 

Current assets:

 

 

 

Cash, cash equivalents and short-term investments

$

128,553

 

 

$

139,513

 

Accounts receivable, net

52,040

 

 

59,715

 

Unbilled receivables

5,160

 

 

1,421

 

Other current assets

18,553

 

 

25,080

 

Assets held for sale

 

 

5,776

 

Total current assets

204,306

 

 

231,505

 

Property and equipment, net

32,971

 

 

30,714

 

Goodwill and intangible assets, net

583,530

 

 

373,911

 

Long-term unbilled receivables

4,488

 

 

1,811

 

Other assets

4,610

 

 

6,209

 

Total assets

$

829,905

 

 

$

644,150

 

Liabilities and shareholders’ equity

 

 

 

Current liabilities:

 

 

 

Accounts payable and other current liabilities

$

61,268

 

 

$

57,005

 

Current portion of long-term debt, net

7,002

 

 

5,819

 

Short-term deferred revenue

135,929

 

 

123,210

 

Total current liabilities

204,199

 

 

186,034

 

Long-term deferred revenue

14,476

 

 

12,730

 

Long-term debt, net

291,194

 

 

110,270

 

Other long-term liabilities

4,689

 

 

11,114

 

Shareholders’ equity:

 

 

 

Common stock and additional paid-in capital

282,193

 

 

267,053

 

Retained earnings

33,154

 

 

56,949

 

Total shareholders’ equity

315,347

 

 

324,002

 

Total liabilities and shareholders’ equity

$

829,905

 

 

$

644,150

 

(1)The Company adopted ASC 606 effective December 1, 2018, using the full retrospective method. Prior period results have been adjusted to reflect the adoption of this standard.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

Three Months Ended

 

Six Months Ended

(In thousands)

May 31,
2019

 

May 31,
2018(1)

 

May 31,
2019

 

May 31,
2018(1)

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income

$

8,181

 

 

$

12,904

 

 

$

17,583

 

 

$

26,637

 

Depreciation and amortization

12,852

 

 

11,331

 

 

23,338

 

 

22,633

 

Stock-based compensation

6,116

 

 

5,580

 

 

11,921

 

 

10,150

 

Other non-cash adjustments

(3,611

)

 

(1,857

)

 

(6,438

)

 

(1,448

)

Changes in operating assets and liabilities

17,136

 

 

14,171

 

 

18,713

 

 

15,753

 

Net cash flows from operating activities

40,674

 

 

42,129

 

 

65,117

 

 

73,725

 

Capital expenditures

(834

)

 

(1,810

)

 

(1,080

)

 

(3,196

)

Issuances of common stock, net of repurchases

2,409

 

 

(42,798

)

 

(20,697

)

 

(85,329

)

Dividend payments to shareholders

(6,894

)

 

(6,482

)

 

(13,886

)

 

(13,101

)

Payments for acquisitions, net of cash acquired

(225,298

)

 

 

 

(225,298

)

 

 

Proceeds from the issuance of debt, net of payment of issuance costs

183,374

 

 

 

 

183,374

 

 

 

Proceeds from sale of property, plant and equipment, net

6,146

 

 

 

 

6,146

 

 

 

Payments of principal on long-term debt

 

 

(1,547

)

 

(1,547

)

 

(3,094

)

Other

(4,482

)

 

(12,789

)

 

(3,089

)

 

(8,414

)

Net change in cash, cash equivalents and short-term investments

(4,905

)

 

(23,297

)

 

(10,960

)

 

(39,409

)

Cash, cash equivalents and short-term investments, beginning of period

133,458

 

 

167,497

 

 

139,513

 

 

183,609

 

Cash, cash equivalents and short-term investments, end of period

$

128,553

 

 

$

144,200

 

 

$

128,553

 

 

$

144,200

 

(1)The Company adopted ASC 606 effective December 1, 2018, using the full retrospective method. Prior period results have been adjusted to reflect the adoption of this standard.

