Press Release

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Jan 17, 2019

Progress Reports 2018 Fiscal Fourth Quarter and Year End Results

Exceeds Guidance for Revenue

BEDFORD, Mass.--(BUSINESS WIRE)--Jan. 17, 2019-- Progress (NASDAQ: PRGS), the leading provider of application development and digital experience technologies, today announced results for its fiscal fourth quarter and fiscal year ended November 30, 2018.

Revenue was $111.3 million during the quarter compared to $116.1 million in the same quarter last year, a year-over-year decrease of 4% on an actual currency basis and 3% on a constant currency basis. On a non-GAAP basis, revenue was $111.5 million during the quarter compared to $116.3 million in the same quarter last year, a decrease of 4% on an actual currency basis and 3% on a constant currency basis.

On a GAAP basis, diluted earnings per share during the quarter was $0.41 compared to $0.34 in the same quarter last year, an increase of 21%. On a non-GAAP basis, diluted earnings per share during the quarter was $0.76 compared to $0.67 in the same quarter last year, an increase of 13%.

“We achieved better-than-expected revenue and strong earnings per share in Q4, finishing a very solid financial year,” said Yogesh Gupta, CEO at Progress. “Our business continues to be healthy and stable, and demand for our high-productivity application development platform is growing. We look forward to continued momentum in 2019, as we execute on our strategic plan that will drive sustainable, long-term value for all shareholders.”

Additional financial highlights included:

 
Three Months Ended
GAAP   Non-GAAP
(In thousands, except percentages and per share amounts)

November 30,
2018

 

November 30,
2017

 

%
Change

November 30,
2018

 

November 30,
2017

 

%
Change

Revenue $ 111,333 $ 116,079 (4 )% $ 111,495 $ 116,335 (4 )%
Income from operations $ 24,259 $ 28,809 (16 )% $ 44,213 $ 49,076 (10 )%
Operating margin 22 % 25 % (3 )% 40 % 42 % (2 )%
Net income $ 18,430 $ 16,429 12 % $ 34,590 $ 32,073 8 %
Diluted earnings per share $ 0.41 $ 0.34 21 % $ 0.76 $ 0.67 13 %

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

$ 24,327 $ 32,515 (25 )% $ 23,232 $ 32,365 (28 )%
 

Paul Jalbert, CFO, said: “We are pleased with our financial performance for Q4 and for the full year. Operating margins and cash flows were very strong, and we returned nearly $150 million of capital to shareholders in 2018. Through our sustained focus on running lean operationally, we have reduced our annual expenses by almost $40 million over the past two years and are well-positioned for continued financial success as we enter 2019.”

Other fiscal fourth quarter 2018 metrics and recent results included:

  • Cash, cash equivalents and short-term investments were $139.5 million at the end of the quarter;
  • DSO was 47 days, consistent with the fiscal fourth quarter of 2017, and an increase of 4 days compared to 43 days in the fiscal third quarter of 2018;
  • Pursuant to the $250 million share authorization by the Board of Directors, Progress repurchased 241,000 shares for $10.0 million during the fiscal fourth quarter of 2018. As of November 30, 2018, there was $100.0 million remaining under this authorization; and
  • On January 8, 2019, our Board of Directors declared a quarterly dividend of $0.155 per share of common stock that will be paid on March 15, 2019 to shareholders of record as of the close of business on March 1, 2019.
 

Full Year Results

 
Fiscal Year Ended
GAAP   Non-GAAP
(In thousands, except percentages and per share amounts)

November 30,
2018

 

November 30,
2017

 

%
Change

November 30,
2018

 

November 30,
2017

 

%
Change

Revenue $ 397,165 $ 397,572 % $ 397,695 $ 398,587 %
Income from operations $ 85,998 $ 70,614 22 % $ 152,200 $ 144,453 5 %
Operating margin 22 % 18 % 4 % 38 % 36 % 2 %
Net income $ 63,491 $ 37,417 70 % $ 115,040 $ 92,493 24 %
Diluted earnings per share $ 1.38 $ 0.77 79 % $ 2.49 $ 1.91 30 %

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

$ 121,352 $ 105,686 15 % $ 120,213 $ 121,543 (1 )%
 

Impact of the New Revenue Recognition Accounting Standard

Progress adopted the new accounting standard related to revenue recognition ("ASC 606") effective December 1, 2018, using the full retrospective method. Guidance for the fiscal year ending November 30, 2019, and for the first quarter ending February 28, 2019, has been prepared in accordance with the new standard. To provide comparable metrics to our fiscal year 2019 guidance, we have included preliminary adjustments to our quarterly and annual fiscal year 2018 results later in this release. These amounts are unaudited.

The largest impact from ASC 606 is on our Data Connectivity and Integration ("DCI") segment revenue. DCI license revenue is comprised primarily of multi-year term contracts, and was recognized upon payment due dates over the term of the agreement under the prior accounting standard. ASC 606, however, requires the license revenue for the entire term of these multi-year arrangements to be recognized up-front, and this change materially impacts the timing of our DCI segment revenue.

We do not expect a material impact from ASC 606 on our OpenEdge segment revenue, or on our Application Development and Deployment segment revenue.

