GAAP EPS up 74 percent; Non-GAAP EPS up 15 percent
Progress Software Corporation (NASDAQ: PRGS), a provider of leading application infrastructure software to develop, deploy, integrate and manage business applications, today announced results for its second quarter ended May 31, 2008. Revenue for the quarter was $128 million, up 7 percent (up 1 percent at constant currency) from $120 million in the second quarter of fiscal 2007. Software license revenue increased 1 percent (down 4 percent at constant currency) to $45.0 million from $44.6 million in the same quarter last year.
On a generally accepted accounting principles (GAAP) basis, operating income increased 83 percent to $20.6 million from $11.3 million in the second quarter of fiscal 2007. Net income increased 72 percent to $14.5 million from $8.4 million in the same quarter last year. Diluted earnings per share increased 74 percent to 33 cents from 19 cents in the second quarter of fiscal 2007.
On a non-GAAP basis, operating income increased 15 percent to $29.1 million from $25.3 million in the same quarter last year. Non-GAAP net income increased 15 percent to $20.4 million from $17.8 million in the same quarter last year and non-GAAP diluted earnings per share increased 15 percent to 47 cents per share from 41 cents in the second quarter of fiscal 2007.
The non-GAAP results in the second quarter of fiscal 2008 exclude after-tax charges of $2.9 million for stock-based compensation, $2.8 million for amortization of acquired intangibles and $0.2 million for professional services fees associated with the investigation and shareholder derivative lawsuits related to the company's historical stock option grant practices. The non-GAAP results in the second quarter of fiscal 2007 exclude after-tax charges of $6.0 million for stock-based compensation, $2.9 million for amortization of acquired intangibles and $0.5 million for professional services fees associated with the investigation and shareholder derivative lawsuits related to the company's historical stock option grant practices. The GAAP and non-GAAP results in the second quarter of fiscal 2007 include an after-tax charge of $1.6 million (4 cents per share) resulting from a write-down associated with a portion of the implementation of a new ERP system.
The company's cash and short-term investments at the end of the second quarter totaled $259 million. In addition, the company had approximately $68 million in investments related to municipal and student loan auction rate securities that were classified as non-current on the balance sheet because these securities failed to clear at auction and the company is currently unable to sell these securities in the market. The failed auctions have resulted in higher interest rates being earned on these securities, but the investments currently lack short-term liquidity.
The company purchased 0.6 million of its shares at a cost of $16.8 million in the second quarter of fiscal 2008. The company's existing repurchase authorization, under which approximately 7.3 million shares remain available for repurchase, expires on September 30, 2008.
Joseph Alsop, co-founder and chief executive officer of Progress Software, stated: "Our overall revenue results were solid, with strong profitability. While our DataDirect® product line and our overall product license revenue were below our expectations, growth in our OpenEdge® and Enterprise Infrastructure product lines was in line with our expectations, with particularly strong growth in our Apama® product line."
Quarterly Highlights
-- Progress Software announced the appointment of Ram Gupta to
the Board of Directors of Progress Software Corporation
(www.progress.com/ramgupta)
-- Farmers Alliance Mutual Insurance Company (FAMI), a leading
mid-Western property and casualty insurance carrier, will
deploy Progress(R) Sonic(TM) ESB in order to streamline its
enterprise information technology (IT) infrastructure using a
SOA framework and integrate several discrete applications,
which are dispersed across various platforms. FAMI is
undergoing a multi-year cost optimization project within its
IT environment and regards the Sonic ESB as an integral part
of its ability to reduce costs
(www.progress.com/farmersalliance).
-- Nordisk Mobiltelefon (NMT) is using the Progress Sonic ESB and
Progress DataXtend(R) Semantic Integrator to support the
rollout and standards-based integration of its operational and
business support applications
(OSS/BSS)(www.progress.com/nordisk).
-- ING Wholesale Banking delivers algorithmic trading
capabilities for emerging markets using the Progress Apama(R)
Complex Event Processing (CEP) platform. ING will bring a
combination of algorithmic trading capabilities and direct
access to emerging European markets to its customers. The
technology behind the service uses proprietary algorithms
built using the Progress Apama) algorithmic trading platform
(www.progress.com/ING).
-- Detica Group plc (DCA.L), the specialist business and
technology consultancy, and Progress Software jointly
announced the launch of the Detica Market Surveillance
Accelerator powered by the Apama CEP platform
(www.progress.com/Detica).
