On a generally accepted accounting principles (GAAP) basis, operating income increased 39 percent to $17.1 million from $12.4 million in the first quarter of fiscal 2007. Net income increased 47 percent to $12.8 million from $8.7 million in the same quarter last year. Diluted earnings per share increased 45 percent to 29 cents from 20 cents in the first quarter of fiscal 2007.
On a non-GAAP basis, operating income increased 8 percent to $25.5 million from $23.5 million in the same quarter last year. Non-GAAP net income increased 14 percent to $18.6 million from $16.2 million in the same quarter last year and non-GAAP diluted earnings per share increased 14 percent to 42 cents per share from 37 cents in the first quarter of fiscal 2007.
The non-GAAP results in the first quarter of fiscal 2008 exclude after-tax charges of $3.0 million for stock-based compensation, $2.5 million for amortization of acquired intangibles and $0.2 million for professional services fees associated with the investigation and shareholder derivative lawsuits related to the company's historical stock option grant practices. The non-GAAP results in the first quarter of fiscal 2007 exclude after-tax charges of $3.4 million for stock-based compensation, $3.0 million for amortization of acquired intangibles and $1.1 million for professional services fees associated with the investigation and shareholder derivative lawsuits related to the company's historical stock option grant practices.
The company's cash and short-term investments at the end of the quarter totaled $224 million. In addition, we had approximately $95 million in investments related to municipal and student loan auction rate securities that we classified as non-current on our balance sheet because these securities failed to clear at auction and we are currently unable to sell these securities in the market. The failed auctions have resulted in higher interest rates being earned on these securities, but the investments currently lack short-term liquidity.
The company purchased 1.5 million shares at a cost of $46.2 million in the first quarter of fiscal 2008. The company's existing repurchase authorization, under which approximately 7.9 million shares remain available for repurchase, expires on September 30, 2008.
Joseph Alsop, co-founder and chief executive officer of Progress Software, stated: "We achieved very strong growth in our Enterprise Infrastructure business driven by customer deployments of SOA. OpenEdge revenue was within expectations, and although our DataDirect product line achieved slower growth than we anticipated, we believe that this product line will produce stronger results in the remainder of the year. Overall our near term business outlook is solid despite global uncertainties."
Quarterly Highlights
-- Progress(R) Actional(R) was positioned in the leaders quadrant
of the 'Gartner 2007 Magic Quadrant for Integrated SOA
Governance Technology Sets' (www.progress.com/actional2007mq).
-- Progress Software launched Actional 7.1 comprising unique, new
capabilities that position Actional as the industry's only SOA
and Web services management product family that can provide
unified visibility within existing business process management
(BPM) solutions, and beyond the edges of BPM processes into
middleware and services. This ability to automatically connect
the business process context to the underlying SOA
infrastructure is a key requirement of a SOA governance
strategy (www.progress.com/actional71).
-- Progress Software launches Apama(R) Smart Order Router (SOR)
Accelerator, which advances traders' ability to monitor and
select trade execution venues and comply with stringent and
complex MiFID and Reg NMS best execution requirements from
among the many Exchanges, Multi-Lateral Trading Facilities
(MTFs) and Dark Liquidity Pools (www.progress.com/apamasor).
-- Turquoise, the multi-lateral trading facility (MTF)
established by nine leading European investment banks,
announced that it has partnered with Progress Software and
Detica to deliver a real-time Market Surveillance System. The
combination of the Progress Apama Complex Event Processing
(CEP) Platform and Detica's market surveillance and trading
expertise will deliver a real-time and post-trade market
surveillance system that will capture breaches of trading
rules, root out market irregularities and develop enhanced
trading execution analytics (www.progress.com/turquoise).
-- Progress Software released a new version of Progress
DataXtend(R) Semantic Integrator (SI) 8.3. This release will
enable Communication Service Providers to more effectively
synchronize their disparate and distributed data with new
change data capture functionality (www.progress.com/dxsi83).
-- Progress Software's Colleen Smith was recognized as a 2008 CRN
Channel Chief; she was chosen for her demonstration of
innovative initiatives and accomplishments over the past year
(www.progress.com/crnchief).
-- Progress Software was recognized for worldwide leadership in
the ''Pure-Play'' Embedded Database Management Systems Market
in an IDC, "Worldwide Embedded DBMS 2007-2011 Forecast and
2006 Vendor Shares," Doc # 209653, December 2007 report with
the Progress OpenEdge(R) business application development
platform. A strong ISV channel relationship and continuous
product development were cited as key contributory factors
(www.progress.com/idcleader).
