September 25, 2013

Progress Software Reports 2013 Fiscal Third Quarter Results

BEDFORD, Mass.--(BUSINESS WIRE)-- Progress Software Corporation (NASDAQ: PRGS), a global software company that simplifies and enables the development, deployment and management of business applications, today announced results for its fiscal third quarter ended August 31, 2013.

Revenue from continuing operations was $77.6 million compared to $74.4 million in the same quarter last year, a year over year increase of 4% on an actual and constant currency basis.

Additional financial highlights included:

On a GAAP basis in the fiscal third quarter of 2013:

  • Income from operations was $9.7 million compared to $11.3 million in the same quarter last year;
  • Income from continuing operations was $7.2 million compared to $7.7 million in the same quarter last year;
  • Net income was $24.8 million compared to $5.8 million in the same quarter last year, and includes the pre-tax gain on the divestiture of the Apama product line of $35.9 million; and
  • Diluted earnings per share from continuing operations was $0.13 compared to $0.12 in the same quarter last year.

On a non-GAAP basis in the fiscal third quarter of 2013:

  • Income from operations was $21.4 million compared to $17.8 million in the same quarter last year;
  • Operating margin was 28% compared to 24% in the same quarter last year;
  • Income from continuing operations was $14.7 million compared to $12.4 million in the same quarter last year; and
  • Diluted earnings per share from continuing operations was $0.27 compared to $0.19 in the same quarter last year.

Phil Pead, President and Chief Executive Officer of Progress Software, said, "Our third quarter performance continues to demonstrate solid progress as we execute on our strategic plan to be a leading Platform as a Service company. We exceeded our operating margin objectives and the announcement of Progress Pacific is resonating with our customers and partners. Revenue growth for the quarter was also positive as customers and partners continued to upgrade their existing applications and take advantage of new functionality across all of our solutions."

Other fiscal third quarter 2013 metrics and recent results included:

  • Net cash received from the divestiture of the Apama product line was $37.7 million;
  • Under the previously announced and implemented 10b5-1 plan to repurchase $100.0 million of common stock by December 31, 2013, the company has repurchased 2.7 million shares for $67.9 million through August 31, 2013;
  • Cash, cash equivalents and short-term investments were $242.0 million;
  • Cash outflows from operations were $1.9 million, including $14.6 million in tax payments for the gain realized on the Apama product line divestiture, compared to cash inflows from operations of $22.0 million in the same quarter in fiscal year 2012; and
  • DSO from continuing operations was 62 days, compared to 56 days in the fiscal second quarter of 2013.

Business Outlook

Progress Software provides the following guidance for the fiscal fourth quarter ending November 30, 2013:

  • On a constant currency basis, revenue is expected to be between 4% and 6% growth compared to the fiscal fourth quarter of 2012; and
  • Non-GAAP operating margin is expected to be 35%.

The non-GAAP operating margin guidance excludes the items we traditionally exclude from our non-GAAP reporting metrics: amortization of intangible assets of $0.7 million, stock-based compensation of $5.4 million, and $1.0 million of acquisition related costs, for a GAAP operating margin of 27%.

Conference Call

The Progress Software quarterly investor conference call to review its fiscal third quarter of 2013 will be broadcast live at 5:00 p.m. ET on Wednesday, September 25, 2013 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 1-888-428-9480, pass code 9841658. 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.

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 at www.progress.com 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's strategic plan; acquisitions; future revenue growth, operating margin and cost savings; product development, strategic partnering and marketing initiatives; the growth rates of certain markets; and other statements regarding the future operation, direction and success of Progress's business. 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) Market acceptance of Progress's strategic plan and product development initiatives; (2) pricing pressures and the competitive environment in the software industry and Platform-as-a-Service market; (3) Progress' ability to successfully manage transitions to new business models and markets, including our increased emphasis on a cloud and subscription strategy; (4) Progress's ability to make technology acquisitions and to realize the expected benefits and anticipated synergies from such acquisitions; (5) the continuing uncertainty in the U.S. and international economies, which could result in fewer sales of Progress's products and may otherwise harm Progress's business; (6) business and consumer use of the Internet and the continuing adoption of Cloud technologies; (7) the receipt and shipment of new orders; (8) Progress's ability to expand its relationships with channel partners and to manage the interaction of channel partners with its direct sales force; (9) the timely release of enhancements to Progress's products and customer acceptance of new products; (10) the positioning of Progress's products in its existing and new markets; (11) variations in the demand for professional services and technical support; (12) Progress's ability to penetrate international markets and manage its international operations; and (13) changes in exchange rates. For further information regarding risks and uncertainties associated with Progress's business, please refer to Progress's filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the fiscal year ended November 30, 2012 and its Quarterly Reports on Form 10-Q for the fiscal quarters ended February 28, 2013 and May 31, 2013. Progress undertakes no obligation to update any forward-looking statements, which speak only as of the date of this press release.