-- Progress announced the availability of the OpenEdge(R) 10.1C
business application development platform. With this release,
OpenEdge becomes the first business application development
platform to support IPv6, a next generation Internet protocol
designed to bring superior reliability, flexibility and
security to the Internet. Other large vendors failed to reach
this key government-regulated milestone at the time of the
(April 15, 2008) press announcement, and in some cases were
forced to recall products that were originally billed as
IPv6-compliant (www.progress.com/openedge101C).
-- DataDirect Technologies, an operating company of Progress
Software Corporation, announced that it has qualified to
receive the NorthFace ScoreBoard Award(SM) from Omega
Management Group Corp. The award is presented annually to
companies who, as rated by their own customers, achieved
excellence in customer satisfaction during the prior calendar
year. DataDirect Technologies' SupportLink(SM) Technical
Services Program is a seven-time winner of this prestigious
award (www.progress.com/northface).
Customer Highlights
The following organizations became new Progress customers or partners, adopted additional Progress technologies, or made major deployments of Progress technologies in the past quarter:
AEP Canada, Acadian Asset Management, Acer Active Organics, Allied Holdings, Ameriprise Financial, American Electric Power, Amdocs Inc, Amtrust North America, Annadale Technologies, Baker Hughes, Boats.com, Boeing, Buckeye Cablevision, CanWest Global Communication, Capula Limited, Carahsoft Technology, Cap Gemini Outsourcing, Cerner, Chesapeake Energy Corporation, CIBC, Del Monte Fresh Produce, Deutsche Leasing, Dow Jones & Co., DTE Energy, EDS, E Solutions Network, En-Net Services, Entergy, Fidelity Investment HRS, FirstMerit Bank, Fujitsu, GE Treasury, Greenplum, General Electric, Green Tree Servicing, Global Healthcare Exchange, Health Imaging Solutions, Healthcare District of Palm, Healthcare Partners, Hilton Grand Vacations, Insight Technology Solutions, iUniverse, JP Morgan Chase Bank, KAZ Group, Lake Washington School District, Last Minute Network, Linamar, Marketing Computer Service, Maryland State Board, Muir Group Housing, NCS Pearson, Nacco Materials Handling, Nordstrom, Northwest Community Hospital, Orion Corporation, Oxford University Press, Pharsight, PJM Interconnection, Public Interest Data, Quantum Data Systems, Qwest Communications, Savi Technology, SearchAmerica, Sephora, ServiceMaster, Shinko Corporation, Siemens, Software House International, Specialist Computer Center, State of New York, State of Utah, Strand Life Sciences, Texas Capital Bank, Texas Workforce Commission, The Members Group, The Nuance Group, UBS Financial, United Healthcare, United Launch Alliance, University of Illinois, University of Pennsylvania, Varma Mutual Pensions Insurance Company, Western Digital and Wood Consulting Services.
Business Outlook
The company is providing the following guidance for the fiscal year ending November 30, 2008:
-- Revenue is expected to be in the range of $518 million to $526
million.
-- GAAP diluted earnings per share are expected to be in the
range of $1.33 to $1.37.
-- On a non-GAAP basis, diluted earnings per share are expected
to be in the range of $1.91 to $1.95.
-- The non-GAAP projections exclude after-tax charges of
approximately $13 million (30 cents per share) for stock-based
compensation, approximately $11 million (26 cents per share)
for amortization of acquired intangibles and an estimate of
approximately $1 million (2 cents per share) for professional
services fees associated with our ongoing stock option
investigation and derivative lawsuits.
The company is providing the following guidance for the third fiscal quarter ending August 31, 2008:
-- Revenue is expected to be in the range of $125 million to $127
million.
-- GAAP diluted earnings per share are expected to be in the
range of 29 cents to 31 cents.
-- On a non-GAAP basis, diluted earnings per share are expected
to be in the range of 43 cents to 45 cents.
-- The non-GAAP projections exclude after-tax charges of
approximately $3 million (7 cents per share) for stock-based
compensation and $3 million (7 cents per share) for
amortization of acquired intangibles and professional services
fees associated with our ongoing stock option investigation
and derivative lawsuits.
Legal Notice Regarding Non-GAAP Financial Information
The company provides non-GAAP operating income, net income and earnings per share as additional information for investors. These measures are not in accordance with, or an alternative to, generally accepted accounting principles in the United States (GAAP). Such measures are intended to supplement GAAP and may be different from non-GAAP measures used by other companies. The company believes that the non-GAAP results described in this release are useful for an understanding of its ongoing operations and provide additional detail and an alternative method of assessing its operating results. Management of the company uses these non-GAAP results to compare the company's performance to that of prior periods for analysis of trends and for budget and planning purposes. A reconciliation of non-GAAP adjustments to the company's GAAP financial results is included in the tables below.