2019 Business Outlook

Progress provides the following guidance for the fiscal year ending November 30, 2019 and for the fiscal first quarter ending February 28, 2019, as well as comparable fiscal 2018 periods adjusted results, under ASC 606:

   
FY 2018 Adjusted(1) FY 2019 Guidance
(In millions, except percentages and per share amounts)

FY 2018
GAAP

 

FY 2018
Non-GAAP

FY 2019
GAAP

 

FY 2019
Non-GAAP

Revenue $ 379 $ 379 $380 - $386 $380 - $386
Diluted earnings per share $ 1.08 $ 2.19 $1.19 - $1.24 $2.33 - $2.39
Operating margin 18 % 35 % 20 % 36 %

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

$ 121 $ 120 $115 - $120 $115 - $120
Effective tax rate 18 % 20 % 24 % 19 %
 
Q1 2018 Adjusted(1) Q1 2019 Guidance
(In millions, except per share amounts)

Q1 2018
GAAP

Q1 2018
Non-GAAP

Q1 2019
GAAP

Q1 2019
Non-GAAP

Revenue $ 95 $ 96 $85 - $88 $85 - $88
Diluted earnings per share $ 0.29 $ 0.56 $0.18 - $0.20 $0.45 - $0.47

(1)Progress adopted ASC 606 on December 1, 2018. As our GAAP results for fiscal year 2018 are reported under prior revenue recognition guidance, we have provided preliminary adjusted amounts for fiscal year 2018 for comparability to the first fiscal quarter and full fiscal year of 2019. These amounts are unaudited. Refer to the schedules later in this release, which include the preliminary adjustments to our quarterly and annual fiscal year 2018 results.

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 $5.8 million on GAAP and non-GAAP revenue, and approximately $0.04 on GAAP and non-GAAP diluted earnings per share. The expected negative currency translation impact on Progress' fiscal Q1 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 $2.4 million and $0.02, 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

The Progress quarterly investor conference call to review its fiscal fourth quarter of 2018 will be broadcast live at 5:00 p.m. ET on Thursday, January 17, 2019 and 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 9119737. 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, 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, 2017, as amended, and its Quarterly Reports on Form 10-Q for the fiscal quarters ended February 28, 2018, May 31, 2018 and August 31, 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   Fiscal Year Ended
(In thousands, except per share data)

November 30,
2018

 

November 30,
2017

 

%
Change

November 30,
2018

 

November 30,
2017

 

%
Change

Revenue:
Software licenses $ 43,151 $ 45,963 (6 )% $ 122,137 $ 124,406 (2 )%
Maintenance and services 68,182   70,116   (3 )% 275,028   273,166   1 %
Total revenue 111,333   116,079   (4 )% 397,165   397,572   %
Costs of revenue:
Cost of software licenses 1,198 1,405 (15 )% 4,769 5,752 (17 )%
Cost of maintenance and services 10,025 10,575 (5 )% 39,470 43,299 (9 )%
Amortization of acquired intangibles 5,508   5,979   (8 )% 22,734   20,108   13 %
Total costs of revenue 16,731   17,959   (7 )% 66,973   69,159   (3 )%
Gross profit 94,602   98,120   (4 )% 330,192   328,413   1 %
Operating expenses:
Sales and marketing 28,198 26,229 8 % 93,036 96,345 (3 )%
Product development 20,334 21,243 (4 )% 79,739 76,988 4 %
General and administrative 13,380 12,401 8 % 49,050 45,739 7 %
Amortization of acquired intangibles 3,285 3,318 (1 )% 13,241 13,039 2 %
Loss on assets held for sale 5,147 * 5,147 *
Fees related to shareholder activist 2,020 * 1,472 2,020 (27 )%
Restructuring expense (131 ) 3,486 (104 )% 2,251 22,210 (90 )%
Acquisition-related expenses 130   614   (79 )% 258   1,458   (82 )%
Total operating expenses 70,343   69,311   1 % 244,194   257,799   (5 )%
Income from operations 24,259   28,809   (16 )% 85,998   70,614   22 %
Other (expense) income (2,188 ) (728 ) (201 )% (7,018 ) (5,027 ) (40 )%
Income before income taxes 22,071   28,081   (21 )% 78,980   65,587   20 %
Provision for income taxes 3,641   11,652   (69 )% 15,489   28,170   (45 )%
Net income $ 18,430   $ 16,429   12 % $ 63,491   $ 37,417   70 %
 
Earnings per share:
Basic $ 0.41 $ 0.35 17 % $ 1.39 $ 0.78 78 %
Diluted $ 0.41 $ 0.34 21 % $ 1.38 $ 0.77 79 %
Weighted average shares outstanding:
Basic 45,055 47,489 (5 )% 45,561 48,129 (5 )%
Diluted 45,401 48,171 (6 )% 46,135 48,516 (5 )%
 
Cash dividends declared per common share $ 0.155 $ 0.140 11 % $ 0.575 $ 0.515 12 %
 
Stock-based compensation is included in the condensed consolidated statements of operations, as follows:
                   
