Press Release

BEDFORD, Mass.--(BUSINESS WIRE)-- Progress (NASDAQ: PRGS) today announced results for its fiscal second quarter ended May 31, 2016.

Revenue was $96.1 million during the quarter compared to $88.8 million in the same quarter last year, a year over year increase of 8% on an actual currency basis and 9% on a constant currency basis. On a non-GAAP basis, revenue was $96.7 million during the quarter compared to $100.9 million in the same quarter last year, a decrease of 4% on an actual currency basis and 3% on a constant currency basis.

Additional financial highlights included:

On a GAAP basis in the fiscal second quarter of 2016:

• Revenue was $96.1 million compared to $88.8 million in the same quarter in fiscal year 2015;
• Income from operations was $12.3 million compared to a loss from operations of $2.7 million in the same quarter last year;
• Net income was $7.3 million compared to $5.8 million in the same quarter last year;
• Diluted earnings per share was $0.14 compared to $0.11 in the same quarter last year; and
• Cash from operations was $26.8 million compared to $20.8 million in the same quarter last year.

On a non-GAAP basis in the fiscal second quarter of 2016:

• Revenue was $96.7 million compared to $100.9 million in the same quarter last year;
• Income from operations was $27.0 million compared to $27.8 million in the same quarter last year;
• Operating margin was 28% compared to 28% in the same quarter last year;
• Net income was $16.4 million compared to $18.1 million in the same quarter last year;
• Diluted earnings per share was $0.33 compared to $0.35 in the same quarter last year; and
• Adjusted free cash flow was $26.4 million compared to $18.8 million in the same quarter last year.

Phil Pead, CEO at Progress, said, "We are pleased with our second quarter performance. We had another solid quarter from our OpenEdge partners, strong growth from our data products and increased momentum in our Telerik bookings. We also announced our Digital Factory solutions during the quarter, which will enable us to take advantage of the longer-term growth opportunities available in the digital transformation market."

Other fiscal second quarter 2016 metrics and recent results included:

• Cash, cash equivalents and short-term investments were $229.1 million at the end of the quarter;
• DSO was 45 days, compared to 50 days in the fiscal second quarter of 2015; and
• Under the previously announced authorization by the Board of Directors to repurchase up to $200 million of shares of common stock, Progress repurchased 1.9 million shares for $48.3 million during the fiscal second quarter of 2016.

Business Outlook

Progress provides the following guidance for the fiscal year ending November 30, 2016 and the third fiscal quarter ending August 31, 2016:

(In millions, except percentages and per share amounts)					FY 2016 GAAP				FY 2016 Non-GAAP				Q3 2016 GAAP				Q3 2016 Non-GAAP
Revenue					$410 - $416				$412 - $418				$103 - $106				$103 - $106
Earnings per share					$0.63 - $0.68				$1.57 - $1.63				$0.17 - $0.20				$0.43 - $0.46
Operating margin					15% - 16%				29% - 30%				*				*
Adjusted free cash flow					*				$80 - $85				*				*
Effective tax rate					45%				32% - 33%				*				*
*We do not provide guidance for this financial measure.

Progress' fiscal 2016 financial guidance is based on current exchange rates. The negative currency translation impact on Progress' fiscal year 2016 business outlook compared to 2015 exchange rates is approximately $6.0 million to $7.0 million on non-GAAP revenue and $0.03 to $0.04 on non-GAAP earnings per share. The negative currency translation impact on Progress' fiscal Q3 2016 business outlook compared to 2015 exchange rates is approximately $1.5 million on non-GAAP revenue and $0.01 on non-GAAP earnings per share. To the extent that there are further changes in exchange rates versus the current environment, this may have an additional impact on Progress' business outlook.

Conference Call

The Progress quarterly investor conference call to review its fiscal second quarter of 2016 will be broadcast live at 5:00 p.m. ET on Wednesday, June 29, 2016 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 1-877-440-5788, pass code 1530142. 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 website within the investor relations section after the live conference call.

Non-GAAP Financial Information

Progress provides non-GAAP supplemental information to its financial results.