Conference Call
The Progress Software conference call to discuss its fiscal second quarter 2008 results will be Webcast live today at 9:00 a.m. Eastern Daylight Time on the company's Web site, located at www.progress.com/investors. The call will also be Webcast live via Yahoo (www.yahoo.com), Motley Fool (www.fool.com), Streetevents (www.streetevents.com), TD Waterhouse (www.tdwaterhouse.com) and Fidelity.com (www.fidelity.com). An archived version of the conference call will be available for replay on the Progress website (www.progress.com), together with the slide presentation for the call, under the investor relations page.
Progress Software Corporation
Progress Software Corporation (NASDAQ: PRGS) provides application infrastructure software for the development, deployment, integration and management of business applications. Our goal is to maximize the benefits of information technology while minimizing its complexity and total cost of ownership. Progress can be reached at www.progress.com or +1-781-280-4000.
Safe Harbor Statement
Except for the historical information and discussions contained herein, statements contained in this release may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements, which include statements regarding the company's business outlook, involve a number of risks, uncertainties and other factors that could cause actual results to differ materially, including but not limited to the following: the receipt and shipment of new orders, the timely release of enhancements to the company's products, the growth rates of certain market segments, the positioning of the company's products in those market segments, variations in the demand for professional services and technical support, pricing pressures and the competitive environment in the software industry, business and consumer use of the Internet, the company's ability to complete and integrate acquisitions, and the company's ability to penetrate international markets and manage its international operations; unanticipated consequences of the restatement completed in December 2006; risks associated with the SEC's formal investigation of the company's option-grant practices and pending shareholder litigation relating to such practices; the risk that the company will face additional claims and proceedings in connection with those stock option grant practices, including additional shareholder litigation and additional proceedings by the other governmental agencies; and the financial impact of the foregoing, including potentially significant litigation defense costs and claims for indemnification and advancement of expenses by directors, officers and others. The company undertakes no obligation to update information contained in this release. For further information regarding risks and uncertainties associated with the company's business, please refer to the company's filings with the Securities and Exchange Commission.
Apama, DataDirect, DataXtend, OpenEdge, Sonic, and Progress are trademarks or registered trademarks of Progress Software Corporation or one of its subsidiaries or affiliates in the U.S. and other countries. Any other trademarks contained herein are the property of their respective owners.
Progress Software Corporation
GAAP Condensed Consolidated Statements
of Income
Three Months Ended
-----------------------------
May 31, May 31, Percent
(In thousands except per share data) 2008 2007 Change
----------------------------------------------------------------------
Revenue:
Software licenses $ 45,015 $ 44,555 1 %
Maintenance and services 82,927 75,087 10 %
--------------------
Total revenue 127,942 119,642 7 %
--------------------
Costs of revenue:
Cost of software licenses 2,164 1,880 15 %
Cost of maintenance and services 17,715 16,871 5 %
Amortization of purchased
technology 2,817 2,493 13 %
--------------------
Total costs of revenue 22,696 21,244 7 %
--------------------
Gross profit 105,246 98,398 7 %
--------------------
Operating expenses:
Sales and marketing 48,158 45,745 5 %
Product development 20,530 20,389 1 %
General and administrative 14,605 19,029 (23)%
Amortization of other acquired
intangibles 1,349 1,946 (31)%
--------------------
Total operating expenses 84,642 87,109 (3)%
--------------------
Income from operations 20,604 11,289 83 %
Other income, net 2,185 1,621 35 %
--------------------
Income before provision for income taxes 22,789 12,910 77 %
Provision for income taxes 8,318 4,519 84 %
--------------------
Net income $ 14,471 $ 8,391 72 %
--------------------
Earnings per share:
Basic $ 0.35 $ 0.20 75 %
Diluted $ 0.33 $ 0.19 74 %
--------------------
Weighted average shares outstanding:
Basic 41,483 41,178 1 %