RESULTS OF OPERATIONS BY SEGMENT

(Unaudited)

 

 

Three Months Ended

 

Six Months Ended

(In thousands)

May 31,
2019

 

May 31,
2018(1)

 

% Change

 

May 31,
2019

 

May 31,
2018(1)

 

% Change

Segment revenue:

 

 

 

 

 

 

 

 

 

 

 

OpenEdge

$

67,820

 

 

$

69,607

 

 

(3

)%

 

$

133,072

 

 

$

136,270

 

 

(2

)%

Data Connectivity and Integration

12,932

 

 

3,411

 

 

279

%

 

18,932

 

 

12,903

 

 

47

%

Application Development and Deployment

19,243

 

 

19,846

 

 

(3

)%

 

37,540

 

 

39,101

 

 

(4

)%

Total revenue

99,995

 

 

92,864

 

 

8

%

 

189,544

 

 

188,274

 

 

1

%

Segment costs of revenue and operating expenses:

 

 

 

 

 

 

 

 

 

 

 

OpenEdge

19,097

 

 

15,013

 

 

27

%

 

37,412

 

 

30,775

 

 

22

%

Data Connectivity and Integration

1,806

 

 

1,674

 

 

8

%

 

3,306

 

 

3,303

 

 

%

Application Development and Deployment

5,547

 

 

6,199

 

 

(11

)%

 

10,974

 

 

12,997

 

 

(16

)%

Total costs of revenue and operating expenses

26,450

 

 

22,886

 

 

16

%

 

51,692

 

 

47,075

 

 

10

%

Segment contribution margin:

 

 

 

 

 

 

 

 

 

 

 

OpenEdge

48,723

 

 

54,594

 

 

(11

)%

 

95,660

 

 

105,495

 

 

(9

)%

Data Connectivity and Integration

11,126

 

 

1,737

 

 

541

%

 

15,626

 

 

9,600

 

 

63

%

Application Development and Deployment

13,696

 

 

13,647

 

 

%

 

26,566

 

 

26,104

 

 

2

%

Total contribution margin

73,545

 

 

69,978

 

 

5

%

 

137,852

 

 

141,199

 

 

(2

)%

Other unallocated expenses(2)

58,804

 

 

51,428

 

 

14

%

 

107,702

 

 

103,518

 

 

4

%

Income from operations

14,741

 

 

18,550

 

 

(21

)%

 

30,150

 

 

37,681

 

 

(20

)%

Other expense, net

(2,317

)

 

(1,284

)

 

(80

)%

 

(4,320

)

 

(2,869

)

 

(51

)%

Income before income taxes

$

12,424

 

 

$

17,266

 

 

(28

)%

 

$

25,830

 

 

$

34,812

 

 

(26

)%

 

 

 

 

 

 

 

 

 

 

 

 

(1)The Company adopted ASC 606 effective December 1, 2018, using the full retrospective method. Prior period results have been adjusted to reflect the adoption of this standard.
(2)The following expenses are not allocated to our segments as we manage and report our business in these functional areas on a consolidated basis only: certain product development and corporate sales and marketing expenses, customer support, administration, amortization of acquired intangibles, stock-based compensation, fees related to shareholder activist, restructuring, and acquisition-related expenses.

SUPPLEMENTAL INFORMATION

(Unaudited)

 

Revenue by Type

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

Q2 2018(1)

 

Q3 2018(1)

 

Q4 2018(1)

 

Q1 2019

 

Q2 2019

Software licenses

$

22,526

 

 

$

22,852

 

 

$

28,367

 

 

$

22,802

 

 

$

29,728

 

Maintenance

63,058

 

 

62,170

 

 

61,759

 

 

59,999

 

 

62,528

 

Services

7,280

 

 

7,581

 

 

7,977

 

 

6,748

 

 

7,739

 

Total revenue

$

92,864

 

 

$

92,603

 

 

$

98,103

 

 

$

89,549

 

 

$

99,995

 

 

 

 

 

 

 

 

 

 

 

Revenue by Region

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

Q2 2018(1)

 

Q3 2018(1)

 

Q4 2018(1)

 

Q1 2019

 

Q2 2019

North America

$

47,351

 

 

$

49,756

 

 

$

54,952

 

 

$

46,498

 

 

$

57,060

 

EMEA

35,049

 

 

32,663

 

 

34,047

 

 

33,372

 

 

33,633

 

Latin America

4,243

 

 

4,600

 

 

4,260

 

 

4,461

 

 

4,108

 

Asia Pacific

6,221

 

 

5,584

 

 

4,844

 

 

5,218

 

 

5,194

 

Total revenue

$

92,864

 

 

$

92,603

 

 

$

98,103

 

 

$

89,549

 

 

$

99,995

 

 

 

 

 

 

 

 

 

 

 

Revenue by Segment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

Q2 2018(1)

 

Q3 2018(1)