We use this non-GAAP information to evaluate our period-over-period operating performance because our management believes the information helps illustrate underlying trends in our business and provides us with a more comparable measure of our continuing business, as well as a greater understanding of the results from the primary operations of our business, by excluding the effects of certain items that do not reflect the ordinary earnings of our operations. Management also uses this non-GAAP financial information to establish budgets and operational goals, which are communicated internally and externally, evaluate performance, and allocate resources. In addition, compensation of our executives and non-executive employees is based in part on the performance of our business evaluated using this same non-GAAP information.

However, this non-GAAP information is not in accordance with, or an alternative to, generally accepted accounting principles in the United States (GAAP) and should be considered in conjunction with our GAAP results as the items excluded from the non-GAAP information often have a material impact on Progress' financial results. A reconciliation of non-GAAP adjustments to Progress' 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.

As described in more detail below, non-GAAP revenue, non-GAAP costs of sales and operating expenses, non-GAAP income from operations and operating margin, non-GAAP net income, and non-GAAP diluted earnings per share exclude the effect of purchase accounting on the fair value of acquired deferred revenue, amortization of acquired intangible assets, stock-based compensation expense, restructuring charges, acquisition-related expenses, certain identified non-operating gains and losses, and the related tax effects of the preceding items. We also provide guidance on adjusted free cash flow, which is equal to cash flows from operating activities less purchases of property and equipment and capitalized software development costs, plus restructuring payments.

In the noted fiscal periods, we adjusted for the following items from our GAAP financial results to arrive at our non-GAAP financial measures:

• Acquisition-related revenue - In all periods presented, we include acquisition-related revenue, which constitutes revenue reflected as pre-acquisition deferred revenue by Telerik AD ("Telerik") that would otherwise have been recognized but for the purchase accounting treatment of the acquisition of Telerik. We acquired Telerik on December 2, 2014. Since GAAP accounting requires the elimination of this revenue, GAAP results alone do not fully capture all of our economic activities. We believe these adjustments are useful to management and investors as a measure of the ongoing performance of the business because, although we cannot be certain that customers will renew their contracts, we (and Telerik) have historically experienced high renewal rates on maintenance and support agreements and other customer contracts. Additionally, although acquisition-related revenue adjustments are non-recurring with respect to past acquisitions, we expect to incur these adjustments in connection with any future acquisitions.
• Amortization of acquired intangibles - In all periods presented, we exclude amortization of acquired intangibles because those expenses are unrelated to our core operating performance and the intangible assets acquired vary significantly based on the timing and magnitude of our acquisition transactions and the maturities of the businesses acquired.
• Stock-based compensation - In all periods presented, we exclude stock-based compensation to be consistent with the way management and the financial community evaluates our performance and the methods used by analysts to calculate consensus estimates. The expense related to stock-based awards is generally not controllable in the short-term and can vary significantly based on the timing, size and nature of awards granted. As such, we do not include these charges in operating plans. Stock-based compensation will continue in future periods.
• Restructuring expenses - In all periods presented, we exclude restructuring expenses incurred because those expenses distort trends and are not part of our core operating results.
• Acquisition-related and transition expenses - In all periods presented, we exclude acquisition-related expenses because those expenses distort trends and are not part of our core operating results. In recent years, we have completed a number of acquisitions, which result in our incurring operating expenses which would not otherwise have been incurred. By excluding certain transition, integration and other acquisition-related expense items in connection with acquisitions, this provides more meaningful comparisons of the financial results to our historical operations and forward looking guidance and the financial results of less acquisitive peer companies. We consider these types of costs and adjustments, to a great extent, to be unpredictable and dependent on a significant number of factors that are outside of our control. Furthermore, we do not consider these acquisition-related costs and adjustments to be related to the organic continuing operations of the acquired businesses and are generally not relevant to assessing or estimating the long-term performance of the acquired assets. In addition, the size, complexity and/or volume of past acquisitions, which often drives the magnitude of acquisition related costs, may not be indicative of the size, complexity and/or volume of future acquisitions.
• Income tax adjustment - In all periods presented, we adjust our income tax provision by excluding the tax impact of the non-GAAP adjustments discussed above. In addition, in the current period, we adjusted our income tax provision to remove from non-GAAP income the positive impact of an out-of-period adjustment recorded to the income tax provision during the fiscal second quarter of 2016.

Constant Currency

Revenue from our international operations has historically represented approximately half of our total revenue. As a result, our revenue results have been impacted, and we expect will continue to be impacted, by fluctuations in foreign currency exchange rates. For example, if the local currencies of our foreign subsidiaries weaken, our consolidated results stated in U.S. dollars are negatively impacted.