Progress Software Corporation

Progress Software Corporation (NASDAQ: PRGS) is a global software company that simplifies the development, deployment and management of business applications on-premise or in the cloud, on any platform or device, to any data source, with enhanced performance, minimal IT complexity and low total cost of ownership. Progress Software can be reached at www.progress.com or 1-781-280-4000.

Progress is a trademark or registered trademarks 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

           
Three Months Ended Nine Months Ended
(In thousands, except per share data)

August 31,
2013

 

August 31,
2012

  % Change

August 31,
2013

 

August 31,
2012

  % Change
Revenue:
Software licenses $ 25,666 $ 22,637 13 % $ 84,920 $ 72,816 17 %
Maintenance and services 51,912   51,734   % 158,096   158,154   %
Total revenue 77,578   74,371   4 % 243,016   230,970   5 %
Costs of revenue:
Cost of software licenses 1,587 1,375 15 % 5,033 4,117 22 %
Cost of maintenance and services 6,403 7,974 (20 )% 21,043 22,013 (4 )%
Amortization of acquired intangibles 529   139   281 % 811   522   55 %
Total costs of revenue 8,519   9,488   (10 )% 26,887   26,652   1 %
Gross profit 69,059   64,883   6 % 216,129   204,318   6 %
Operating expenses:
Sales and marketing 24,554 24,970 (2 )% 79,086 67,085 18 %
Product development 14,615 12,631 16 % 42,908 33,330 29 %
General and administrative 13,660 14,375 (5 )% 42,390 47,789 (11 )%
Amortization of acquired intangibles 211 207 2 % 549 622 (12 )%
Restructuring expenses 5,401 1,411 283 % 9,127 6,147 48 %
Acquisition-related expenses 957     100 % 2,229   215   937 %
Total operating expenses 59,398   53,594   11 % 176,289   155,188   14 %
Income from operations 9,661   11,289   (14 )% 39,840   49,130   (19 )%
Other (expense) income, net 177   357   (50 )% (663 ) 876   (176 )%
Income from continuing operations before income taxes 9,838   11,646   (16 )% 39,177   50,006   (22 )%
Provision for income taxes 2,634   3,902   (32 )% 14,018   17,546   (20 )%
Income from continuing operations 7,204   7,744   (7 )% 25,159   32,460   (22 )%
Income (loss) from discontinued operations, net 17,639   (1,906 ) 1,025 % 34,712   (21,041 ) 265 %
Net income $ 24,843   $ 5,838   326 % $ 59,871   $ 11,419   424 %
 
Earnings per share:
Basic:
Continuing operations $ 0.13 $ 0.12 8 % $ 0.45 $ 0.52 (13 )%
Discontinued operations 0.33   (0.03 ) 1,200 % 0.63   (0.33 ) 291 %
Net income per share $ 0.46   $ 0.09   411 % 1.08   $ 0.18   500 %
Diluted:
Continuing operations $ 0.13 $ 0.12 8 % $ 0.45 $ 0.51 (12 )%
Discontinued operations 0.32   (0.03 ) 1,167 % 0.62   (0.33 ) 288 %
Net income per share $ 0.46   $ 0.09   411 % $ 1.06   $ 0.18   489 %
Weighted average shares outstanding:
Basic 53,532 63,469 (16 )% 55,451 62,888 (12 )%
Diluted 54,389 64,105 (15 )% 56,292 63,795 (12 )%
 
 

CONDENSED CONSOLIDATED BALANCE SHEETS

           
(In thousands)

August 31,
2013

November 30,
2012

Assets
Current assets:
Cash, cash equivalents and short-term investments $ 241,982 $ 355,217
Accounts receivable, net 53,620 70,793
Other current assets 40,035 32,779
Assets held for sale   68,029
Total current assets 335,637   526,818
Property and equipment, net 56,889 63,071
Goodwill and intangible assets, net 234,980 231,229
Other assets 59,084   63,859
Total assets $ 686,590   $ 884,977
Liabilities and shareholders' equity
Current liabilities:
Accounts payable and other current liabilities $ 67,236 $ 110,944
Short-term deferred revenue 96,534 103,925
Liabilities held for sale   25,285
Total current liabilities 163,770   240,154
Long-term deferred revenue 1,044 2,817
Other long-term liabilities 2,421 3,607
Shareholders' equity:
Common stock and additional paid-in capital 214,915 300,333
Retained earnings 304,440   338,066
Total shareholders' equity 519,355   638,399
Total liabilities and shareholders' equity $ 686,590   $ 884,977
 
 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

           
Three Months Ended Nine Months Ended
(In thousands)

August 31,
2013

 

August 31,
2012

August 31,
2013

 