 

Q4 2018(1)

 

Q1 2019

 

Q2 2019

OpenEdge

$

69,607

 

 

$

68,519

 

 

$

73,016

 

 

$

65,252

 

 

$

67,820

 

Data Connectivity and Integration

3,411

 

 

4,563

 

 

5,663

 

 

6,000

 

 

12,932

 

Application Development and Deployment

19,846

 

 

19,521

 

 

19,424

 

 

18,297

 

 

19,243

 

Total revenue

$

92,864

 

 

$

92,603

 

 

$

98,103

 

 

$

89,549

 

 

$

99,995

 

(1)The Company adopted ASC 606 effective December 1, 2018, using the full retrospective method. Prior period results have been adjusted to reflect the adoption of this standard.

RECONCILIATIONS OF GAAP TO NON-GAAP SELECTED FINANCIAL MEASURES - SECOND QUARTER

(Unaudited)

 

 

Three Months Ended

 

% Change

(In thousands, except per share data)

May 31, 2019

 

May 31, 2018(1)

 

Non-GAAP

Adjusted revenue:

 

 

 

 

 

 

 

 

 

GAAP revenue

$

99,995

 

 

 

 

$

92,864

 

 

 

 

 

Acquisition-related revenue(2)

3,480

 

 

 

 

92

 

 

 

 

 

Non-GAAP revenue

$

103,475

 

 

100

%

 

$

92,956

 

 

100

%

 

11

%

 

 

 

 

 

 

 

 

 

 

Adjusted income from operations:

 

 

 

 

 

 

 

 

 

GAAP income from operations

$

14,741

 

 

15

%

 

$

18,550

 

 

20

%

 

 

Amortization of acquired intangibles

10,691

 

 

10

%

 

9,217

 

 

10

%

 

 

Fees related to shareholder activist

 

 

%

 

214

 

 

%

 

 

Restructuring expenses and other

2,753

 

 

3

%

 

426

 

 

%

 

 

Stock-based compensation

6,116

 

 

6

%

 

5,580

 

 

7

%

 

 

Acquisition-related revenue(2) and expenses

4,587

 

 

4

%

 

135

 

 

%

 

 

Non-GAAP income from operations

$

38,888

 

 

38

%

 

$

34,122

 

 

37

%

 

14

%

 

 

 

 

 

 

 

 

 

 

Adjusted net income:

 

 

 

 

 

 

 

 

 

GAAP net income

$

8,181

 

 

8

%

 

$

12,904

 

 

14

%

 

 

Amortization of acquired intangibles

10,691

 

 

10

%

 

9,217

 

 

10

%

 

 

Fees related to shareholder activist

 

 

%

 

214

 

 

%

 

 

Restructuring expenses and other

2,753

 

 

2

%

 

426

 

 

%

 

 

Stock-based compensation

6,116

 

 

6

%

 

5,580

 

 

6

%

 

 

Acquisition-related revenue(2) and expenses

4,587

 

 

5

%

 

135

 

 

%

 

 

Provision for income taxes

(2,911

)

 

(3

)%

 

(3,174

)

 

(3

)%

 

 

Non-GAAP net income

$

29,417

 

 

28

%

 

$

25,302

 

 

27

%

 

16

%

 

 

 

 

 

 

 

 

 

 

Adjusted diluted earnings per share:

 

 

 

 

 

 

 

 

 

GAAP diluted earnings per share

$

0.18

 

 

 

 

$

0.28

 

 

 

 

 

Amortization of acquired intangibles

0.24

 

 

 

 

0.20

 

 

 

 

 

Fees related to shareholder activist

 

 

 

 

 

 

 

 

 

Restructuring expenses and other

0.06

 

 

 

 

0.01

 

 

 

 

 

Stock-based compensation

0.13

 

 

 

 

0.13

 

 

 

 

 

Acquisition-related revenue(2) and expenses

0.10

 

 

 

 

 

 

 

 

 

Provision for income taxes

(0.06

)

 

 

 

(0.07

)

 

 

 

 

Non-GAAP diluted earnings per share

$

0.65

 

 

 

 

$

0.55

 

 

 

 

18

%

 

 

 

 

 

 

 

 

 

 

Non-GAAP weighted avg shares outstanding - diluted

45,287

 

 

 

 

46,087

 

 

 

 

(2

)%

 

 

 

 

 

 

 

 

 

 

(1)The Company adopted ASC 606 effective December 1, 2018, using the full retrospective method. Prior period results have been adjusted to reflect the adoption of this standard.
(2)Acquisition-related revenue constitutes revenue reflected as pre-acquisition deferred revenue that would otherwise have been recognized but for the purchase accounting treatment of acquisitions. Since GAAP accounting requires the elimination of this revenue, GAAP results alone do not fully capture all of our economic activities. Acquisition-related revenue adjustments relate to Progress' OpenEdge business segment for Ipswitch in fiscal year 2019 and to Progress' OpenEdge business segment for Kinvey and Application Development and Deployment business segment for Telerik in fiscal year 2018.