As exchange rates are an important factor in understanding period to period comparisons, we present revenue growth rates on a constant currency basis, which helps improve the understanding of our revenue results and our performance in comparison to prior periods. The constant currency information presented is calculated by translating current period results using prior period weighted average foreign currency exchange rates. These results should be considered in addition to, not as a substitute for, results reported in accordance with GAAP.

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, including the uncertain economic environment in Europe as a result of the recent Brexit vote, and the continued difficult economic environment in Brazil and other parts of the world, 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 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, 2015. 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) is a global leader in application development, empowering the digital transformation organizations need to create and sustain engaging user experiences in today's evolving marketplace. With offerings spanning web, mobile and data for on-premise and cloud environments, Progress powers startups and industry titans worldwide, promoting success one customer at a time. Learn about Progress 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 OPERATIONS
				Three Months Ended														Six Months Ended
(In thousands, except per share data)				May 31, 2016					May 31, 2015					% Change				May 31, 2016					May 31, 2015					% Change
Revenue:
Software licenses				$	28,787				$	28,722				—	%			$	52,742				$	53,953				(2	)%
Maintenance and services				67,331					60,095					12	%			132,857					116,245					14	%
Total revenue				96,118					88,817					8	%			185,599					170,198					9	%
Costs of revenue:
Cost of software licenses				1,233					1,365					(10	)%			2,715					3,085					(12	)%
Cost of maintenance and services				11,063					10,288					8	%			21,392					21,563					(1	)%
Amortization of acquired intangibles				3,939					4,093					(4	)%			7,878					8,726					(10	)%
Total costs of revenue				16,235					15,746					3	%			31,985					33,374					(4	)%
Gross profit				79,883					73,071					9	%			153,614					136,824					12	%
Operating expenses:
Sales and marketing				29,138					31,852					(9	)%			58,796					62,602					(6	)%
Product development				22,297					22,290					—	%			44,094					45,111					(2	)%
General and administrative				12,264					13,673					(10	)%			24,644					27,988					(12	)%
Amortization of acquired intangibles				3,185					3,171					—	%			6,370					6,373					—	%
Restructuring expenses				331					3,810					(91	)%			265					6,153					(96	)%
Acquisition-related expenses				324					1,010					(68	)%			396					2,518					(84	)%
Total operating expenses				67,539					75,806					(11	)%			134,565					150,745					(11	)%
Income (loss) from operations				12,344					(2,735		)			551	%			19,049					(13,921		)			237	%
Other expense, net				(1,361		)			(1,025		)			33	%			(3,186		)			(93		)			3,326	%
Income (loss) before income taxes				10,983					(3,760		)			392	%			15,863					(14,014		)			213	%
Provision (benefit) for income taxes				3,708					(9,529		)			(139	)%			5,372					(18,812		)			(129	)%
Net income				$	7,275				$	5,769				26	%			$	10,491				$	4,798				119	%
Earnings per share:
Basic				$	0.15				$	0.11				36	%			$	0.21				$	0.10				110	%
Diluted				$	0.14				$	0.11				27	%			$	0.21				$	0.09				133	%
Weighted average shares outstanding:
Basic				49,873					50,342					(1	)%			50,341					50,505					—	%
Diluted				50,354					51,085					(1	)%			50,897					51,224					(1	)%

CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)				May 31, 2016						November 30, 2015
Assets
Current assets:
Cash, cash equivalents and short-term investments				$	229,109					$	241,279
Accounts receivable, net				48,294						66,459
Other current assets				21,970						15,671
Total current assets				299,373						323,409
Property and equipment, net				51,760						54,226
Goodwill and intangible assets, net				469,888						484,098
Other assets				13,209						15,390
Total assets				$	834,230					$	877,123
Liabilities and shareholders' equity
Current liabilities:
Accounts payable and other current liabilities				$	51,168					$	65,314
Current portion of long-term debt				11,250						9,375
Short-term deferred revenue				133,006						125,227
Total current liabilities				195,424						199,916
Long-term deferred revenue				9,229						8,844
Long-term debt				127,500						135,000
Other long-term liabilities				10,674						10,899
Shareholders' equity:
Common stock and additional paid-in capital				231,043						227,930
Retained earnings				260,360						294,534
Total shareholders' equity				491,403						522,464
Total liabilities and shareholders' equity				$	834,230					$	877,123