Cost of revenue $ 197 $ 226 (13 )% $ 616 $ 1,016 (39 )%
Sales and marketing 832 843 (1 )% 2,959 2,214 34 %
Product development 2,468 1,877 31 % 8,242 4,576 80 %
General and administrative 2,356   1,648   43 % 8,752   6,347   38 %
Total $ 5,853   $ 4,594   27 % $ 20,569   $ 14,153   45 %

*Not meaningful

 
 

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 
(In thousands)  

November 30,
2018

 

November 30,
2017

Assets
Current assets:
Cash, cash equivalents and short-term investments $ 139,513 $ 183,609
Accounts receivable, net 58,450 61,210
Other current assets 25,080 18,588
Assets held for sale 5,776  
Total current assets 228,819   263,407
Property and equipment, net 30,714 42,261
Goodwill and intangible assets, net 373,911 409,935
Other assets 7,165   3,115
Total assets $ 640,609   $ 718,718
Liabilities and shareholders' equity
Current liabilities:
Accounts payable and other current liabilities $ 57,005 $ 69,661
Current portion of long-term debt 5,819 5,819
Short-term deferred revenue 133,194   132,538
Total current liabilities 196,018   208,018
Long-term debt, net 110,270 116,090
Long-term deferred revenue 15,127 9,750
Other long-term liabilities 9,112 8,776
Shareholders' equity:
Common stock and additional paid-in capital 267,053 249,836
Retained earnings 43,029   126,248
Total shareholders' equity 310,082   376,084
Total liabilities and shareholders' equity $ 640,609   $ 718,718
 
 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 
  Three Months Ended   Fiscal Year Ended
(In thousands)

November 30,
2018

 

November 30,
2017

November 30,
2018

 

November 30,
2017

Cash flows from operating activities:
Net income $ 18,430 $ 16,429 $ 63,491 $ 37,417
Depreciation and amortization 10,855 11,572 44,502 42,896
Stock-based compensation 5,853 4,594 20,569 14,153
Loss on assets held for sale 5,147 5,147
Other non-cash adjustments 1,698 (2,792 ) 2,687 32
Changes in operating assets and liabilities (17,656 ) 2,712   (15,044 ) 11,188  
Net cash flows from operating activities 24,327   32,515   121,352   105,686  
Capital expenditures (1,282 ) (2,515 ) (7,250 ) (3,377 )
Repurchases of common stock, net of issuances (8,738 ) (27,222 ) (110,795 ) (63,911 )
Dividend payments to shareholders (6,318 ) (5,975 ) (25,789 ) (24,127 )
Payments for acquisitions, net of cash acquired (77,150 )
Payments of principal on long-term debt and debt issuance costs (1,547 ) (1,174 ) (6,188 ) (12,424 )
Other (4,810 ) (3,336 ) (15,426 ) 9,158  
Net change in cash, cash equivalents and short-term investments 1,632   (7,707 ) (44,096 ) (66,145 )
Cash, cash equivalents and short-term investments, beginning of period 137,881   191,316   183,609   249,754  
Cash, cash equivalents and short-term investments, end of period $ 139,513   $ 183,609   $ 139,513   $ 183,609  
 
 

RESULTS OF OPERATIONS BY SEGMENT

(Unaudited)

 
  Three Months Ended   Fiscal Year Ended
(In thousands)

November 30,
2018

 

November 30,
2017

 

%
Change

November 30,
2018

 

November 30,
2017

 

%
Change

Segment revenue:
OpenEdge $ 73,854 $ 77,639 (5 )% $ 278,258 $ 276,172 1 %
Data Connectivity and Integration 18,041 18,044 % 39,030 40,955 (5 )%
Application Development and Deployment 19,438   20,396   (5 )% 79,877   80,445   (1 )%
Total revenue 111,333   116,079   (4 )% 397,165   397,572   %
Segment costs of revenue and operating expenses:
OpenEdge 20,626 19,959 3 % 67,820 72,497 (6 )%
Data Connectivity and Integration 2,811 2,798 % 7,634 9,329 (18 )%
Application Development and Deployment 7,019   6,749   4 % 27,087   26,645   2 %
Total costs of revenue and operating expenses 30,456   29,506   3 % 102,541   108,471   (5 )%
Segment contribution margin:
OpenEdge 53,228 57,680 (8 )% 210,438 203,675 3 %
Data Connectivity and Integration 15,230 15,246 % 31,396 31,626 (1 )%
Application Development and Deployment 12,419   13,647   (9 )% 52,790   53,800   (2 )%
Total contribution margin 80,877   86,573   (7 )% 294,624   289,101   2 %
Other unallocated expenses(1) 56,618   57,764   (2 )% 208,626   218,487   (5 )%
Income from operations 24,259   28,809   (16 )% 85,998   70,614   22 %
Other expense, net (2,188 ) (728 ) (201 )% (7,018 ) (5,027 ) (40 )%
Income before income taxes $ 22,071   $ 28,081   (21 )% $ 78,980   $ 65,587   20 %
 

(1)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, loss on assets held for sale, stock-based compensation, fees related to shareholder activist, restructuring, and acquisition-related expenses.