Diluted 43,238 43,636 (1)%
--------------------
Six Months Ended
-----------------------------
May 31, May 31, Percent
2008 2007 Change
-----------------------------
Revenue:
Software licenses $ 90,117 $ 89,284 1 %
Maintenance and services 159,392 145,587 9 %
--------------------
Total revenue 249,509 234,871 6 %
--------------------
Costs of revenue:
Cost of software licenses 4,460 3,552 26 %
Cost of maintenance and services 35,356 33,133 7 %
Amortization of purchased
technology 5,490 4,984 10 %
--------------------
Total costs of revenue 45,306 41,669 9 %
--------------------
Gross profit 204,203 193,202 6 %
--------------------
Operating expenses:
Sales and marketing 94,000 90,390 4 %
Product development 41,223 41,184 0 %
General and administrative 28,505 34,060 (16)%
Amortization of other acquired
intangibles 2,723 3,926 (31)%
--------------------
Total operating expenses 166,451 169,560 (2)%
--------------------
Income from operations 37,752 23,642 60 %
Other income, net 5,251 2,711 94 %
--------------------
Income before provision for income taxes 43,003 26,353 63 %
Provision for income taxes 15,696 9,224 70 %
--------------------
Net income $ 27,307 $ 17,129 59 %
--------------------
Earnings per share:
Basic $ 0.65 $ 0.42 55 %
Diluted $ 0.62 $ 0.39 59 %
--------------------
Weighted average shares outstanding:
Basic 41,861 41,123 2 %
Diluted 43,706 43,537 0 %
--------------------
Progress Software Corporation
Reconciliation of GAAP to Non-GAAP Financial Measures
Three Months Ended May 31, 2008
-------------------------------
As
(In thousands except per share data) Reported Adjustments Non-GAAP
----------------------------------------------------------------------
Total revenue $127,942 $ - $127,942
Income from operations $ 20,604 $ 8,543 $ 29,147
Amortization of acquired
intangibles (4,166) 4,166 -
Stock option investigation (1) (267) 267 -
Stock-based compensation (2) (4,110) 4,110 -
Operating margin percentage 16.1% 22.8%
Other income, net $ 2,185 $ - $ 2,185
Effect on provision for income taxes
from above adjustments (3) $ 8,318 $ 2,648 $ 10,966
Net income $ 14,471 $ 5,895 $ 20,366
Earnings per share - diluted $ 0.33 $ 0.47
Weighted average shares outstanding
- diluted 43,238 43,238
Six Months Ended May 31, 2008
-------------------------------
As
Reported Adjustments Non-GAAP
---------------------------------
Total revenue $249,509 - $249,509
Income from operations $ 37,752 $ 16,889 $ 54,641
Amortization of acquired
intangibles (8,213) 8,213 -
Stock option investigation (1) (596) 596 -
Stock-based compensation (2) (8,080) 8,080 -
Operating margin percentage 15.1% 21.9%
Other income, net $ 5,251 $ - $ 5,251
Effect on provision for income taxes
from above adjustments (3) $ 15,696 $ 5,266 $ 20,962
Net income $ 27,307 $ 11,623 $ 38,930
Earnings per share - diluted $ 0.62 $ 0.89
Weighted average shares outstanding
- diluted 43,706 43,706
Three Months Ended May 31, 2007
--------------------------------
As Percent
(In thousands except per Reported Adjustments Non-GAAP Change
share data)
----------------------------------------------------------------------
Total revenue $119,642 $ - $119,642 7 %
Income from operations $ 11,289 $ 14,008 $ 25,297 15 %
Amortization of acquired
intangibles (4,439) 4,439 -
Stock option
investigation (1) (755) 755 -
Stock-based compensation
(2) (8,814) 8,814 -
Operating margin percentage 9.4% 21.1%
Other income, net $ 1,621 $ - $ 1,621 35 %
Effect on provision for
income taxes from above
adjustments (3) $ 4,519 $ 4,633 $ 9,152 20 %
Net income $ 8,391 $ 9,375 $ 17,766 15 %
Earnings per share - diluted $ 0.19 $ 0.41 15 %
Weighted average shares
outstanding - diluted 43,636 43,636 (1)%
Six Months Ended May 31, 2007
--------------------------------
As Percent
Reported Adjustments Non-GAAP Change
-----------------------------------------
Total revenue $234,871 - $234,871 6 %
Income from operations $ 23,642 $ 25,176 $ 48,818 12 %
Amortization of acquired
intangibles (8,910) 8,910 -
Stock option
investigation (1) (2,437) 2,437 -
Stock-based compensation
(2) (13,829) 13,829 -
Operating margin percentage 10.1% 20.8% 5 %
Other income, net $ 2,711 $ - $ 2,711 94 %
Effect on provision for
income taxes from above
adjustments (3) $ 9,224 $ 8,296 $ 17,520 20 %
Net income $ 17,129 $ 16,880 $ 34,009 14 %
Earnings per share - diluted $ 0.39 $ 0.78 14 %
Weighted average shares
outstanding - diluted 43,537 43,537 0 %
(1)Stock option investigation expenses are included within general and
administrative expenses and primarily represent professional
services fees associated with the company's investigation and
shareholder derivative lawsuits related to its historical stock
option grant practices.