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
					Three Months Ended												Six Months Ended
(In thousands)					May 31, 2016						May 31, 2015						May 31, 2016						May 31, 2015
Cash flows from operating activities:
Net income					$	7,275					$	5,769					$	10,491					$	4,798
Depreciation and amortization					9,969						10,360						19,909						21,495
Stock-based compensation					6,293						6,439						13,231						12,275
Other non-cash adjustments					1,691						(7,509		)				977						(25,408		)
Changes in operating assets and liabilities					1,532						5,732						4,654						44,771
Net cash flows from operating activities					26,760						20,791						49,262						57,931
Capital expenditures					(1,204		)				(3,147		)				(2,617		)				(5,788		)
Issuances of common stock, net of repurchases					(47,137		)				(22,023		)				(52,509		)				(26,512		)
Payments for acquisitions					—						—						—						(246,275		)
Proceeds from the issuance of debt, net of payments of principle and debt issuance costs					(1,875		)				(1,875		)				(5,625		)				144,543
Proceeds from divestitures, net					—						—						—						4,500
Other					1,074						(5,789		)				(681		)				(12,546		)
Net change in cash, cash equivalents and short-term investments					(22,382		)				(12,043		)				(12,170		)				(84,147		)
Cash, cash equivalents and short-term investments, beginning of period					251,491						211,164						241,279						283,268
Cash, cash equivalents and short-term investments, end of period					$	229,109					$	199,121					$	229,109					$	199,121

RESULTS OF OPERATIONS BY SEGMENT
					Three Months Ended																	Six Months Ended
(In thousands)					May 31, 2016						May 31, 2015						% Change					May 31, 2016						May 31, 2015					% Change
Segment revenue:
OpenEdge					$	66,928					$	71,906					(7	)%				$	131,061					$	141,377				(7	)%
Data Connectivity and Integration					10,005						7,275						38	%				16,601						14,388					15	%
Application Development and Deployment					19,185						9,636						99	%				37,937						14,433					163	%
Total revenue					96,118						88,817						8	%				185,599						170,198					9	%
Segment costs of revenue and operating expenses:
OpenEdge					17,296						18,446						(6	)%				35,360						37,980					(7	)%
Data Connectivity and Integration					3,134						3,133						—	%				6,035						6,383					(5	)%
Application Development and Deployment					9,724						10,851						(10	)%				18,535						20,235					(8	)%
Total costs of revenue and operating expenses					30,154						32,430						(7	)%				59,930						64,598					(7	)%
Segment contribution:
OpenEdge					49,632						53,460						(7	)%				95,701						103,397					(7	)%
Data Connectivity and Integration					6,871						4,142						66	%				10,566						8,005					32	%
Application Development and Deployment					9,461						(1,215		)				879	%				19,402						(5,802		)			434	%
Total contribution					65,964						56,387						17	%				125,669						105,600					19	%
Other unallocated expenses (1)					53,620						59,122						(9	)%				106,620						119,521					(11	)%
Income (loss) from operations					12,344						(2,735		)				551	%				19,049						(13,921		)			237	%
Other expense, net					(1,361		)				(1,025		)				33	%				(3,186		)				(93		)			3,326	%
Income (loss) before provision for income taxes					$	10,983					$	(3,760	)				392	%				$	15,863					$	(14,014	)			213	%

(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: product development, corporate marketing, administration, amortization of acquired intangibles, stock-based compensation, restructuring, and acquisition related expenses.

