January 3, 2012

Progress Software Reports 2011 Fiscal Fourth Quarter and Year End Results

BEDFORD, Mass.--(BUSINESS WIRE)-- Progress Software Corporation (NASDAQ: PRGS), a leading software provider that enables enterprises to be operationally responsive, announced today results for its fiscal fourth quarter and year ended November 30, 2011.

On a GAAP basis in the fiscal fourth quarter of 2011:

  • Revenue was $136.3 million, a decrease of 6% compared to $145.2 million in the fiscal fourth quarter of 2010;
  • Income from operations was $19.2 million, a decrease of 42% compared to $32.8 million in the same quarter last year;
  • Net income was $11.7 million, a decrease of 45% compared to $21.3 million in the same quarter last year; and
  • Diluted earnings per share were $0.18, a decrease of 42% compared to $0.31 in the same quarter last year.

On a non-GAAP basis in the fiscal fourth quarter of 2011:

  • Revenue was $136.3 million, a decrease of 6% compared to $145.3 million in the same period a year ago;
  • Income from operations was $32.8 million, a decrease of 32% compared to $48.3 million in the same quarter last year;
  • Net income was $21.5 million, a decrease of 33% compared to $32.2 million in the same quarter last year; and
  • Diluted earnings per share were $0.34, a decrease of 28% compared to $0.47 in the same quarter last year.

On a GAAP basis in fiscal year 2011:

  • Revenue was $533.6 million, an increase of 1% compared to $529.1 million in fiscal 2010;
  • Income from operations was $88.2 million, an increase of 30% compared to $67.7 million in fiscal 2010;
  • Net income was $58.8 million, an increase of 21% compared to $48.6 million in fiscal 2010; and
  • Diluted earnings per share were $0.87, an increase of 19% compared to $0.73 in fiscal 2010.

On a non-GAAP basis in fiscal year 2011:

  • Revenue was $533.7 million, an increase of 1% compared to $530.3 million in fiscal 2010;
  • Income from operations was $144.4 million, a decrease of 8% compared to $156.6 million in fiscal 2010;
  • Non-GAAP net income was $98.2 million, a decrease of 7% compared to $106.1 million in fiscal 2010; and
  • Non-GAAP diluted earnings per share were $1.45, a decrease of 9% compared to $1.60 in fiscal 2010.

Jay Bhatt, president and chief executive officer of Progress Software, said: "The results for the fourth quarter met expectations, but they reflect challenges the company is facing in its ongoing transformation. We are building capabilities as an enterprise solutions provider through investments in our field organization, product integration and creating greater market awareness of the Progress Responsive Process Management (RPM) suite. Even with these significant changes, our Enterprise Business Solutions (EBS) segment grew 12% for the year. We continue our investments in the EBS business segment as we enter 2012, and are optimistic about our growth potential in the second half of the year as more and more business leaders see how our offerings can increase their operational responsiveness. Progress is well positioned to be the leader in the emerging intelligent business operations segment."

Bhatt also noted: "While the Application Development Platforms (ADP) segment declined slightly for the year, our OpenEdge revenues were stable due to growth in our indirect channel. Our application partners (ISVs) are excited about the recently released OpenEdge 11, which includes patent-pending multi-tenancy built in to the database along with enhanced integration with our Progress Arcade Portal and enhanced support for mobile devices — all of which respond to the heavy demand of our partners to test and deliver their solutions in a multi-tenant Cloud environment and through mobile devices. In addition, OpenEdge 11 includes tighter integration with our Business Process Management (or BPM) functionality — allowing our partners to modernize their applications with the latest agile business-focused technology. With these enhancements and our partners' enthusiasm for the opportunities they create, we are optimistic about OpenEdge's prospects in 2012."

During the fourth quarter, the company completed the acquisition of Corticon Technologies, Inc., a leading Business Rules Management System (BRMS) vendor that enables organizations to make better, faster decisions by automating business rules. The Corticon solution, which will be integrated into the Progress RPM suite, reinforces Progress' commitment to deliver operational responsiveness by helping customers build highly agile, responsive business systems.

Cash flows from operations for the quarter were $9.7 million, down from $25.7 million in the same quarter in fiscal 2010. During the fourth quarter, the company purchased $65.1 million of its common stock. Cash and short-term investments decreased to $261.4 million from $346.5 million at the end of the fiscal third quarter 2011, primarily as a result of share repurchases and the Corticon acquisition.

Business Outlook

Progress Software provides the following non-GAAP guidance for the fiscal first quarter ending February 29, 2012:

  • Revenue is expected to be approximately $120 million, representing a decrease of approximately 10% year over year.
  • Diluted earnings per share are expected to be approximately $0.25, representing a decrease of approximately 40% year over year.

The non-GAAP guidance excludes approximately $5.6 million of amortization of acquired intangibles and approximately $5.3 million of stock-based compensation, as well as any restructuring, transition and acquisition-related expenses, and the respective income tax effects of these items.