 

SUPPLEMENTAL INFORMATION

(Unaudited)

 
Revenue by Type              
 
(In thousands) Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 FY 2018 FY 2017
Software licenses $ 45,963 $ 25,343 $ 26,439 $ 27,204 $ 43,151 $ 122,137 $ 124,406
Maintenance 61,826 61,479 62,323 60,566 60,454 244,822 241,398
Services 8,290   7,225   7,340   7,913   7,728   30,206   31,768
Total revenue $ 116,079   $ 94,047   $ 96,102   $ 95,683   $ 111,333   $ 397,165   $ 397,572
 
Revenue by Region
 
(In thousands) Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 FY 2018 FY 2017
North America $ 66,504 $ 51,641 $ 50,823 $ 52,212 $ 65,246 $ 219,922 $ 223,942
EMEA 38,039 33,014 35,333 33,422 36,203 137,972 130,359
Latin America 5,489 4,461 4,256 4,341 4,579 17,637 21,158
Asia Pacific 6,047   4,931   5,690   5,708   5,305   21,634   22,113
Total revenue $ 116,079   $ 94,047   $ 96,102   $ 95,683   $ 111,333   $ 397,165   $ 397,572
 
Revenue by Segment
 
(In thousands) Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 FY 2018 FY 2017
OpenEdge $ 77,639 $ 66,408 $ 69,967 $ 68,029 $ 73,854 $ 278,258 $ 276,172
Data Connectivity and Integration 18,044 7,604 5,788 7,597 18,041 39,030 40,955
Application Development and Deployment 20,396   20,035   20,347   20,057   19,438   79,877   80,445
Total revenue $ 116,079   $ 94,047   $ 96,102   $ 95,683   $ 111,333   $ 397,165   $ 397,572
 
 

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

(Unaudited)

 
  Three Months Ended   % Change
(In thousands, except per share data) November 30, 2018   November 30, 2017 Non-GAAP
Adjusted revenue:    
GAAP revenue $ 111,333 $ 116,079
Acquisition-related revenue(1) 162     256    
Non-GAAP revenue $ 111,495   100 % $ 116,335   100 % (4 )%
 
Adjusted income from operations:
GAAP income from operations $ 24,259 22 % $ 28,809 25 %
Amortization of acquired intangibles 8,793 8 % 9,297 8 %
Loss on assets held for sale(2) 5,147 5 % %
Fees related to shareholder activist % 2,020 2 %
Restructuring expenses and other (131 ) % 3,486 3 %
Stock-based compensation 5,853 5 % 4,594 4 %
Acquisition-related revenue and expenses 292   % 870   %
Non-GAAP income from operations $ 44,213   40 % $ 49,076   42 % (10 )%
 
Adjusted net income:
GAAP net income $ 18,430 17 % $ 16,429 14 %
Amortization of acquired intangibles 8,793 8 % 9,297 8 %
Loss on assets held for sale(2) 5,147 5 % %
Fees related to shareholder activist % 2,020 2 %
Restructuring expenses and other (131 ) % 3,486 3 %
Stock-based compensation 5,853 5 % 4,594 4 %
Acquisition-related revenue and expenses 292 % 870 1 %
Tax adjustments (3,794 ) (4 )% (4,623 ) (4 )%
Non-GAAP net income $ 34,590   31 % $ 32,073   28 % 8 %
 
Adjusted diluted earnings per share:
GAAP diluted earnings per share $ 0.41 $ 0.34
Amortization of acquired intangibles 0.19 0.20
Loss on assets held for sale(2) 0.11
Fees related to shareholder activist 0.04
Restructuring expenses and other 0.07
Stock-based compensation 0.12 0.10
Acquisition-related revenue and expenses 0.01 0.02
Provision for income taxes (0.08 ) (0.10 )
Non-GAAP diluted earnings per share $ 0.76   $ 0.67   13 %
 
Non-GAAP weighted avg shares outstanding - diluted 45,401 48,171 (6 )%
 

(1)Acquisition-related revenue constitutes revenue reflected as pre-acquisition deferred revenue under prior accounting guidance 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. Note that acquisition-related revenue adjustments relate to Progress' OpenEdge and Application Development and Deployment business segments for Kinvey and Telerik, respectively. Upon our adoption of ASC 606 in fiscal year 2019, our GAAP revenue and Non-GAAP revenue results are the same.
(2)Loss on assets held for sale represents two buildings on our Bedford campus that the Company is actively marketing and intends to sell within one year. GAAP accounting requires long-lived assets designated as held for sale to be measured at the lower of the carrying value or the fair value less cost to sell. As this loss is not part of our core operating results and is infrequent in nature, we exclude it to facilitate a more meaningful evaluation of our current operating performance and comparisons to our operating performance in other periods.

