Press Release

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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