SUPPLEMENTAL INFORMATION
Revenue by Type
(In thousands)				Q2 2015						Q3 2015						Q4 2015						Q1 2016						Q2 2016
License				$	28,722					$	31,840					$	44,457					$	23,955					$	28,787
Maintenance				52,656						55,365						60,458						58,336						59,485
Services				7,439						7,432						7,803						7,190						7,846
Total revenue				$	88,817					$	94,637					$	112,718					$	89,481					$	96,118
Revenue by Region
(In thousands)				Q2 2015						Q3 2015						Q4 2015						Q1 2016						Q2 2016
North America				$	47,520					$	49,810					$	68,112					$	49,065					$	53,392
EMEA				31,146						30,656						34,504						31,221						31,577
Latin America				4,388						4,621						3,617						3,693						4,389
Asia Pacific				5,763						9,550						6,485						5,502						6,760
Total revenue				$	88,817					$	94,637					$	112,718					$	89,481					$	96,118
Revenue by Segment
(In thousands)				Q2 2015						Q3 2015						Q4 2015						Q1 2016						Q2 2016
OpenEdge				$	71,906					$	73,398					$	81,159					$	64,133					$	66,928
Data Connectivity and Integration				7,275						8,281						15,257						6,596						10,005
Application Development and Deployment				9,636						12,958						16,302						18,752						19,185
Total revenue				$	88,817					$	94,637					$	112,718					$	89,481					$	96,118

RECONCILIATIONS OF GAAP TO NON-GAAP SELECTED FINANCIAL MEASURES - QTD
				Three Months Ended May 31,																								% Change
				2016												2015
(In thousands, except per share data)				GAAP				Adj.				Non- GAAP				GAAP				Adj.				Non- GAAP				Non- GAAP
TOTAL REVENUE				$	96,118			$	564			$	96,682			$	88,817			$	12,034			$	100,851			(4	)%
Software licenses (1)				28,787				93				28,880				28,722				3,018				31,740				(9	)%
Maintenance and services (1)				67,331				471				67,802				60,095				9,016				69,111				(2	)%
TOTAL COSTS OF REVENUE				$	16,235			$	(4,119	)		$	12,116			$	15,746			$	(4,247	)		$	11,499			5	%
Amortization of acquired intangibles				3,939				(3,939		)		—				4,093				(4,093		)		—
Stock-based compensation (2)				180				(180		)		—				154				(154		)		—
GROSS MARGIN %				83		%						87		%		82		%						89		%		(2	)%
TOTAL OPERATING EXPENSES				$	67,539			$	(9,953	)		$	57,586			$	75,806			$	(14,276	)		$	61,530			(6	)%
Amortization of acquired intangibles				3,185				(3,185		)		—				3,171				(3,171		)		—
Restructuring expenses				331				(331		)		—				3,810				(3,810		)		—
Acquisition-related expenses				324				(324		)		—				1,010				(1,010		)		—
Stock-based compensation (2)				6,113				(6,113		)		—				6,285				(6,285		)		—
INCOME (LOSS) FROM OPERATIONS				$	12,344			$	14,636			$	26,980			$	(2,735	)		$	30,557			$	27,822			(3	)%
OPERATING MARGIN				13		%						28		%		(3		)%						28		%		—	%
TOTAL OTHER EXPENSE, NET				$	(1,361	)		$	—			$	(1,361	)		$	(1,025	)		$	—			$	(1,025	)		33	%
PROVISION (BENEFIT) FOR INCOME TAXES (3)				$	3,708			$	5,478			$	9,186			$	(9,529	)		$	18,198			$	8,669			6	%
NET INCOME				$	7,275			$	9,158			$	16,433			$	5,769			$	12,359			$	18,128			(9	)%
DILUTED EARNINGS PER SHARE				$	0.14			$	0.19			$	0.33			$	0.11			$	0.24			$	0.35			(6	)%
WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED				50,354				—				50,354				51,085				—				51,085				(1	)%
(1) Adjustments to revenue relate to acquisition-related revenue, which constitutes revenue reflected as pre-acquisition deferred revenue by Telerik that would otherwise have been recognized but for the purchase accounting treatment of the acquisition of Telerik. 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 entirely relate to Progress' Application Development and Deployment business unit.
(2) Stock-based compensation is included in the GAAP statements of income, as follows:
Cost of revenue				180												154
Sales and marketing				962												1,488
Product development				2,397												1,062
General and administrative				2,754												3,735
Total				$	6,293											$	6,439
(3) In the current period, the Company identified an error in its prior year income tax provision whereby income tax expense was overstated for the year ended November 30, 2015 related to the Company's tax treatment of an intercompany gain. We corrected this error by recording an out of period $2.7 million tax benefit in its quarter ended May 31, 2016 financial statements. We adjusted our income tax provision to remove from non-GAAP income the positive impact of this out-of-period adjustment.