 

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

(Unaudited)

 
  Fiscal Year Ended   % Change
(In thousands, except per share data) November 30, 2018   November 30, 2017 Non-GAAP
Adjusted revenue:    
GAAP revenue $ 397,165 $ 397,572
Acquisition-related revenue(1) 530     1,015    
Non-GAAP revenue $ 397,695   100 % $ 398,587   100 % %
 
Adjusted income from operations:
GAAP income from operations $ 85,998 22 % $ 70,614 18 %
Amortization of acquired intangibles 35,975 9 % 33,147 8 %
Loss on assets held for sale(2) 5,147 1 % %
Fees related to shareholder activist 1,472 % 2,020 %
Restructuring expenses and other 2,251 1 % 22,046 5 %
Stock-based compensation 20,569 5 % 14,153 4 %
Acquisition-related revenue and expenses 788   % 2,473   1 %
Non-GAAP income from operations $ 152,200   38 % $ 144,453   36 % 5 %
 
Adjusted net income:
GAAP net income $ 63,491 16 % $ 37,417 9 %
Amortization of acquired intangibles 35,975 9 % 33,147 8 %
Loss on assets held for sale(2) 5,147 1 % %
Fees related to shareholder activist 1,472 % 2,020 %
Restructuring expenses and other 2,251 1 % 22,046 6 %
Stock-based compensation 20,569 5 % 14,153 4 %
Acquisition-related revenue and expenses 788 % 2,473 1 %
Tax adjustments (14,653 ) (3 )% (18,763 ) (5 )%
Non-GAAP net income $ 115,040   29 % $ 92,493   23 % 24 %
 
Adjusted diluted earnings per share:
GAAP diluted earnings per share $ 1.38 $ 0.77
Amortization of acquired intangibles 0.78 0.68
Loss on assets held for sale(2) 0.11
Fees related to shareholder activist 0.03 0.04
Restructuring expenses and other 0.05 0.46
Stock-based compensation 0.44 0.29
Acquisition-related revenue and expenses 0.02 0.05
Provision for income taxes (0.32 ) (0.38 )
Non-GAAP diluted earnings per share $ 2.49   $ 1.91   30 %
 
Non-GAAP weighted avg shares outstanding - diluted 46,135 48,516 (5 )%
 

(1)Acquisition-related revenue constitutes revenue reflected as pre-acquisition deferred revenue under prior accounting guidance 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. Note that acquisition-related revenue adjustments relate to Progress' OpenEdge and Application Development and Deployment business segments for Kinvey and Telerik, respectively. Upon our adoption of ASC 606 in fiscal year 2019, our GAAP revenue and Non-GAAP revenue results are the same.
(2)Loss on assets held for sale represents two buildings on our Bedford campus that the Company is actively marketing and intends to sell within one year. GAAP accounting requires long-lived assets designated as held for sale to be measured at the lower of the carrying value or the fair value less cost to sell. As this loss is not part of our core operating results and is infrequent in nature, we exclude it to facilitate a more meaningful evaluation of our current operating performance and comparisons to our operating performance in other periods.

 

OTHER NON-GAAP FINANCIAL MEASURES - FOURTH QUARTER

(Unaudited)

 
Revenue by Type      
 
(In thousands)

Q4 2018

Non-GAAP Adjustment(1) Non-GAAP Revenue
Software licenses $ 43,151 $ 7 $ 43,158
Maintenance 60,454 33 60,487
Services 7,728   122   7,850  
Total revenue $ 111,333   $ 162   $ 111,495  
 
Revenue by Region
 
(In thousands) Q4 2018 Non-GAAP Adjustment(1) Non-GAAP Revenue
North America $ 65,246 $ 162 $ 65,408
EMEA 36,203 36,203
Latin America 4,579 4,579
Asia Pacific 5,305     5,305  
Total revenue $ 111,333   $ 162   $ 111,495  
 
Revenue by Segment
 
(In thousands) Q4 2018 Non-GAAP Adjustment(1) Non-GAAP Revenue
OpenEdge $ 73,854 $ 122 $ 73,976
Data Connectivity and Integration 18,041 18,041
Application Development and Deployment 19,438   40   19,478  
Total revenue $ 111,333   $ 162   $ 111,495  
 
(1)Acquisition-related revenue constitutes revenue reflected as pre-acquisition deferred revenue under prior accounting guidance 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. Note that acquisition-related revenue adjustments relate to Progress' OpenEdge and Application Development and Deployment business segments for Kinvey and Telerik, respectively. Upon our adoption of ASC 606 in fiscal year 2019, our GAAP revenue and Non-GAAP revenue results are the same.
 
Adjusted Free Cash Flow
 
(In thousands) Q4 2018 Q4 2017 % Change
Cash flows from operations $ 24,327 $ 32,515 (25 )%
Purchases of property and equipment (1,282 ) (2,515 ) (49 )%
Free cash flow 23,045   30,000   (23 )%
Add back: restructuring payments 187   2,365   (92 )%
Adjusted free cash flow $ 23,232   $ 32,365   (28 )%
 
 

OTHER NON-GAAP FINANCIAL MEASURES - FISCAL YEAR

(Unaudited)

 
Revenue by Type      
 
(In thousands) FY 2018 Non-GAAP Adjustment(1) Non-GAAP Revenue
Software licenses $ 122,137 $ 63 $ 122,200
Maintenance 244,822 191 245,013
Services 30,206   276   30,482  
Total revenue $ 397,165   $ 530   $ 397,695  
 
