September 25, 2014

Progress Software Reports 2014 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, 2014.

Revenue from continuing operations was $79.3 million compared to $77.6 million in the same quarter last year, a year over year increase of 2% on an actual currency basis, and flat on a constant currency basis.

Additional financial highlights included:

On a GAAP basis in the fiscal third quarter of 2014:

  • Income from operations was $19.4 million compared to $9.7 million in the same quarter last year;
  • Income from continuing operations was $11.1 million compared to $7.2 million in the same quarter last year;
  • Net income was $11.1 million compared to $24.8 million in the same quarter last year; and
  • Diluted earnings per share from continuing operations was $0.22 compared to $0.13 in the same quarter last year.

On a non-GAAP basis in the fiscal third quarter of 2014:

  • Income from operations was $29.6 million compared to $21.4 million in the same quarter last year;
  • Operating margin was 37% compared to 28% in the same quarter last year;
  • Income from continuing operations was $20.0 million compared to $14.7 million in the same quarter last year; and
  • Diluted earnings per share from continuing operations was $0.39 compared to $0.27 in the same quarter last year.

Phil Pead, CEO at Progress, said, "We are pleased with our results for our third quarter. Our OpenEdge revenue growth and the continued momentum with our Pacific Platform reinforce the value that our technologies deliver to customers and partners. With another solid quarter, and the increased focus from our newly-created business units, Progress remains well positioned to achieve our goal of becoming the preferred destination for application developers."

Other fiscal third quarter 2014 metrics and recent results included:

  • Cash, cash equivalents and short-term investments were $261.3 million;
  • Cash inflows from operations were $25.9 million compared to cash outflows from operations of $1.9 million in the same quarter in fiscal year 2013;
  • DSO was 66 days, compared to 65 days in the fiscal second quarter of 2014; and
  • Under the previously announced authorization by the Board of Directors to repurchase up to $100 million of common stock, the company has repurchased 2.3 million shares for $52.6 million as of August 31, 2014.

In addition, during the third quarter of fiscal year 2014, Progress announced that it is making strategic changes to its organization to provide greater focus and agility in the delivery of next generation application development, deployment and integration solutions. Effective September 1, 2014, Progress began operating as three distinct business units: OpenEdge, Application Development and Deployment, and Data Connectivity and Integration, each with dedicated sales, product management and product marketing functions. These changes are designed to enable the business to better deliver against the fast paced requirements in the on-premise and cloud application development and data connectivity and integration markets.

Business Outlook

Progress Software provides the following guidance for the fiscal year ending November 30, 2014:

  • Revenue is expected to be between $331 million and $335 million;
  • Non-GAAP earnings per share is expected to be between $1.47 and $1.50;
  • Non-GAAP operating margin is expected to be approximately 34%;
  • Free cash flow is expected to be between $79 million and $81 million; and
  • Non-GAAP effective tax rate is expected to be between 32% and 33%.

Progress Software provides the following guidance for the fourth fiscal quarter ending November 30, 2014:

  • Revenue is expected to be between $96 million and $100 million; and
  • Non-GAAP earnings per share is expected to be between $0.44 and $0.47.

Free cash flow is equal to cash flows from operating activities less purchases of property and equipment and capitalized software development costs.

Conference Call

The Progress Software quarterly investor conference call to review its fiscal third quarter of 2014 will be broadcast live at 5:00 p.m. ET on Thursday, September 25, 2014 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 1-888-395-3227, pass code 2611858. The conference call will include 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 furnished to 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; 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 strategy and product development initiatives; (2) pricing pressures and the competitive environment in the software industry and Platform-as-a-Service market; (3) Progress's ability to successfully manage transitions to new business models and markets, including an increased emphasis on a cloud and subscription strategy; (4) Progress's ability to make 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, 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 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

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

August 31,
2014

 

August 31,
2013

  % Change

August 31,
2014

 