-- Progress Software announced the selection of EasyAsk(R) for
Operational Business Intelligence (BI) by South African
companies. Nedbank, Europ Assistance, Matrix Vehicle Tracking,
and Integrated Healthcare Distribution are extending their use
of operational BI using EasyAsk
(www.progress.com/southafrica).
-- DataDirect Technologies announced the use of DataDirect
XQuery(R) to speed data integration and car crash information
lookup by the National Highway Traffic Safety Administration
and the Volpe National Transportation Systems Center (Volpe
Center), both part of the U.S. Department of Transportation
(DOT), to provide automotive manufacturers, industry
researchers, and the general public access to highway crash
information housed in their Electronic Data System (EDS)
(www.progress.com/carcrash).
Customer Highlights
The following organizations became new Progress customers or partners, adopted additional Progress technologies, or made major deployments of Progress technologies in the past quarter:
Adobe Systems, Alcatel, American Family Life Assurance, Associated Newspapers, Barclay's Global Investors, BIDS Holdings, BNP Paribas, Boeing, Boehringer Ingelheim International, BWI Systems, Ceridian, Cerner, Citigroup, City of Seattle, Cicero Group, Compuware, Copel Distribution, CRS Retail Systems, Daimler AG, Datasul, DemandTech, Dollar Thrifty Automotive, Dow Jones, EDS, Epicor, Ercot, Facilicom Services Group, FedEx, Frontier Communications, General Dynamics, GE Healthcare, General Nutrition Company, Hanley Group, Hartford Life, Hewlett-Packard, IBM, ING, Iron Mountain, KAZ Group Limited, Lockheed Martin, McGraw Hill Companies, MetLife, Nataxis Asset Management, National Institute of Enferm, National Library of Scotland, NCR, Network Research Belgium, New York Life, Nortel Networks, Optical Superstore Pearle Europe, PJM Interconnection, Port Infolink, QAD, Quantum Data Systems, Riagg Zuid, Royal Bank of Canada, RSA Security, Sage Software, Sandvine, SG Americas Operational, Specsavers, Staples, State of Colorado, State of Connecticut, Sungard Computer Services, Synaptris, Technical, Tokyo University Annexed Hospital, Turquoise, United Healthcare, Verizon Wireless, Wells Fargo, Western Asset Management and West Bend Mutual Insurance.
Business Outlook
The company is providing the following guidance for the fiscal year ending November 30, 2008:
-- Revenue is expected to be in the range of $520 million to $530
million.
-- GAAP diluted earnings per share are expected to be in the
range of $1.35 to $1.40.
-- On a non-GAAP basis, diluted earnings per share are expected
to be in the range of $1.92 to $1.97.
-- The non-GAAP projections exclude after-tax charges of
approximately $13 million (30 cents per share) for stock-based
compensation, approximately $11 million (25 cents per share)
for amortization of acquired intangibles and an estimate of
approximately $1 million (2 cents per share) for professional
services fees associated with our ongoing stock option
investigation and derivative lawsuits.
The company is providing the following guidance for the second fiscal quarter ending May 31, 2008:
-- Revenue is expected to be in the range of $127 million to $129
million.
-- GAAP diluted earnings per share are expected to be in the
range of 31 cents to 33 cents.
-- On a non-GAAP basis, diluted earnings per share are expected
to be in the range of 45 cents to 47 cents.
-- The non-GAAP projections exclude after-tax charges of
approximately $3 million (7 cents per share) for stock-based
compensation and $3 million (7 cents per share) for
amortization of acquired intangibles and professional services
fees associated with our ongoing stock option investigation
and derivative lawsuits.
Legal Notice Regarding Non-GAAP Financial Information
The company provides non-GAAP operating income, net income and earnings per share as additional information for investors. These measures are not in accordance with, or an alternative to, generally accepted accounting principles in the United States (GAAP). Such measures are intended to supplement GAAP and may be different from non-GAAP measures used by other companies. The company 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. Management of the company uses these non-GAAP results to compare the company's performance to that of prior periods for analysis of trends and for budget and planning purposes. A reconciliation of non-GAAP adjustments to the company's GAAP financial results is included in the tables below.