August 31,
2012

Cash flows from operating activities:
Net income $ 24,843 $ 5,838 $ 59,871 $ 11,419
Depreciation and amortization 3,897 8,390 11,374 25,369
Stock-based compensation 5,573 7,744 16,360 21,504
Net gains on sales of dispositions (35,885 ) (70,991 )
Other non-cash adjustments 2,648 759 447 1,762
Changes in operating assets and liabilities (2,937 ) (706 ) (30,340 ) 15,660  
Net cash flows from operating activities (1,861 ) 22,025   (13,279 ) 75,714  
Capital expenditures (603 ) (465 ) (2,989 ) (6,606 )
Redemptions and sales of auction-rate-securities 2,700 25 2,925
Issuances of common stock, net of repurchases (47,981 ) 3,797 (192,075 ) 24,284
Payments for acquisitions, net of cash acquired (9,450 )
Proceeds from divestitures, net 37,739 111,120
Other (1,116 ) (4,098 ) (6,587 ) (5,526 )
Net change in cash, cash equivalents and short-term investments (13,822 ) 23,959   (113,235 ) 90,791  
Cash, cash equivalents and short-term investments, beginning of period 255,804   328,248   355,217   261,416  
Cash, cash equivalents and short-term investments, end of period $ 241,982   $ 352,207   $ 241,982   $ 352,207  
 
 

SUPPLEMENTAL INFORMATION

           
Revenue from continuing operations by Type
   
(In thousands) Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 YTD 2013 YTD 2012
License $ 22,637 $ 33,810 $ 29,907 $ 29,347 $ 25,666 $ 84,920 $ 72,816
Maintenance 50,285 50,891 51,456 50,419 49,752 151,627 151,800
Professional services 1,449   1,941   2,370   1,939   2,160   6,469   6,354
Total revenue $ 74,371   $ 86,642   $ 83,733   $ 81,705   $ 77,578   $ 243,016   $ 230,970
 
Revenue from continuing operations by Region
 
(In thousands) Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 YTD 2013 YTD 2012
North America $ 34,548 $ 39,179 $ 39,309 $ 37,540 $ 34,596 $ 111,445 $ 103,480
EMEA 28,155 33,214 32,548 33,481 32,315 98,344 92,352
Latin America 6,905 7,384 6,822 6,526 5,496 18,844 20,951
Asia Pacific 4,763   6,865   5,054   4,158   5,171   14,383   14,187
Total revenue $ 74,371   $ 86,642   $ 83,733   $ 81,705   $ 77,578   $ 243,016   $ 230,970
 
 

RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES

         
Three Months Ended Nine Months Ended
(In thousands, except per share data)

August 31,
2013

 

August 31,
2012

August 31,
2013

 

August 31,
2012

GAAP income from operations $ 9,661 $ 11,289 $ 39,840 $ 49,130

GAAP operating margin

12 % 15 % 16 % 21 %
Amortization of acquired intangibles 740 346 1,360 1,144
Stock-based compensation (1) 4,600 4,759 14,070 14,058
Restructuring expenses 5,401 1,411 9,127 6,147
Acquisition-related expenses 957 2,229 215
Litigation settlement 900
Proxy contest-related costs   21     3,259  
Total operating adjustments 11,698   6,537   26,786   25,723  
Non-GAAP income from operations $ 21,359   $ 17,826   $ 66,626   $ 74,853  
Non-GAAP operating margin 28 % 24 % 27 % 32 %
 
GAAP income from continuing operations $ 7,204 $ 7,744 $ 25,159 $ 32,460
Operating adjustments (from above) 11,698 6,537 26,786 25,723
Income tax adjustment (4,230 ) (1,916 ) (8,399 ) (6,686 )
Total income from continuing operations adjustments 7,468   4,621   18,387   19,037  
Non-GAAP income from continuing operations $ 14,672   $ 12,365   $ 43,546   $ 51,497  
 
GAAP diluted earnings per share from continuing operations $ 0.13 $ 0.12 $ 0.45 $ 0.51
Income from continuing operations adjustments (from above) 0.14   0.07   0.33   0.30  
Non-GAAP diluted earnings per share from continuing operations $ 0.27   $ 0.19   $ 0.77   $ 0.81  
 
Diluted weighted average shares outstanding 54,389 64,105 56,292 63,795
 
 
(1) Stock-based compensation is included in the GAAP statements of income, as follows:
 
Cost of revenue $ 133 $ 157 $ 500 $ 589
Sales and marketing 748 701 2,668 2,848
Product development 999 861 3,687 2,375
General and administrative 2,720   3,040   7,215   8,246  
Stock-based compensation from continuing operations $ 4,600   $ 4,759   $ 14,070   $ 14,058  
 
        Three Months Ended   Nine Months Ended
(In thousands, except per share data)

August 31,
2013

 

August 31,
2012

August 31,
2013

 

August 31,
2012

GAAP costs of revenue $ 8,519 $ 9,488 $ 26,887 $ 26,652
GAAP operating expenses 59,398   53,594   176,289   155,188
GAAP expenses 67,917   63,082   203,176   181,840
Operating adjustments (from above) 11,698   6,537   26,786   25,723
Non-GAAP expenses $ 56,219   $ 56,545   $ 176,390   $ 156,117

Investor Contact:
Progress Software
Brian Flanagan, +1-781-280-4817
flanagan@progress.com
or
Press Contact:
Progress Software
Rick Lacroix, +1-781-280-4604
rlacroix@progress.com

Source: Progress Software Corporation

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