RECONCILIATIONS OF GAAP TO NON-GAAP SELECTED FINANCIAL MEASURES - YEAR TO DATE

(Unaudited)

 

 

Six Months Ended

 

% Change

(In thousands, except per share data)

May 31, 2019

 

May 31, 2018(1)

 

Non-GAAP

Adjusted revenue:

 

 

 

 

 

 

 

 

 

GAAP revenue

$

189,544

 

 

 

 

$

188,274

 

 

 

 

 

Acquisition-related revenue(2)

3,480

 

 

 

 

220

 

 

 

 

 

Non-GAAP revenue

$

193,024

 

 

100

%

 

$

188,494

 

 

100

%

 

2

%

 

 

 

 

 

 

 

 

 

 

Adjusted income from operations:

 

 

 

 

 

 

 

 

 

GAAP income from operations

$

30,150

 

 

16

%

 

$

37,681

 

 

20

%

 

 

Amortization of acquired intangibles

19,312

 

 

10

%

 

18,354

 

 

10

%

 

 

Fees related to shareholder activist

 

 

%

 

1,472

 

 

1

%

 

 

Restructuring expenses and other

3,168

 

 

2

%

 

2,247

 

 

1

%

 

 

Stock-based compensation

11,921

 

 

6

%

 

10,150

 

 

5

%

 

 

Acquisition-related revenue(2) and expenses

4,587

 

 

2

%

 

306

 

 

%

 

 

Non-GAAP income from operations

$

69,138

 

 

36

%

 

$

70,210

 

 

37

%

 

(2

)%

 

 

 

 

 

 

 

 

 

 

Adjusted net income:

 

 

 

 

 

 

 

 

 

GAAP net income

$

17,583

 

 

9

%

 

$

26,637

 

 

14

%

 

 

Amortization of acquired intangibles

19,312

 

 

10

%

 

18,354

 

 

10

%

 

 

Fees related to shareholder activist

 

 

%

 

1,472

 

 

1

%

 

 

Restructuring expenses and other

3,168

 

 

2

%

 

2,247

 

 

1

%

 

 

Stock-based compensation

11,921

 

 

6

%

 

10,150

 

 

6

%

 

 

Acquisition-related revenue(2) and expenses

4,587

 

 

2

%

 

306

 

 

%

 

 

Provision for income taxes

(4,395

)

 

(2

)%

 

(7,281

)

 

(4

)%

 

 

Non-GAAP net income

$

52,176

 

 

27

%

 

$

51,885

 

 

28

%

 

1

%

 

 

 

 

 

 

 

 

 

 

Adjusted diluted earnings per share:

 

 

 

 

 

 

 

 

 

GAAP diluted earnings per share

$

0.39

 

 

 

 

$

0.57

 

 

 

 

 

Amortization of acquired intangibles

0.43

 

 

 

 

0.39

 

 

 

 

 

Fees related to shareholder activist

 

 

 

 

0.03

 

 

 

 

 

Restructuring expenses and other

0.07

 

 

 

 

0.05

 

 

 

 

 

Stock-based compensation

0.26

 

 

 

 

0.22

 

 

 

 

 

Acquisition-related revenue(2) and expenses

0.10

 

 

 

 

0.01

 

 

 

 

 

Provision for income taxes

(0.10

)

 

 

 

(0.16

)

 

 

 

 

Non-GAAP diluted earnings per share

$

1.15

 

 

 

 

$

1.11

 

 

 

 

4

%

 

 

 

 

 

 

 

 

 

 

Non-GAAP weighted avg shares outstanding - diluted

45,287

 

 

 

 

46,781

 

 

 

 

(3

)%

 

 

 

 

 

 

 

 

 

 

(1)The Company adopted ASC 606 effective December 1, 2018, using the full retrospective method. Prior period results have been adjusted to reflect the adoption of this standard.
(2)Acquisition-related revenue constitutes revenue reflected as pre-acquisition deferred revenue that would otherwise have been recognized but for the purchase accounting treatment of acquisitions. Since GAAP accounting requires the elimination of this revenue, GAAP results alone do not fully capture all of our economic activities. Acquisition-related revenue adjustments relate to Progress' OpenEdge business segment for Ipswitch in fiscal year 2019 and to Progress' OpenEdge business segment for Kinvey and Application Development and Deployment business segment for Telerik in fiscal year 2018.