Conference Call
The Progress Software conference call to discuss its fiscal first quarter 2008 results will be Webcast live today at 9:00 a.m. Eastern Daylight Time on the company's Web site, located at www.progress.com/investors. The call will also be Webcast live via Yahoo (www.yahoo.com), Motley Fool (www.fool.com), Streetevents (www.streetevents.com), TD Waterhouse (www.tdwaterhouse.com) and Fidelity.com (www.fidelity.com). An archived version of the conference call will be available for replay on the Progress website (www.progress.com), together with the slide presentation for the call, under the investor relations page.
Progress Software Corporation
Progress Software Corporation (NASDAQ: PRGS) provides application infrastructure software for the development, deployment, integration and management of business applications. Our goal is to maximize the benefits of information technology while minimizing its complexity and total cost of ownership. Progress can be reached at www.progress.com or +1-781-280-4000.
Safe Harbor Statement
Except for the historical information and discussions contained herein, statements contained in this release may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements, which include statements regarding the company's business outlook, involve a number of risks, uncertainties and other factors that could cause actual results to differ materially, including but not limited to the following: the receipt and shipment of new orders, the timely release of enhancements to the company's products, the growth rates of certain market segments, the positioning of the company's products in those market segments, variations in the demand for professional services and technical support, pricing pressures and the competitive environment in the software industry, business and consumer use of the Internet, and the company's ability to penetrate international markets and manage its international operations; unanticipated consequences of the restatement completed in December 2006; risks associated with the SEC's formal investigation of the company's option-grant practices and pending shareholder litigation relating to such practices; the risk that the company will face additional claims and proceedings in connection with those stock option grant practices, including additional shareholder litigation and additional proceedings by the other governmental agencies; and the financial impact of the foregoing, including potentially significant litigation defense costs and claims for indemnification and advancement of expenses by directors, officers and others. The company undertakes no obligation to update information contained in this release. For further information regarding risks and uncertainties associated with the company's business, please refer to the company's filings with the Securities and Exchange Commission.
Actional, Apama, DataDirect, DataXtend, EasyAsk, OpenEdge, SonicMQ, Progress, and DataDirect XQuery are trademarks or registered trademarks of Progress Software Corporation or one of its subsidiaries or affiliates in the U.S. and other countries. Any other trademarks or service marks contained herein are the property of their respective owners.
Progress Software Corporation
GAAP Condensed Consolidated Statements of Income
Three Months Ended
----------------------------------
February 29, February 28, Percent
(In thousands except per share Change
data) 2008 2007
----------------------------------------------------------------------
Revenue:
Software licenses $45,102 $44,729 1%
Maintenance and services 76,465 70,500 8%
-------------------------
Total revenue 121,567 115,229 6%
-------------------------
Costs of revenue:
Cost of software licenses 2,296 1,672 37%
Cost of maintenance and
services 17,641 16,262 8%
Amortization of purchased
technology 2,673 2,491 7%
-------------------------
Total costs of revenue 22,610 20,425 11%
-------------------------
Gross profit 98,957 94,804 4%
-------------------------
Operating expenses:
Sales and marketing 45,842 44,645 3%
Product development 20,693 20,795 0%
General and administrative 13,900 15,031 (8)%
Amortization of other acquired
intangibles 1,374 1,980
-------------------------
Total operating expenses 81,809 82,451 (1)%
-------------------------
Income from operations 17,148 12,353 39%
Other income, net 3,066 1,090 181%
-------------------------
Income before provision for income
taxes 20,214 13,443 50%
Provision for income taxes 7,378 4,705 57%
-------------------------
Net income $12,836 $8,738 47%
-------------------------
Earnings per share:
Basic $0.30 $0.21 43%
Diluted $0.29 $0.20 45%
-------------------------
Weighted average shares
outstanding:
Basic 42,238 41,068 3%
Diluted 44,174 43,437 2%
-------------------------
Progress Software Corporation
Reconciliation of GAAP to Non-GAAP Financial Measures
Three Months Ended February 29, 2008
------------------------------------
As
(In thousands except per share Reported Adjustments Non-GAAP
data)
----------------------------------------------------------------------
Total revenue $121,567 $ - $121,567
Income from operations $ 17,148 $8,346 $ 25,494
Amortization of acquired
intangibles (4,047) 4,047 -
Stock option investigation (1) (329) 329 -
Stock-based compensation (2) (3,970) 3,970 -
Operating margin percentage 14.1% 21.0%
Other income, net $ 3,066 $ - $ 3,066
Effect on provision for income
taxes from above adjustments (3) $ 7,378 $2,618 $ 9,996
Net income $ 12,836 $5,728 $ 18,564
Earnings per share - diluted $ 0.29 $ 0.42
Weighted average shares
outstanding - diluted 44,174 44,174
Three Months Ended February 28, 2007
------------------------------------
As Percent
(In thousands except per Reported Adjustments Non-GAAP Change
share data)
----------------------------------------------------------------------
Total revenue $115,229 $ - $115,229 6%
Income from operations $ 12,353 $11,168 $ 23,521 8%
Amortization of
acquired intangibles (4,471) 4,471 -
Stock option
investigation (1) (1,682) 1,682 -
Stock-based
compensation (2) (5,015) 5,015 -
Operating margin
percentage 10.7% 20.4%
Other income, net $ 1,090 $ - $ 1,090 181%
Effect on provision for
income taxes from above
adjustments (3) $ 4,705 $ 3,663 $ 8,368 19%
Net income $ 8,738 $ 7,505 $ 16,243 14%
Earnings per share -
diluted $ 0.20 $ 0.37 14%
Weighted average shares
outstanding - diluted 43,437 43,437 2%
(1) Stock option investigation expenses are included within general
and administrative expenses and primarily represent professional
services fees associated with the company's investigation and
shareholder derivative lawsuits related to its historical stock
option grant practices.