August 31,
2013

  % Change
Revenue:
Software licenses $ 26,393 $ 25,666 3 % $ 76,645 $ 84,920 (10 )%
Maintenance and services 52,881   51,912   2 % 157,994   158,096   %
Total revenue 79,274   77,578   2 % 234,639   243,016   (3 )%
Costs of revenue:
Cost of software licenses 1,805 1,587 14 % 4,951 5,033 (2 )%
Cost of maintenance and services 5,222 6,403 (18 )% 16,276 21,043 (23 )%
Amortization of acquired intangibles 834   529   58 % 1,893   811   133 %
Total costs of revenue 7,861   8,519   (8 )% 23,120   26,887   (14 )%
Gross profit 71,413   69,059   3 % 211,519   216,129   (2 )%
Operating expenses:
Sales and marketing 22,477 24,554 (8 )% 71,425 79,086 (10 )%
Product development 14,975 14,615 2 % 45,568 42,908 6 %
General and administrative 12,162 13,660 (11 )% 35,236 42,390 (17 )%
Amortization of acquired intangibles 116 211 (45 )% 428 549 (22 )%
Restructuring expenses 1,680 5,401 (69 )% 2,001 9,127 (78 )%
Acquisition-related expenses 572   957   (40 )% 3,148   2,229   41 %
Total operating expenses 51,982   59,398   (12 )% 157,806   176,289   (10 )%
Income from operations 19,431   9,661   101 % 53,713   39,840   35 %
Other income (expense), net (2,457 ) 177   (1,488 )% (2,581 ) (663 ) (289 )%
Income from continuing operations before income taxes 16,974   9,838   73 % 51,132   39,177   31 %
Provision for income taxes 5,879   2,634   123 % 16,138   14,018   15 %
Income from continuing operations 11,095   7,204   54 % 34,994   25,159   39 %
Income (loss) from discontinued operations, net   17,639   (100 )%   34,712   (100 )%
Net income $ 11,095   $ 24,843   (55 )% $ 34,994   $ 59,871   (42 )%
 
Earnings per share:
Basic:
Continuing operations $ 0.22 $ 0.13 69 % $ 0.69 $ 0.45 53 %
Discontinued operations   0.33   (100 )%   0.63   (100 )%
Net income per share $ 0.22   $ 0.46   (52 )% $ 0.69   $ 1.08   (36 )%
Diluted:
Continuing operations $ 0.22 $ 0.13 69 % $ 0.68 $ 0.45 51 %
Discontinued operations   0.32   (100 )%   0.62   (100 )%
Net income per share $ 0.22   $ 0.46   (52 )% $ 0.68   $ 1.06   (36 )%
Weighted average shares outstanding:
Basic 50,383 53,532 (6 )% 50,975 55,451 (8 )%
Diluted 50,931 54,389 (6 )% 51,590 56,292 (8 )%
 
 

CONDENSED CONSOLIDATED BALANCE SHEETS

 
 
(In thousands)  

August 31,
2014

 

November 30,
2013

Assets
Current assets:
Cash, cash equivalents and short-term investments $ 261,292 $ 231,440
Accounts receivable, net 57,840 66,784
Other current assets 33,550   39,587
Total current assets 352,682   337,811
Property and equipment, net 59,176 57,030
Goodwill and intangible assets, net 245,816 234,236
Other assets 18,970   53,110
Total assets $ 676,644   $ 682,187
Liabilities and shareholders' equity
Current liabilities:
Accounts payable and other current liabilities $ 55,090 $ 68,186
Short-term deferred revenue 93,086   96,393
Total current liabilities 148,176   164,579
Long-term deferred revenue 2,193 1,144
Other long-term liabilities 1,998 2,810
Shareholders' equity:
Common stock and additional paid-in capital 200,681 205,307
Retained earnings 323,596   308,347
Total shareholders' equity 524,277   513,654
Total liabilities and shareholders' equity $ 676,644   $ 682,187
 