OTHER NON-GAAP FINANCIAL MEASURES - SECOND QUARTER

(Unaudited)

 

Revenue by Type

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

Q2 2019

 

Non-GAAP Adjustment(1)

 

Non-GAAP Revenue

Software licenses

$

29,728

 

 

$

33

 

 

$

29,761

 

Maintenance

62,528

 

 

3,123

 

 

65,651

 

Services

7,739

 

 

324

 

 

8,063

 

Total revenue

$

99,995

 

 

$

3,480

 

 

$

103,475

 

 

 

 

 

 

 

Revenue by Region

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

Q2 2019

 

Non-GAAP Adjustment(1)

 

Non-GAAP Revenue

North America

$

57,060

 

 

$

2,620

 

 

$

59,680

 

EMEA

33,633

 

 

579

 

 

34,212

 

Latin America

4,108

 

 

61

 

 

4,169

 

Asia Pacific

5,194

 

 

220

 

 

5,414

 

Total revenue

$

99,995

 

 

$

3,480

 

 

$

103,475

 

 

 

 

 

 

 

Revenue by Segment

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

Q2 2019

 

Non-GAAP Adjustment(1)

 

Non-GAAP Revenue

OpenEdge

$

67,820

 

 

$

3,480

 

 

$

71,300

 

Data Connectivity and Integration

12,932

 

 

 

 

12,932

 

Application Development and Deployment

19,243

 

 

 

 

19,243

 

Total revenue

$

99,995

 

 

$

3,480

 

 

$

103,475

 

 

 

 

 

 

 

(1)Acquisition-related revenue constitutes revenue reflected as pre-acquisition deferred revenue that would otherwise have been recognized but for the purchase accounting treatment of acquisitions. Since GAAP accounting requires the elimination of this revenue, GAAP results alone do not fully capture all of our economic activities. Acquisition-related revenue adjustments relate to Progress' OpenEdge business segment for Ipswitch in fiscal year 2019.

 

 

 

 

 

 

Adjusted Free Cash Flow

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

Q2 2019

 

Q2 2018

 

% Change

Cash flows from operations

$

40,674

 

 

$

42,129

 

 

(3

)%

Purchases of property and equipment

(834

)

 

(1,810

)

 

(54

)%

Free cash flow

39,840

 

 

40,319

 

 

(1

)%

Add back: restructuring payments

598

 

 

2,442

 

 

(76

)%

Adjusted free cash flow

$

40,438

 

 

$

42,761

 

 

(5

)%

OTHER NON-GAAP FINANCIAL MEASURES - YEAR TO DATE

(Unaudited)

 

Revenue by Type

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

YTD 2019

 

Non-GAAP Adjustment(1)

 

Non-GAAP Revenue

Software licenses

$

52,530

 

 

$

33

 

 

$

52,563

 

Maintenance

122,527

 

 

3,123

 

 

125,650

 

Services

14,487

 

 

324

 

 

14,811

 

Total revenue

$

189,544

 

 

$

3,480

 

 

$

193,024

 

 

 

 

 

 

 

Revenue by Region

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

YTD 2019

 

Non-GAAP Adjustment(1)

 

Non-GAAP Revenue

North America

$

103,558

 

 

$

2,620

 

 

$

106,178

 

EMEA

67,005

 

 

579

 

 

67,584

 

Latin America

8,569

 

 

61

 

 

8,630

 

Asia Pacific

10,412

 

 

220

 

 

10,632

 

Total revenue

$

189,544

 

 

$

3,480

 

 

$

193,024

 

 

 

 

 

 

 

Revenue by Segment

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

YTD 2019

 

Non-GAAP Adjustment(1)

 

Non-GAAP Revenue

OpenEdge

$

133,072

 

 

$

3,480

 

 

$

136,552

 

Data Connectivity and Integration

18,932

 

 

 

 

18,932

 

Application Development and Deployment

37,540

 

 

 

 

37,540

 

Total revenue

$

189,544

 

 

$

3,480

 

 

$

193,024

 

 

 

 

 

 

 

(1)Acquisition-related revenue constitutes revenue reflected as pre-acquisition deferred revenue that would otherwise have been recognized but for the purchase accounting treatment of acquisitions. Since GAAP accounting requires the elimination of this revenue, GAAP results alone do not fully capture all of our economic activities. Acquisition-related revenue adjustments relate to Progress' OpenEdge business segment for Ipswitch in fiscal year 2019.