RECONCILIATIONS OF GAAP TO NON-GAAP SELECTED FINANCIAL MEASURES - YTD
				Six Months Ended May 31,																																			% Change
				2016																	2015
(In thousands, except per share data)				GAAP						Adj.					Non- GAAP						GAAP						Adj.						Non- GAAP						Non- GAAP
TOTAL REVENUE				$	185,599					$	1,321				$	186,920					$	170,198					$	26,107					$	196,305					(5	)%
Software licenses (1)				52,742						208					52,950						53,953						6,764						60,717						(13	)%
Maintenance and services (1)				132,857						1,113					133,970						116,245						19,343						135,588						(1	)%
TOTAL COSTS OF REVENUE				$	31,985					$	(8,255	)			$	23,730					$	33,374					$	(9,045	)				$	24,329					(2	)%
Amortization of acquired intangibles				7,878						(7,878		)			—						8,726						(8,726		)				—
Stock-based compensation (2)				376						(376		)			—						319						(319		)				—
GROSS MARGIN %				83		%									87		%				80		%										88		%				(1	)%
TOTAL OPERATING EXPENSES				$	134,565					$	(19,888	)			$	114,677					$	150,745					$	(27,000	)				$	123,745					(7	)%
Amortization of acquired intangibles				6,370						(6,370		)			—						6,373						(6,373		)				—
Restructuring expenses				265						(265		)			—						6,153						(6,153		)				—
Acquisition-related expenses				396						(396		)			—						2,518						(2,518		)				—
Stock-based compensation (2)				12,855						(12,855		)			—						11,956						(11,956		)				—
INCOME (LOSS) FROM OPERATIONS				$	19,049					$	29,464				$	48,513					$	(13,921	)				$	62,152					$	48,231					1	%
OPERATING MARGIN				10		%									26		%				(8		)%										25		%				1	%
TOTAL OTHER (EXPENSE) INCOME, NET (3)				$	(3,186	)				$	—				$	(3,186	)				$	(93	)				$	266					$	173					(1,942	)%
PROVISION (BENEFIT) FOR INCOME TAXES (4)				$	5,372					$	9,736				$	15,108					$	(18,812	)				$	33,950					$	15,138					—	%
NET INCOME				$	10,491					$	19,728				$	30,219					$	4,798					$	28,468					$	33,266					(9	)%
DILUTED EARNINGS PER SHARE				$	0.21					$	0.38				$	0.59					$	0.09					$	0.56					$	0.65					(9	)%
WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED				50,897						—					50,897						51,224						—						51,224						(1	)%
(1) Adjustments to revenue relate to acquisition-related revenue, which constitutes revenue reflected as pre-acquisition deferred revenue by Telerik that would otherwise have been recognized but for the purchase accounting treatment of the acquisition of Telerik. 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 entirely relate to Progress' Application Development and Deployment business unit.
(2) Stock-based compensation is included in the GAAP statements of income, as follows:
Cost of revenue				376																	319
Sales and marketing				2,041																	2,725
Product development				5,077																	2,564
General and administrative				5,737																	6,667
Total				$	13,231																$	12,275
(3) In the prior year period, the adjustment to other income (expense), net relates to the termination of Progress' prior revolving credit facility in connection with entering into the new credit facility. Upon termination, the outstanding debt issuance costs related to the prior revolving credit facility were written off to other income (expense) in the GAAP statements of income.
(4) In the current period, the Company identified an error in its prior year income tax provision whereby income tax expense was overstated for the year ended November 30, 2015 related to the Company's tax treatment of an intercompany gain. We corrected this error by recording an out of period $2.7 million tax benefit in its quarter ended May 31, 2016 financial statements. We adjusted our income tax provision to remove from non-GAAP income the positive impact of this out-of-period adjustment.