Revenue by Region
 
(In thousands) FY 2018 Non-GAAP Adjustment(1) Non-GAAP Revenue
North America $ 219,922 $ 530 $ 220,452
EMEA 137,972 137,972
Latin America 17,637 17,637
Asia Pacific 21,634     21,634  
Total revenue $ 397,165   $ 530   $ 397,695  
 
Revenue by Segment
 
(In thousands) FY 2018 Non-GAAP Adjustment(1) Non-GAAP Revenue
OpenEdge $ 278,258 $ 276 $ 278,534
Data Connectivity and Integration 39,030 39,030
Application Development and Deployment 79,877   254   80,131  
Total revenue $ 397,165   $ 530   $ 397,695  
 
(1)Acquisition-related revenue constitutes revenue reflected as pre-acquisition deferred revenue under prior accounting guidance 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. Note that acquisition-related revenue adjustments relate to Progress' OpenEdge and Application Development and Deployment business segments for Kinvey and Telerik, respectively. Upon our adoption of ASC 606 in fiscal year 2019, our GAAP revenue and Non-GAAP revenue results are the same.
 
Adjusted Free Cash Flow
 
(In thousands) FY 2018 FY 2017 % Change
Cash flows from operations $ 121,352 $ 105,686 15 %
Purchases of property and equipment (7,250 ) (3,377 ) 115 %
Free cash flow 114,102   102,309   12 %
Add back: restructuring payments 6,111   19,234   (68 )%
Adjusted free cash flow $ 120,213   $ 121,543   (1 )%
 
 

Non-GAAP Bookings from Application Development and Deployment Segment

(Unaudited)

 
(In thousands)   Q1 2017   Q2 2017   Q3 2017   Q4 2017   FY 2017
GAAP revenue $ 19,634   $ 20,227   $ 20,188   $ 20,396   $ 80,445
Add: change in deferred revenue
Beginning balance 52,971 51,298 52,400 52,615 52,971
Ending balance 51,298   52,400   52,615   53,794   53,794
Change in deferred revenue (1,673 ) 1,102   215   1,179   823
Non-GAAP bookings $ 17,961   $ 21,329   $ 20,403   $ 21,575   $ 81,268
 
(In thousands) Q1 2018 Q2 2018 Q3 2018 Q4 2018 FY 2018
GAAP revenue $ 20,035   $ 20,347   $ 20,057   $ 19,438   $ 79,877
Add: change in deferred revenue
Beginning balance 53,794 52,927 51,978 52,638 53,794
Ending balance 52,927   51,978   52,638   55,126   55,126
Change in deferred revenue (867 ) (949 ) 660   2,488   1,332
Non-GAAP bookings $ 19,168   $ 19,398   $ 20,717   $ 21,926   $ 81,209
 

EXPECTED IMPACT OF ADOPTION OF ASC 606 ON SELECT ANNUAL AND QUARTERLY REPORTED RESULTS - GAAP
(Unaudited)

Progress adopted ASC 606 on December 1, 2018. As our GAAP results for fiscal year 2018 are reported under prior revenue recognition guidance, we have provided preliminary adjusted amounts for fiscal year 2018 and the quarterly periods in fiscal 2018 for comparability to the first fiscal quarter and full fiscal year of 2019. These amounts are unaudited.

 
Fiscal Year Ended
November 30, 2018
(In thousands, except percentages and per share amounts) As Reported   Adjustments   As Adjusted
Revenue:
Software licenses $ 122,137 $ (22,338 ) $ 99,799
Maintenance and services 275,028   4,153   279,181  
Total revenue $ 397,165   $ (18,185 ) $ 378,980  
Income from operations $ 85,998 $ (18,185 ) $ 67,813
Operating margin 22 % (4 )% 18 %
Net income $ 63,491 $ (13,822 ) $ 49,669
Diluted EPS $ 1.38 $ (0.30 ) $ 1.08
Cash from operations $ 121,352 $ $ 121,352
 
  Fiscal Year 2018 Quarter Ended
February 28, 2018   May 31, 2018   August 31, 2018   November 30, 2018
(In thousands, except percentages and per share amounts)

As
Reported

 

As
Adjusted

As
Reported

 

As
Adjusted

As
Reported

 

As
Adjusted

As
Reported

 

As
Adjusted

Revenue:
Software licenses $ 25,343 $ 26,054 $ 26,439 $ 22,526 $ 27,204 $ 22,852 $ 43,151 $ 28,367
Maintenance and services 68,704   69,356   69,663   70,338   68,479   69,751   68,182   69,736  
Total revenue $ 94,047   $ 95,410   $ 96,102   $ 92,864   $ 95,683   $ 92,603   $ 111,333   $ 98,103  
Income from operations $ 17,768 $ 19,131 $ 21,788 $ 18,550 $ 22,183 $ 19,103 $ 24,259 $ 11,029
Operating margin 19 % 20 % 23 % 20 % 23 % 21 % 22 % 11 %
Net income $ 12,912 $ 13,732 $ 15,403 $ 12,904 $ 16,746 $ 14,390 $ 18,430 $ 8,643
Diluted EPS $ 0.27 $ 0.29 $ 0.33 $ 0.28 $ 0.37 $ 0.32 $ 0.41 $ 0.19
Cash from operations $ 31,595 $ 31,595 $ 42,129 $ 42,129 $ 23,301 $ 23,301 $ 24,327 $ 24,327
 