 

 

 

 

 

 

Adjusted Free Cash Flow

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

YTD 2019

 

YTD Q2 2018

 

% Change

Cash flows from operations

$

65,117

 

 

$

73,725

 

 

(12

)%

Purchases of property and equipment

(1,080

)

 

(3,196

)

 

(66

)%

Free cash flow

64,037

 

 

70,529

 

 

(9

)%

Add back: restructuring payments

757

 

 

5,181

 

 

(85

)%

Adjusted free cash flow

$

64,794

 

 

$

75,710

 

 

(14

)%

Non-GAAP Bookings from Application Development and Deployment Segment

(Unaudited)

 

(In thousands)

Q1 2018(1)

 

Q2 2018(1)

 

Q3 2018(1)

 

Q4 2018(1)

 

FY 2018(1)

 

Q1 2019

 

Q2 2019

GAAP revenue

$

19,255

 

 

$

19,846

 

 

$

19,521

 

 

$

19,424

 

 

$

78,046

 

 

$

18,297

 

 

$

19,243

 

Add: change in deferred revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance, as adjusted

42,128

 

 

42,041

 

 

41,593

 

 

42,789

 

 

42,128

 

 

45,291

 

 

43,817

 

Ending balance, as adjusted

42,041

 

 

41,593

 

 

42,789

 

 

45,291

 

 

45,291

 

 

43,817

 

 

44,704

 

Change in deferred revenue

(87

)

 

(448

)

 

1,196

 

 

2,502

 

 

3,163

 

 

(1,474

)

 

887

 

Non-GAAP bookings

$

19,168

 

 

$

19,398

 

 

$

20,717

 

 

$

21,926

 

 

$

81,209

 

 

$

16,823

 

 

$

20,130

 

(1)The Company adopted ASC 606 effective December 1, 2018, using the full retrospective method. Prior period results have been adjusted to reflect the adoption of this standard.

RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES FOR FISCAL YEAR 2019 GUIDANCE

(Unaudited)

 

Fiscal Year 2019 Revenue Guidance

 

Fiscal Year Ended

 

Fiscal Year Ending

 

November 30, 2018(1)

 

November 30, 2019

(In millions)

 

 

Low

 

% Change

 

High

 

% Change

GAAP revenue

$

379.0

 

 

$

403.7

 

 

7

%

 

$

409.7

 

 

8

%

Acquisition-related adjustments - revenue(2)

0.4

 

 

18.3

 

 

*

 

 

18.3

 

 

*

 

Non-GAAP revenue

$

379.4

 

 

$

422.0

 

 

11

%

 

$

428.0

 

 

13

%

(1)The Company adopted ASC 606 effective December 1, 2018, using the full retrospective method. Prior period results have been adjusted to reflect the adoption of this standard.
(2)Acquisition-related revenue constitutes revenue reflected as pre-acquisition deferred revenue that would otherwise have been recognized but for the purchase accounting treatment of acquisitions. Since GAAP accounting requires the elimination of this revenue, GAAP results alone do not fully capture all of our economic activities. Acquisition-related revenue adjustments relate to Progress' OpenEdge business segment for Ipswitch in fiscal year 2019 and to Progress' OpenEdge business segment for Kinvey and Application Development and Deployment business segment for Telerik in fiscal year 2018.
*Not meaningful

Fiscal Year 2019 Non-GAAP Operating Margin Guidance

 

Fiscal Year Ending November 30, 2019

(In millions)

Low

 

High

GAAP income from operations

$

57.0

 

 

$

61.3

 

GAAP operating margins

14

%

 

15

%

Acquisition-related revenue

18.3

 

 

18.3

 

Acquisition-related expense

1.5

 

 

1.5

 

Restructuring expense

4.0

 

 

4.0

 

Stock-based compensation

23.9

 

 