 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 
 
  Three Months Ended   Nine Months Ended
(In thousands) August 31,
2014
  August 31,
2013
August 31,
2014
  August 31,
2013
Cash flows from operating activities:
Net income $ 11,095 $ 24,843 $ 34,994 $ 59,871
Depreciation and amortization 3,938 3,897 10,985 11,374
Stock-based compensation 6,940 5,573 18,194 16,360
Net gains on sales of dispositions (35,885 ) (70,991 )
Other non-cash adjustments 1,856 2,648 2,232 447
Changes in operating assets and liabilities 2,099   (2,937 ) 2,064   (30,340 )
Net cash flows from operating activities 25,928   (1,861 ) 68,469   (13,279 )
Capital expenditures (2,154 ) (603 ) (10,191 ) (2,989 )
Redemptions and sales of auction-rate-securities 26,196 26,196 25
Issuances of common stock, net of repurchases (13,795 ) (47,981 ) (41,890 ) (192,075 )
Payments of acquisitions, net of cash acquired (12,493 ) (9,450 )
Proceeds from divestitures, net 37,739 3,300 111,120
Other (1,459 ) (1,116 ) (3,539 ) (6,587 )
Net change in cash, cash equivalents and short-term investments 34,716   (13,822 ) 29,852   (113,235 )
Cash, cash equivalents and short-term investments, beginning of period 226,576   255,804   231,440   355,217  
Cash, cash equivalents and short-term investments, end of period $ 261,292   $ 241,982   $ 261,292   $ 241,982  
 
 

SUPPLEMENTAL INFORMATION

 
 
Revenue from continuing operations by Type        
     
(In thousands) Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 YTD 2014 YTD 2013
License $ 25,666 $ 37,392 $ 22,264 $ 27,988 $ 26,393 $ 76,645 $ 84,920
Maintenance 49,752 51,230 50,181 50,305 50,746 151,232 151,627
Professional services 2,160   2,358   2,093   2,534   2,135   6,762   6,469
Total revenue $ 77,578   $ 90,980   $ 74,538   $ 80,827   $ 79,274   $ 234,639   $ 243,016
 
Revenue from continuing operations by Region
 
(In thousands) Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 YTD 2014 YTD 2013
North America $ 34,596 $ 42,833 $ 34,586 $ 36,827 $ 35,654 $ 107,067 $ 111,445
EMEA 32,315 35,256 29,315 33,698 32,995 96,008 98,344
Latin America 5,496 6,526 5,108 5,703 5,695 16,506 18,844
Asia Pacific 5,171   6,365   5,529   4,599   4,930   15,058   14,383
Total revenue $ 77,578   $ 90,980   $ 74,538   $ 80,827   $ 79,274   $ 234,639   $ 243,016
 
 

RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES

 
 
  Three Months Ended   Nine Months Ended
(In thousands, except per share data) August 31,
2014
  August 31,
2013
August 31,
2014
  August 31,
2013
GAAP income from operations $ 19,431 $ 9,661 $ 53,713 $ 39,840
GAAP operating margin 25 % 12 % 23 % 16 %
Amortization of acquired intangibles 950 740 2,321 1,360
Stock-based compensation (1) 6,940 4,600 18,194 14,070
Restructuring expenses 1,680 5,401 2,001 9,127
Acquisition-related expenses 572   957   3,148   2,229  
Total operating adjustments 10,142   11,698   25,664   26,786  
Non-GAAP income from operations $ 29,573   $ 21,359   $ 79,377   $ 66,626  
Non-GAAP operating margin 37 % 28 % 34 % 27 %
 
GAAP income from continuing operations $ 11,095 $ 7,204 $ 34,994 $ 25,159
Operating adjustments (from above) 10,142 11,698 25,664 26,786
Realized loss on sales of auction-rate-securities 2,554 2,554
Income tax adjustment (3,748 ) (4,230 ) (9,387 ) (8,399 )
Total income from continuing operations adjustments 8,948   7,468   18,831   18,387  
Non-GAAP income from continuing operations $ 20,043   $ 14,672   $ 53,825   $ 43,546  
 
GAAP diluted earnings per share from continuing operations $ 0.22 $ 0.13 $ 0.68 $ 0.45
Income from continuing operations adjustments (from above) 0.18   0.14   0.37   0.33  
Non-GAAP diluted earnings per share from continuing operations $ 0.39   $ 0.27   $ 1.04   $ 0.77  
 