OTHER NON-GAAP FINANCIAL MEASURES - QTD
Revenue by Type
(In thousands)				Q2 2016						Non-GAAP Adjustment (1)						Non-GAAP Revenue
License				$	28,787					$	93					$	28,880
Maintenance				59,485						471						59,956
Services				7,846						—						7,846
Total revenue				$	96,118					$	564					$	96,682
Revenue by Region
(In thousands)				Q2 2016						Non-GAAP Adjustment (1)						Non-GAAP Revenue
North America				$	53,392					$	490					$	53,882
EMEA				31,577						60						31,637
Latin America				4,389						2						4,391
Asia Pacific				6,760						12						6,772
Total revenue				$	96,118					$	564					$	96,682
Revenue by Segment
(In thousands)				Q2 2016						Non-GAAP Adjustment (1)						Non-GAAP Revenue
OpenEdge				$	66,928					$	—					$	66,928
Data Connectivity and Integration				10,005						—						10,005
Application Development and Deployment				19,185						564						19,749
Total revenue				$	96,118					$	564					$	96,682
(1) Adjustments to revenue relate to acquisition-related revenue, which constitutes revenue reflected as pre-acquisition deferred revenue by Telerik that would otherwise have been recognized but for the purchase accounting treatment of the acquisition of Telerik. 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 entirely relate to Progress' Application Development and Deployment business unit.
Adjusted Free Cash Flow
(In thousands)				Q2 2016						Q2 2015						% Change
Cash flows from operations				$	26,760					$	20,791					29		%
Purchases of property and equipment				$	(1,204	)				$	(2,070	)				(42		)%
Capitalized software development costs				$	—					$	(1,077	)				(100		)%
Free cash flow				$	25,556					$	17,644					45		%
Add back: restructuring payments				$	891					$	1,189					(25		)%
Adjusted free cash flow				$	26,447					$	18,833					40		%

OTHER NON-GAAP FINANCIAL MEASURES - YTD
Revenue by Type
(In thousands)				YTD 2016						Non-GAAP Adjustment (1)						Non-GAAP Revenue
License				$	52,742					$	208					$	52,950
Maintenance				117,821						1,113						118,934
Services				15,036						—						15,036
Total revenue				$	185,599					$	1,321					$	186,920
Revenue by Region
(In thousands)				YTD 2016						Non-GAAP Adjustment (1)						Non-GAAP Revenue
North America				$	102,457					$	1,150					$	103,607
EMEA				62,798						140						62,938
Latin America				8,082						4						8,086
Asia Pacific				12,262						27						12,289
Total revenue				$	185,599					$	1,321					$	186,920
Revenue by Segment
(In thousands)				YTD 2016						Non-GAAP Adjustment (1)						Non-GAAP Revenue
OpenEdge				$	131,061					$	—					$	131,061
Data Connectivity and Integration				16,601						—						16,601
Application Development and Deployment				37,937						1,321						39,258
Total revenue				$	185,599					$	1,321					$	186,920
(1) Adjustments to revenue relate to acquisition-related revenue, which constitutes revenue reflected as pre-acquisition deferred revenue by Telerik that would otherwise have been recognized but for the purchase accounting treatment of the acquisition of Telerik. 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 entirely relate to Progress' Application Development and Deployment business unit.
Adjusted Free Cash Flow
(In thousands)				YTD 2016						YTD Q2 2015						% Change
Cash flows from operations				$	49,262					$	57,931					(15		)%
Purchases of property and equipment				$	(2,617	)				$	(4,405	)				(41		)%
Capitalized software development costs				$	—					$	(1,383	)				(100		)%
Free cash flow				$	46,645					$	52,143					(11		)%
Add back: restructuring payments				$	2,483					$	2,444					2		%
Adjusted free cash flow				$	49,128					$	54,587					(10		)%

Non-GAAP Bookings from Application Development and Deployment Segment
(In thousands)				Q1 2015						Q2 2015						Q3 2015						Q4 2015						FY 2015						Q1 2016						Q2 2016
GAAP revenue				$	4,797					$	9,636					$	12,958					$	16,302					$	43,693					$	18,752					$	19,185
Add: change in deferred revenue
Beginning balance				108						23,081						33,440						41,012						108						49,252						49,237
Ending balance				23,081						33,440						41,012						49,252						49,252						49,237						51,693
Change in deferred revenue				22,973						10,359						7,572						8,240						49,144						(15		)				2,456
Less: acquired deferred revenue balance from Telerik				(7,915		)				—						—						—						(7,915		)				—						—
Non-GAAP bookings				$	19,855					$	19,995					$	20,530					$	24,542					$	84,922					$	18,737					$	21,641