23.9

 

Amortization of acquired intangibles

48.1

 

 

48.1

 

Total adjustments

95.8

 

 

95.8

 

Non-GAAP income from operations

$

152.8

 

 

$

157.1

 

Non-GAAP operating margin

36

%

 

37

%

Fiscal Year 2019 Non-GAAP Earnings per Share and Effective Tax Rate Guidance

 

Fiscal Year Ending November 30, 2019

(In millions, except per share data)

Low

 

High

GAAP net income

$

32.9

 

 

$

35.7

 

Adjustments (from previous table)

95.8

 

 

95.8

 

Income tax adjustment(3)

(14.3

)

 

(14.6

)

Non-GAAP net income

$

114.4

 

 

$

116.9

 

 

 

 

 

GAAP diluted earnings per share

$

0.73

 

 

$

0.79

 

Non-GAAP diluted earnings per share

$

2.52

 

 

$

2.57

 

 

 

 

 

Diluted weighted average shares outstanding

45.4

 

 

45.4

 

 

 

 

 

(3)Tax adjustment is based on a non-GAAP effective tax rate of approximately 19% for Low and High, calculated as follows:

Non-GAAP income from operations

$

152.8

 

 

$

157.1

 

Other (expense) income

(11.6

)

 

(12.1

)

Non-GAAP income from continuing operations before income taxes

141.2

 

 

145.0

 

Non-GAAP net income

114.4

 

 

116.9

 

Tax provision

$

26.8

 

 

$

28.1

 

Non-GAAP tax rate

19

%

 

19

%

RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES FOR FISCAL YEAR 2019 GUIDANCE

(Unaudited)

 

Fiscal Year 2019 Adjusted Free Cash Flow Guidance

 

Fiscal Year Ending November 30, 2019

(In millions)

Low

 

High

Cash flows from operations (GAAP)

$

128

 

 

$

133

 

Purchases of property and equipment

(6

)

 

(6

)

Add back: restructuring payments

3

 

 

3

 

Adjusted free cash flow (non-GAAP)

$

125

 

 

$

130

 

RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES FOR Q3 2019 GUIDANCE

(Unaudited)

 

Q3 2019 Revenue Guidance

 

Three Months Ended

 

Three Months Ending

 

August 31, 2018(1)

 

August 31, 2019

(In millions)

 

 

Low

 

% Change

 

High

 

% Change

GAAP revenue

$

92.6

 

 

$

100.5

 

 

9

%

 

$

103.5

 

 

12

%

Acquisition-related adjustments - revenue(2)

0.1

 

 

8.5

 

 

*

 

 

8.5

 

 

*

 

Non-GAAP revenue

$

92.7

 

 

$

109.0

 

 

18

%

 

$

112.0

 

 

21

%

(1)The Company adopted ASC 606 effective December 1, 2018, using the full retrospective method. Prior period results have been adjusted to reflect the adoption of this standard.
(2)Acquisition-related revenue constitutes revenue reflected as pre-acquisition deferred revenue that would otherwise have been recognized but for the purchase accounting treatment of acquisitions. Since GAAP accounting requires the elimination of this revenue, GAAP results alone do not fully capture all of our economic activities. Acquisition-related revenue adjustments relate to Progress' OpenEdge business segment for Ipswitch in fiscal year 2019 and to Progress' OpenEdge business segment for Kinvey and Application Development and Deployment business segment for Telerik in fiscal year 2018.
*Not meaningful

Q3 2019 Non-GAAP Earnings per Share Guidance

 

Three Months Ending August 31, 2019

 

Low

 

High

GAAP diluted earnings per share

$

0.15

 

 

$

0.17

 

Acquisition-related revenue

0.19

 

 

0.19

 

Acquisition-related expense

0.01

 

 

0.01

 

Restructuring expense

0.01

 

 

0.01

 

Stock-based compensation

0.12

 

 

0.12

 

Amortization of acquired intangibles

0.32

 

 

0.32

 

Total adjustments

0.65

 

 

0.65

 

Income tax adjustment

(0.12

)

 

(0.12

)

Non-GAAP diluted earnings per share

$

0.68

 

 

$

0.70

 

 

Source: Progress

Investor Contact:
Brian Flanagan
Progress Software
+1 781 280 4817
flanagan@progress.com

Press Contact:
Erica McShane
Progress Software
+1 888 365 2779 (x3135)
erica.mcshane@progress.com