Diluted weighted average shares outstanding 50,931 54,389 51,590 56,292
 
 
(1) Stock-based compensation is included in the GAAP statements of income, as follows:
 
Cost of revenue $ 141 $ 133 $ 439 $ 500
Sales and marketing 1,546 748 3,736 2,668
Product development 1,407 999 4,186 3,687
General and administrative 3,846   2,720   9,833   7,215  
Stock-based compensation from continuing operations $ 6,940   $ 4,600   $ 18,194   $ 14,070  
 
 
Three Months Ended Nine Months Ended
(In thousands, except per share data)

August 31,
2014

August 31,
2013

August 31,
2014

August 31,
2013

GAAP costs of revenue $ 7,861 $ 8,519 $ 23,120 $ 26,887
GAAP operating expenses 51,982   59,398   157,806   176,289
GAAP expenses 59,843   67,917   180,926   203,176
Operating adjustments (from above) 10,142   11,698   25,664   26,786
Non-GAAP expenses $ 49,701   $ 56,219   $ 155,262   $ 176,390
 

RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES FOR FISCAL YEAR 2014 GUIDANCE

(Unaudited)

 
 
Fiscal Year 2014 Revenue Growth Guidance  
Fiscal Year Ended   Fiscal Year Ending
November 30, 2013 November 30, 2014
(In millions)   Low   % Change   High   % Change
Total revenue $334 $331 (1)% $335 —%
 
 
Fiscal Year 2014 Non-GAAP Operating Margin Guidance
  Fiscal Year Ending November 30, 2014
(In millions) Low   High
GAAP income from operations $ 77.4 $ 78.8
GAAP operating margins 23 % 24 %
Restructuring expense 2.5 2.5
Stock-based compensation 23.3 23.3
Acquisition related expense 3.5 3.5
Amortization of intangibles 3.2 3.2
Realized loss on sale of auction rate securities 2.6   2.6  
Total operating adjustments 35.1   35.1  
Non-GAAP income from operations $ 112.5   $ 113.9  
Non-GAAP operating margin 34 % 34 %
 
 
Fiscal Year 2014 Non-GAAP Earnings per Share and Effective Tax Rate Guidance
  Fiscal Year Ending November 30, 2014
(In millions, except per share data) Low   High
GAAP net income $ 51.2 $ 51.3
Operating adjustments (from above) 35.1 35.1
Income tax adjustment (2) (9.8 ) (10.1 )
Non-GAAP net income $ 76.5   $ 76.3  
 
GAAP diluted earnings per share $ 0.98 $ 1.01
Non-GAAP diluted earnings per share $ 1.47 $ 1.50
 
Diluted weighted average shares outstanding 52.0 51.0
 
(2) Tax adjustment is based on a non-GAAP effective tax rate of 32% for Low and 33% for High, calculated as follows:
 
Non-GAAP income from operations $ 112.5 $ 113.9
Non-GAAP net income 76.5   76.3  
Tax provision 36.0   37.6  
Non-GAAP tax rate 32 % 33 %
 

RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES FOR Q4 2014 GUIDANCE

(Unaudited)

 
 
Q4 2014 Revenue Growth Guidance  
Three Months Ended   Three Months Ending
November 30, 2013 November 30, 2014
(In millions)   Low   % Change   High   % Change
Total revenue $91 $96 6% $100 10%
 
 
Q4 2014 Non-GAAP Earnings per Share Guidance
  Three Months Ending November 30, 2014
Low   High
GAAP diluted earnings per share $ 0.31 $ 0.34
Restructuring expense 0.01 0.01
Stock-based compensation 0.10 0.10
Acquisition related expense 0.01 0.01
Amortization of intangibles 0.02   0.02  
Total operating adjustments 0.14   0.14  
Income tax adjustment $ (0.01 ) $ (0.01 )
Non-GAAP diluted earnings per share $ 0.44   $ 0.47  

Investor Contact:
Progress Software
Brian Flanagan, +1 781-280-4817
flanagan@progress.com
or
Press Contact:
Progress Software
Jill Adams, +1 781-280-4474
jiadams@progress.com

Source: Progress Software Corporation

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