EXPECTED IMPACT OF ADOPTION OF ASC 606 ON SELECT ANNUAL AND QUARTERLY REPORTED RESULTS - NON-GAAP
(Unaudited)

Progress adopted ASC 606 on December 1, 2018. As our Non-GAAP results for fiscal year 2018 are reported under prior revenue recognition guidance, we have provided preliminary adjusted amounts for fiscal year 2018 and the quarterly periods in fiscal 2018 for comparability to the first fiscal quarter and full fiscal year of 2019. These amounts are unaudited.

 
Fiscal Year Ended
November 30, 2018
(In thousands, except percentages and per share amounts) As Reported   Adjustments   As Adjusted
Non-GAAP revenue:
Software licenses $ 122,200 $ (22,402 ) $ 99,798
Maintenance and services 275,495   4,153   279,648  
Total non-GAAP revenue $ 397,695   $ (18,249 ) $ 379,446  
Non-GAAP income from operations $ 152,200 $ (18,249 ) $ 133,951
Non-GAAP operating margin 38 % (3 )% 35 %
Non-GAAP net income $ 115,040 $ (13,861 ) $ 101,179
Non-GAAP diluted EPS $ 2.49 $ (0.30 ) $ 2.19
Adjusted free cash flow $ 120,213 $ $ 120,213
 
  Fiscal Year 2018 Quarter Ended
February 28, 2018   May 31, 2018   August 31, 2018   November 30, 2018
(In thousands, except percentages and per share amounts)

As
Reported

 

As
Adjusted

As
Reported

 

As
Adjusted

As
Reported

 

As
Adjusted

As
Reported

 

As
Adjusted

Non-GAAP revenue:
Software licenses $ 25,362 $ 26,054 $ 26,457 $ 22,526 $ 27,223 $ 22,852 $ 43,158 $ 28,366
Maintenance and services 68,832   69,483   69,755   70,430   68,571   69,844   68,337   69,891  
Total non-GAAP revenue $ 94,194   $ 95,537   $ 96,212   $ 92,956   $ 95,794   $ 92,696   $ 111,495   $ 98,257  
Non-GAAP income from operations $ 34,744 $ 36,087 $ 37,378 $ 34,121 $ 35,865 $ 32,767 $ 44,213 $ 30,976
Non-GAAP operating margin 37 % 38 % 39 % 37 % 37 % 35 % 40 % 32 %
Non-GAAP net income $ 25,519 $ 26,581 $ 27,763 $ 25,301 $ 27,168 $ 24,856 $ 34,590 $ 24,441
Non-GAAP diluted EPS $ 0.54 $ 0.56 $ 0.60 $ 0.55 $ 0.60 $ 0.54 $ 0.76 $ 0.54
Adjusted free cash flow $ 32,948 $ 32,948 $ 42,761 $ 42,761 $ 21,272 $ 21,272 $ 23,232 $ 23,232
 

EXPECTED IMPACT OF ADOPTION OF ASC 606 ON REPORTED RESULTS OF OPERATIONS BY SEGMENT - GAAP
(Unaudited)

Progress adopted ASC 606 on December 1, 2018. As our GAAP and Non-GAAP results for fiscal year 2018 are reported under prior revenue recognition guidance, we have provided preliminary adjusted amounts for fiscal year 2018 and the quarterly periods in fiscal 2018 for comparability to the first fiscal quarter and full fiscal year of 2019. These amounts are unaudited.

 
Fiscal Year 2018 Quarter Ended
February 28, 2018   May 31, 2018   August 31, 2018   November 30, 2018
(In thousands)

As
Reported

 

As
Adjusted

As
Reported

 

As
Adjusted

As
Reported

 

As
Adjusted

As
Reported

 

As
Adjusted

Segment revenue:
OpenEdge $ 66,408 $ 66,663 $ 69,967 $ 69,607 $ 68,029 $ 68,519 $ 73,854 $ 73,016
DCI 7,604 9,492 5,788 3,411 7,597 4,563 18,041 5,663
AD&D 20,035   19,255   20,347   19,846   20,057   19,521   19,438   19,424
94,047   95,410   96,102   92,864   95,683   92,603   111,333   98,103
Segment costs of revenue and operating expenses:
OpenEdge 15,762 15,762 15,013 15,013 16,419 16,419 20,626 20,626
DCI 1,629 1,629 1,674 1,674 1,520 1,520 2,811 2,811
AD&D 6,798   6,798   6,199   6,199   7,071   7,071   7,019   7,019
24,189   24,189   22,886   22,886   25,010   25,010   30,456   30,456
Segment contribution margin:
OpenEdge 50,646 50,901 54,954 54,594 51,610 52,100 53,228 52,390
DCI 5,975 7,863 4,114 1,737 6,077 3,043 15,230 2,852
AD&D 13,237   12,457   14,148   13,647   12,986   12,450   12,419   12,405
$ 69,858   $ 71,221   $ 73,216   $ 69,978   $ 70,673   $ 67,593   $ 80,877   $ 67,647
 