(2)Stock-based compensation expense is included in the following GAAP
operating expenses:
Three Months Ended May
31, 2008
-------------------------
Non-
GAAP Adjustments GAAP
--------------------------
Cost of software licenses $ 13 $ (13) $ -
Cost of maintenance and services 226 (226) -
Sales and marketing 1,419 (1,419) -
Product development 937 (937) -
General and administrative 1,515 (1,515) -
------- ----------- ------
$4,110 $ (4,110) $ -
------- ----------- ------
Six Months Ended May 31,
2008
-------------------------
Non-
GAAP Adjustments GAAP
--------------------------
Cost of software licenses $ 35 $ (35) $ -
Cost of maintenance and services 493 (493) -
Sales and marketing 2,850 (2,850) -
Product development 1,856 (1,856) -
General and administrative 2,846 (2,846) -
------- ----------- ------
$8,080 $ (8,080) $ -
------- ----------- ------
Three Months Ended May 31,
2007
--------------------------
Non-
GAAP Adjustments GAAP
--------------------------
Cost of software licenses 43 $ (43) $ -
Cost of maintenance and
services 511 (511) -
Sales and marketing 2,678 (2,678) -
Product development 1,715 (1,715) -
General and administrative 3,867 (3,867) -
-------- ----------- -----
$ 8,814 $ (8,814) $ -
-------- ----------- -----
Six Months Ended May 31,
2007
--------------------------
Non-
GAAP Adjustments GAAP
--------------------------
Cost of software licenses $ 74 $ (74) $ -
Cost of maintenance and
services 868 (868) -
Sales and marketing 4,525 (4,525) -
Product development 2,866 (2,866) -
General and administrative 5,496 (5,496) -
-------- ----------- -----
$13,829 $ (13,829) $ -
-------- ----------- -----
Amounts represent the fair value of equity awards under SFAS 123R.
Stock-based compensation expense in the three and six months ended
May 31, 2007 also includes the cash settlement of equity awards to
former employees for options that were cancelled or expired during
the suspension of the issuance of shares under the company's
option plans, reimbursements for excise taxes resulting from the
exercise of below market options in fiscal 2007 and the
incremental effect of make-whole cash payments to members of the
Compensation Committee for options that were cancelled.
(3)The Non-GAAP provision for income taxes was calculated reflecting
an effective rate of 35% for the three months and six months ended
May 31, 2008 and 34% for the three months and six months ended May
31, 2007.
Progress Software Corporation
Condensed Consolidated Balance Sheets
May 31, November 30,
(In thousands) 2008 2007
-------------------------------------------------------------------
Assets
Cash and short-term investments $259,026 $339,525
Accounts receivable, net 88,041 93,998
Other current assets 36,508 30,900
----------------------
Total current assets 383,575 464,423
----------------------
Property and equipment, net 63,916 64,949
Goodwill and intangible assets, net 208,448 208,988
Investments in auction-rate securities 67,691 -
Other assets 31,372 23,468
----------------------
Total $755,002 $761,828
----------------------
Liabilities and shareholders' equity
Accounts payable and other current
liabilities $ 75,388 $ 92,983
Short-term deferred revenue 148,402 135,487
----------------------
Total current liabilities 223,790 228,470
----------------------
Long-term deferred revenue 10,981 11,200
Other liabilities 10,687 4,284
Shareholders' equity:
Common stock and additional paid-in
capital 230,466 240,647
Retained earnings 279,078 277,227
----------------------
Total shareholders' equity 509,544 517,874
----------------------
Total $755,002 $761,828
----------------------
Condensed Consolidated Statements of Cash
Flows
Six Months Ended
----------------------
May 31, May 31,
(In thousands except per share data) 2008 2007
-------------------------------------------------------------------
Cash flows from operations:
Net income $ 27,307 $ 17,129
Depreciation, amortization and other
noncash items 21,568 28,642
Other changes in operating assets and
liabilities (2,044) (6,753)
----------------------
Net cash flows from
operations 46,831 39,018
Capital expenditures (3,935) (9,622)
Investments in auction-rate securities (71,555) -
Acquisitions, net of cash acquired (5,728) -
Share repurchases, net of issuances (44,897) (2,170)
Other (1,215) 2,236
----------------------
Net change in cash and short-term
investments (80,499) 29,462
Cash and short-term investments, beginning
of period 339,525 241,315
----------------------
Cash and short-term investments, end of
period $259,026 $270,777
----------------------
Source: Progress Software Corporation