Conference Call

The Progress Software quarterly investor conference call to review its fiscal fourth quarter 2011 and fiscal year results and business outlook will be broadcast live at 9:00 a.m. (ET) on Wednesday, January 4, 2012 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 1-800-915-4836, passcode 9464931. The conference call will include only brief comments followed by questions and answers. An archived version of the conference call and supporting materials will be available on the Progress Software website within the investor relations section after the live conference call.

Note to Editors

Progress Software is providing, in advance, a copy of prepared remarks for its conference call. These prepared remarks will not be read on the call. The press release, the prepared remarks, and additional financial disclosures are available on the Progress website www.progress.com within the investor relations section.

Progress Software Corporation

Progress Software Corporation (NASDAQ: PRGS) is a global software company that enables enterprises to be operationally responsive to changing conditions and customer interactions as they occur — to capitalize on new opportunities, drive greater efficiencies and reduce risk. The company offers a comprehensive portfolio of best-in-class infrastructure software spanning event-driven visibility and real-time response, open integration, data access and integration, and application development and deployment — all supporting on-premises and SaaS/Cloud deployments. Progress Software maximizes the benefits of operational responsiveness while minimizing IT complexity and total cost of ownership. Progress Software can be reached at www.progress.com or +1-781-280-4000.

Legal Notice Regarding Non-GAAP Financial Information

Progress Software 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 Software 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 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. Additional information regarding the company's non-GAAP financial information is contained in the company's Current Report on Form 8-K filed with the Securities and Exchange Commission in connection with this press release, which is available on the Progress website www.progress.com within the investor relations section.

Note Regarding Forward-Looking Statements

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 for its fiscal first quarter in 2012, and strategic plans, 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; the customer demand and acceptance of our new product initiatives, the Progress RPM suite; variations in the demand for professional services and technical support; pricing pressures and the competitive environment in the software industry; continuing uncertainty in the U.S. and international economies, which could result in fewer sales of the company's products and may otherwise harm the company's business; the company's ability to complete and integrate acquisitions; the company's ability to realize the expected benefits and anticipated synergies from acquired businesses; the company's ability to penetrate international markets and manage its international operations; and changes in exchange rates. 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.

Progress is a trademark or registered trademark of Progress Software Corporation or one of its subsidiaries or affiliates in the U.S. and other countries. Any other trademarks contained herein are the property of their respective owners.

 

Condensed Consolidated Statements of Income

 
Fiscal Fourth Quarter Ended

November 30,

  Fiscal Year Ended

November 30,

(In thousands, except per share data) 2011 2010   % Change   2011 2010 % Change
Revenue:
Software licenses $ 48,707 $ 56,475 -14 % $ 184,173 $ 192,568 -4 %
Maintenance and services   87,633   88,706   -1 %     349,422     336,552 4 %
Total revenue   136,340   145,181   -6 %     533,595     529,120 1 %
Costs of revenue:
Cost of software licenses 1,939 2,290 -15 % 8,962 7,923 13 %
Cost of maintenance and services 20,402 18,204 12 % 78,605 71,290 10 %
Amortization of acquired intangibles   3,857   4,887   -21 %     15,728     20,109 -22 %
Total costs of revenue   26,198   25,381   3 %     103,295     99,322 4 %
Gross profit   110,142   119,800   -8 %     430,300     429,798 0 %
 
Operating expenses:
Sales and marketing 51,816 46,081 12 % 186,077 168,788 10 %
Product development 20,616 22,162 -7 % 80,719 90,643 -11 %
General and administrative 16,164 13,638 19 % 62,100 51,805 20 %
Amortization of acquired intangibles 1,825 2,617 -30 % 8,018 10,449 -23 %
Restructuring expenses - 2,467 -100 % 4,627 39,975 -88 %
Acquisition-related expenses   536   -   -       536     468 15 %
Total operating expenses   90,957   86,965   5 %     342,077     362,128 -6 %
Income from operations   19,185   32,835   -42 %     88,223     67,670 30 %
Other income (expense), net   85   (1,197 ) -107 %     (519 )   3,758 -114 %
Income before provision for income taxes 19,270 31,638 -39 % 87,704 71,428 23 %
Provision for income taxes   7,591   10,362   -27 %     28,943     22,857 27 %
Net income $ 11,679 $ 21,276   -45 %   $ 58,761   $ 48,571 21 %
 
Earnings per share:
Basic $ 0.19 $ 0.32 -41 % $ 0.89 $ 0.76 17 %
Diluted $ 0.18 $ 0.31   -42 %   $ 0.87   $ 0.73 19 %
 
Weighted average shares outstanding:
Basic 63,074 65,566 -4 % 65,705 63,957 3 %
Diluted   63,973   67,827   -6 %     67,540     66,212 2 %
         
Condensed Consolidated Balance Sheets
 
(In thousands)         November 30, 2011   November 30, 2010
Assets
Current assets:
Cash and short-term investments $ 261,416 $ 322,396
Accounts receivable, net 110,927 119,273
Other current assets           35,434     42,189
Total current assets           407,777     483,858
Property and equipment, net 66,206 58,207
Goodwill and intangible assets, net 327,647 321,551
Other assets           63,680     73,207
Total assets         $ 865,310   $ 936,823
 