 

EXPECTED IMPACT OF ADOPTION OF ASC 606 ON REPORTED REVENUE BY SEGMENT - NON-GAAP

(Unaudited)

 
  Fiscal Year 2018 Quarter Ended
February 28, 2018   May 31, 2018   August 31, 2018   November 30, 2018
(In thousands)

As
Reported

 

As
Adjusted

As
Reported

 

As
Adjusted

As
Reported

 

As
Adjusted

As
Reported

 

As
Adjusted

Non-GAAP revenue:
OpenEdge $ 66,490 $ 66,744 $ 70,016 $ 69,656 $ 68,052 $ 68,543 $ 73,976 $ 73,138
DCI 7,604 9,492 5,788 3,411 7,597 4,563 18,041 5,663
AD&D 20,100   19,301   20,408   19,889   20,145   19,590   19,478   19,456
$ 94,194   $ 95,537   $ 96,212   $ 92,956   $ 95,794   $ 92,696   $ 111,495   $ 98,257
 
 

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

(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 $ 380.0 % $ 386.0 2 %
Acquisition-related adjustments - revenue(2) 0.4     n/a   n/a
Non-GAAP revenue $ 379.4   $ 380.0   % $ 386.0   2 %
 

(1)Progress adopted ASC 606 on December 1, 2018. As our GAAP results for fiscal year 2018 are reported under prior revenue recognition guidance, we have provided preliminary adjusted amounts for fiscal year 2018 for comparability to fiscal year of 2019. These amounts are unaudited.
(2)Acquisition-related revenue constitutes revenue reflected as pre-acquisition deferred revenue under prior accounting guidance 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. Note that acquisition-related revenue adjustments relate to Progress' OpenEdge and Application Development and Deployment business segments for Kinvey and Telerik, respectively. Upon our adoption of ASC 606 in fiscal year 2019, our GAAP revenue and Non-GAAP revenue results are the same.

 
Fiscal Year 2019 Non-GAAP Operating Margin Guidance
  Fiscal Year Ending November 30, 2019
(In millions) Low   High
GAAP income from operations $ 76.4 $ 79.0
GAAP operating margins 20 % 20 %
Stock-based compensation 23.6 23.6
Amortization of intangibles 34.9   34.9  
Total adjustments 58.5   58.5  
Non-GAAP income from operations $ 134.9   $ 137.5  
Non-GAAP operating margin 36 % 36 %
 
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 $ 53.1 $ 55.1
Adjustments (from previous table) 58.5 58.5
Income tax adjustment(3) (7.8 ) (7.4 )
Non-GAAP net income $ 103.8   $ 106.2  
 
GAAP diluted earnings per share $ 1.19 $ 1.24
Non-GAAP diluted earnings per share $ 2.33 $ 2.39
 
Diluted weighted average shares outstanding 44.5 44.5
 
(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 $ 134.9 $ 137.5
Other (expense) income (6.5 ) (6.5 )
Non-GAAP income from continuing operations before income taxes 128.4   131.0  
Non-GAAP net income 103.9   106.3  
Tax provision $ 24.5   $ 24.7  
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) $ 120 $ 125
Purchases of property and equipment (5 ) (5 )
Adjusted free cash flow (non-GAAP) $ 115   $ 120  
 
 

RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES FOR Q1 2019 GUIDANCE

(Unaudited)

 
Q1 2019 Revenue Guidance
Three Months Ended   Three Months Ending
February 28, 2018(1) February 28, 2019
(In millions) Low   % Change   High   % Change
GAAP revenue $ 95.4 $ 85.0 (11 )% $ 88.0 (8 )%
Acquisition-related adjustments - revenue(2) 0.1     n/a   n/a
Non-GAAP revenue $ 95.5   $ 85.0   (11 )% $ 88.0   (8 )%
 

(1)Progress adopted ASC 606 on December 1, 2018. As our GAAP results for fiscal year 2018 are reported under prior revenue recognition guidance, we have provided preliminary adjusted amounts for fiscal year 2018 for comparability to the first fiscal quarter of fiscal year 2019. These amounts are unaudited.
(2)Acquisition-related revenue constitutes revenue reflected as pre-acquisition deferred revenue under prior accounting guidance 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. Note that acquisition-related revenue adjustments relate to Progress' OpenEdge and Application Development and Deployment business segments for Kinvey and Telerik, respectively. Upon our adoption of ASC 606 in fiscal year 2019, our GAAP revenue and Non-GAAP revenue results are the same.

 
Q1 2019 Non-GAAP Earnings per Share Guidance
Three Months Ending February 28, 2019
Low   High
GAAP diluted earnings per share $ 0.18 $ 0.20
Stock-based compensation 0.13 0.13
Amortization of intangibles 0.19   0.19  
Total adjustments 0.32   0.32  
Income tax adjustment (0.05 ) (0.05 )
Non-GAAP diluted earnings per share $ 0.45   $ 0.47  

Source: Progress

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

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