(2) Stock-based compensation expense, representing the fair value of
equity awards under SFAS 123R, is included in the following GAAP
operating expenses:
Three Months Ended Three Months Ended
February 29, 2008 February 28, 2007
------------------------ ------------------------
GAAP Adjustments Non- GAAP Adjustments Non-
GAAP GAAP
-------------------------------------------------
Cost of software
licenses $22 $(22) $- 31 $(31) $-
Cost of
maintenance and
services 267 (267) - 357 (357) -
Sales and
marketing 1,431 (1,431) - 1,847 (1,847) -
Product
development 919 (919) - 1,151 (1,151) -
General and
administrative 1,331 (1,331) - 1,629 (1,629) -
------ ----------- ----- ------ ----------- -----
$3,970 $(3,970) $- $5,015 $(5,015) $-
------ ----------- ----- ------ ----------- -----
Amounts primarily represent the fair value of equity awards under
SFAS 123R. Stock-base compensation expense for the three months
ended February 28, 2007 also includes $0.1 million for the cash
settlement of equity awards to former employees for options that
were cancelled or expired during the suspension of the issuance
of shares under the company's option plans and reimbursements for
excise taxes resulting from the exercise of below market options
in fiscal 2007.
(3) The Non-GAAP provision for taxes was calculated reflecting an
effective rate of 35% for the three months ended February 29,
2008 and 34% for the three months ended February 28, 2007.
Progress Software Corporation
Condensed Consolidated Balance Sheets
February November
29, 30,
(In thousands) 2008 2007
----------------------------------------------------------------------
Assets
Cash and short-term investments $ 224,083 $339,525
Accounts receivable, net 92,453 93,998
Other current assets 34,563 30,900
--------------------
Total current assets 351,099 464,423
--------------------
Property and equipment, net 65,131 64,949
Goodwill and intangible assets, net 212,491 208,988
Investments 95,275 -
Other assets 23,446 23,468
--------------------
Total $ 747,442 $761,828
--------------------
Liabilities and shareholders' equity
Accounts payable and other current liabilities $ 71,902 $ 92,983
Short-term deferred revenue 152,441 135,487
--------------------
Total current liabilities 224,343 228,470
--------------------
Long-term deferred revenue 10,801 11,200
Other liabilities 10,257 4,284
Shareholders' equity:
Common stock and additional paid-in capital 229,416 240,647
Retained earnings 272,625 277,227
--------------------
Total shareholders' equity 502,041 517,874
--------------------
Total $ 747,442 $761,828
--------------------
Condensed Consolidated Statements of Cash Flows
Three Months Ended
--------------------
February February
29, 28,
(In thousands except per share data) 2008 2007
----------------------------------------------------------------------
Cash flows from operations:
Net income $ 12,836 $ 8,738
Depreciation, amortization and other noncash
items 10,618 12,022
Other changes in operating assets and
liabilities (3,642) (8,510)
--------------------
Net cash flows from operations 19,812 12,250
Capital expenditures (2,581) (6,103)
Investments (95,275) -
Acquisitions, net of cash acquired (5,728) -
Share issuances (repurchases), net (34,772) (13,556)
Other 3,102 (86)
--------------------
Net change in cash and short-term investments (115,442) (7,495)
Cash and short-term investments, beginning of
period 339,525 241,315
--------------------
Cash and short-term investments, end of period $ 224,083 $233,820
--------------------