SaaS Revenue (Hosted Services) from Application Development and Deployment Segment
(In thousands)				Q1 2015				Q2 2015				Q3 2015					Q4 2015				FY 2015				Q1 2016				Q2 2016
SaaS Revenue - Application Development and Deployment				567				713				765					975				3,020				1,071				1,079

RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES FOR FISCAL YEAR 2016 GUIDANCE (Unaudited)
Fiscal Year 2016 Revenue Growth Guidance
				Fiscal Year Ended					Fiscal Year Ending
				November 30, 2015					November 30, 2016
(In millions)									Low					% Change				High					% Change
GAAP revenue				$	377.6				$	410.0				9	%			$	416.0				10	%
Acquisition-related adjustments - revenue (1)				$	34.8				$	2.0				(94	)%			$	2.0				(94	)%
Non-GAAP revenue				$	412.4				$	412.0				—	%			$	418.0				1	%

(1) Acquisition-related revenue constitutes revenue reflected as pre-acquisition deferred revenue by Telerik that would otherwise have been recognized but for the purchase accounting treatment of the acquisition of Telerik. Since GAAP accounting requires the elimination of this revenue, GAAP results alone do not fully capture all of our economic activities.

Fiscal Year 2016 Non-GAAP Operating Margin Guidance
				Fiscal Year Ending November 30, 2016
(In millions)				Low						High
GAAP income from operations				$	62.9					$	66.6
GAAP operating margins				15		%				16		%
Acquisition-related revenue				2.0						2.0
Stock-based compensation				26.8						26.8
Amortization of intangibles				28.2						28.2
Acquisition-related expense				0.5						0.5
Restructuring expense				0.3						0.3
Total adjustments				57.8						57.8
Non-GAAP income from operations				$	120.7					$	124.4
Non-GAAP operating margin				29		%				30		%

Fiscal Year 2016 Non-GAAP Earnings per Share and Effective Tax Rate Guidance
				Fiscal Year Ending November 30, 2016
(In millions, except per share data)				Low						High
GAAP net income				$	31.5					$	33.5
Adjustments (from previous table)				57.8						57.8
Income tax adjustment (2)				(11.1		)				(11.2		)
Non-GAAP net income				$	78.2					$	80.1
GAAP diluted earnings per share				$	0.63					$	0.68
Non-GAAP diluted earnings per share				$	1.57					$	1.63
Diluted weighted average shares outstanding				49.8						49.3
(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				$	120.7					$	124.4
Other income (expense)				(5.7		)				(5.7		)
Non-GAAP income from continuing operations before income taxes				115.0						118.7
Non-GAAP net income				78.2						80.1
Tax provision				$	36.8					$	38.6
Non-GAAP tax rate				32		%				33		%

RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES FOR Q3 2016 GUIDANCE (Unaudited)
Q3 2016 Revenue Growth Guidance
				Three Months Ended						Three Months Ending
				August 31, 2015						August 31, 2016
(In millions)										Low					% Change				High					% Change
GAAP revenue				$	94.6					$	102.6				8	%			$	105.6				12	%
Acquisition-related adjustments - revenue (1)				$	6.1					$	0.4				(93	)%			$	0.4				(93	)%
Non-GAAP revenue				$	100.7					$	103.0				2	%			$	106.0				5	%

(1) Acquisition-related revenue constitutes revenue reflected as pre-acquisition deferred revenue by Telerik that would otherwise have been recognized but for the purchase accounting treatment of the acquisition of Telerik. Since GAAP accounting requires the elimination of this revenue, GAAP results alone do not fully capture all of our economic activities.

Q3 2016 Non-GAAP Earnings per Share Guidance
				Three Months Ending August 31, 2016
				Low						High
GAAP diluted earnings per share				$	0.17					$	0.20
Acquisition-related revenue				0.01						0.01
Stock-based compensation				0.14						0.14
Amortization of intangibles				0.15						0.15
Total adjustments				0.30						0.30
Income tax adjustment				$	(0.04	)				$	(0.04	)
Non-GAAP diluted earnings per share				$	0.43					$	0.46

View source version on businesswire.com: http://www.businesswire.com/news/home/20160629006312/en/

Investor Contact:
Progress Software
Brian Flanagan, +1 781-280-4817
flanagan@progress.com
or
Press Contact:
Progress Software
Erica Burns, +1 888-365-2779 (x3135)
erica.burns@progress.com

Source: Progress

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