Liabilities and shareholders' equity
Current liabilities:
Accounts payable and other current liabilities $ 85,781 $ 98,715
Short-term deferred revenue           145,727     138,961
Total current liabilities           231,508     237,676
Long-term deferred revenue 6,619 2,908
Other long-term liabilities 4,883 7,907
Shareholders' equity:
Common stock and additional paid-in capital 309,221 347,604
Retained earnings           313,079     340,728
Total shareholders' equity           622,300     688,332
Total liabilities and shareholders' equity         $ 865,310   $ 936,823
     
Condensed Consolidated Statements of Cash Flows
 
Fiscal Fourth Quarter Ended

November 30,

  Fiscal Year Ended

November 30,

(In thousands) 2011   2010   2011   2010
Cash flows from operating activities:
Net income $ 11,679 $ 21,276 $ 58,761 $ 48,571
Depreciation, amortization and other noncash charges 15,190 14,987 58,577 59,538
Other changes in operating assets and liabilities   (17,197 )     (10,597 )     8,956       (11,908 )
Net cash flows from operating activities   9,672       25,666       126,294       96,201  
Capital expenditures (3,091 ) (2,573 ) (17,047 ) (9,664 )
Redemptions at par by issuers of auction-rate-securities - - 6,300 1,235
Net cash paid for acquisitions (22,900 ) - (22,900 ) (49,186 )
Issuances of common stock, net of repurchases (56,939 ) 25,856 (150,337 ) 64,334
Other   (11,869 )     4,234       (3,290 )     (4,645 )
Net change in cash and short-term investments (85,127 ) 53,183 (60,980 ) 98,275
Cash and short-term investments, beginning of period   346,543       269,213       322,396       224,121  
Cash and short-term investments, end of period $ 261,416     $ 322,396     $ 261,416     $ 322,396  
 

Reconciliation of GAAP to Non-GAAP Financial Measures

 
Fiscal Fourth Quarter Ended

November 30,

  Fiscal Year Ended

November 30,

(In thousands, except per share data) 2011 2010 % Change   2011 2010 % Change
GAAP revenue $ 136,340 $ 145,181 $ 533,595 $ 529,120
Fair value of acquired deferred maintenance and
services revenue   -     74           93     1,213      
Non-GAAP revenue $ 136,340   $ 145,255   -6 %   $ 533,688   $ 530,333   1 %
 
 
GAAP income from operations $ 19,185 $ 32,835 $ 88,223 $ 67,670
GAAP operating margin % 14.1 % 22.6 % 16.5 % 12.8 %
Fair value of acquired deferred maintenance and
services revenue - 74 93 1,213
Amortization of acquired intangibles 5,682 7,504 23,746 30,558
Stock-based compensation (1) 7,244 4,920 25,999 17,586
Transition expense 109 479 1,163 479
Restructuring expense - 2,467 4,627 39,975
Stock option investigation expense - - - (1,330 )
Acquisition-related expense   536     -           536     468      
Total operating adjustments   13,571     15,444           56,164     88,949      
Non-GAAP income from operations $ 32,756   $ 48,279   -32 %   $ 144,387   $ 156,619   -8

%

Non-GAAP operating margin % 24.0 % 33.2 % 27.1 % 29.5 %
 
 
GAAP net income $ 11,679 $ 21,276 $ 58,761 $ 48,571
Operating adjustments (from above) 13,571 15,444 56,164 88,949
Insurance settlement of pre-acquisition contingency - - - (899 )
Income tax adjustment   (3,723 )   (4,567 )         (16,678 )   (30,568 )    
Total net income adjustments   9,848     10,877           39,486    

57,482

     
Non-GAAP net income $ 21,527   $ 32,153   -33 %  

$

98,247  

$

106,053

 

-7

%

 
 
GAAP earnings per share - diluted $ 0.18 $ 0.31 $ 0.87

$

0.73
Total net income adjustments (from above)   0.16     0.16           0.58  

 

0.87

     
Non-GAAP earnings per share - diluted $ 0.34   $ 0.47   -28 %   $ 1.45  

$

1.60

 

-9

%

 
Weighted average shares outstanding - diluted 63,973 67,827 67,540 66,212
                                   
 
 
 
(1) Stock-based compensation is included in the GAAP statements of income, as follows:
 
Cost of revenue $ 599 $ 237 $ 1,406 $ 942
Sales and marketing 1,803 1,363 5,946 5,496
Product development 1,881 1,061 5,759 4,200
General and administrative   2,961     2,259           12,888     6,948      
  $ 7,244   $ 4,920         $ 25,999   $ 17,586      

Investor Relations Contact:
Progress Software Corporation
Tom Barth, 781-280-4135
tobarth@progress.com
or
Media Relations Contact:
Progress Software Corporation
John Stewart, 781-280-4101
jstewart@progress.com

Source: Progress Software Corporation

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