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Form 8-K - Q1 2015



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 8-K
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 1, 2015
 Progress Software Corporation
(Exact name of registrant as specified in its charter)
 
Commission file number: 0-19417
 
 
 
Massachusetts
04-2746201
(State or other jurisdiction of
incorporation or organization)
(I.R.S. employer
identification no.)
14 Oak Park
Bedford, Massachusetts 01730
(Address of principal executive offices, including zip code)
(781) 280-4000
(Registrant’s telephone number, including area code)
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))






Section 2 – Financial Information

Item 2.02 Results of Operations and Financial Condition.

On April 1, 2015, Progress Software Corporation issued a press release announcing its financial results for the fiscal first quarter ended February 28, 2015. A copy of the press release is attached to this Current Report on Form 8-K as Exhibit 99.1 and is incorporated herein by reference.

This information shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not deemed incorporated by reference into any other filing of the company, whether made before or after the date of this report, regardless of any general incorporation language in the filing.

Non-GAAP Financial Measures - We disclosed non-GAAP financial measures in the press release. These non-GAAP measures include revenue, expenses, income from operations, net income, earnings per share and operating margin. We also provide guidance on free cash flow, which is equal to cash flows from operating activities less purchases of property and equipment and capitalized software development costs. We provide non-GAAP financial measures to enhance the overall understanding of our current financial performance and prospects for the future as well as to enable investors to evaluate our performance in the same way that management does.

We use these non-GAAP measures, and we believe that they assist our investors, to make period-to-period comparisons of our operational performance because they provide a more transparent view of our core operating results. Management uses these same non-GAAP financial measures to evaluate performance, allocate resources, and determine compensation. These non-GAAP financial measures are also utilized by analysts to calculate consensus estimates. However, non-GAAP information should not be construed as an alternative to GAAP information as management uses, and investors should consider, non-GAAP measures in conjunction with our GAAP results.

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 our results for the three months ended February 28, 2015 and our fiscal year 2015 guidance, 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 such 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 such charges in operating plans. Stock-based compensation will continue in future periods.
•
Restructuring expenses - In all periods presented, we exclude restructuring expenses incurred because such 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 such 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.

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 believe the presentation of revenue growth rates on a constant currency basis helps improve the ability to understand our revenue results and evaluate 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.

Section 9 – Financial Statements and Exhibits

Item 9.01 Financial Statements and Exhibits

(d) Exhibits.
Exhibit No.
 
Description
99.1
 
Press release issued by Progress Software Corporation dated April 1, 2015






SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
 
 
Date:
April 1, 2015
Progress Software Corporation
 
 
 
 
 
 
By:
/s/ CHRIS E. PERKINS
 
 
 
Chris E. Perkins
 
 
 
Senior Vice President, Finance and Administration and Chief Financial Officer


Exhibit 99.1 - Q1 2015 Earnings Release
 
Exhibit 99.1


P R E S S A N N O U N C E M E N T
Investor Contact:
 
Press Contact:
Brian Flanagan
 
Erica Burns
Progress Software
 
Progress Software
+1 781 280 4817
 
+1 888 365 2779 (x3135)
flanagan@progress.com
 
erica.burns@progress.com

Progress Software Reports 2015 Fiscal First Quarter Results
Achieves Revenue and Exceeds EPS Guidance

BEDFORD, MA, April 1, 2015 (BUSINESSWIRE) — 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 first quarter ended February 28, 2015.

Revenue was $81.4 million compared to $74.5 million in the same quarter last year, a year over year increase of 9% on an actual currency basis and 15% on a constant currency basis. On a non-GAAP basis, revenue was $95.5 million compared to $74.5 million in the same quarter last year.

Additional financial highlights included:

On a GAAP basis in the fiscal first quarter of 2015:

•
Revenue was $81.4 million compared to $74.5 million in the same quarter last year;
•
Loss from operations was $11.2 million compared to income from operations of $14.0 million in the same quarter in fiscal year 2014;
•
Net loss was $1.0 million compared to net income of $11.1 million in the same quarter last year; and
•
Loss per share was $0.02 compared to diluted earnings per share of $0.21 in the same quarter last year.

On a non-GAAP basis in the fiscal first quarter of 2015:

•
Revenue was $95.5 million compared to $74.5 million in the same quarter last year;
•
Income from operations was $20.4 million compared to $21.4 million in the same quarter last year;
•
Operating margin was 21% compared to 29% in the same quarter last year;
•
Net income was $15.1 million compared to $14.6 million in the same quarter last year;
•
Diluted earnings per share was $0.29 compared to $0.28 in the same quarter last year; and
•
Free cash flow was $34.5 million compared to $18.9 million in the same quarter last year.

"Our strong first quarter results demonstrate the positive momentum we have across our business units," said Phil Pead, President and CEO of Progress Software. "With the acquisitions of Telerik and BravePoint together with the significant investments we have made in R&D, we are now able to offer one of the most comprehensive platform, mobile and cloud portfolios in the industry. Throughout 2015, we will continue building on our commitments to the developer community to enable every developer to create amazing experiences."

Other fiscal first quarter 2015 metrics and recent results included:

•
Cash, cash equivalents and short-term investments were $211.2 million;
•
Cash flows from operations were $37.1 million compared to $25.4 million in the same quarter in fiscal year 2014;
•
DSO was 56 days, compared to 71 days in the fiscal first quarter of 2014; and
•
Under the previously announced authorization by the Board of Directors to repurchase up to $100 million of shares of common stock, Progress repurchased 0.3 million shares for $7.8 million during the fiscal first quarter of 2015.



1

Business Outlook

Progress Software's fiscal 2015 financial guidance includes the impact of the recent significant strengthening of the US dollar and is based on current exchange rates. Because the US dollar has continued to strengthen since the guidance provided on January 13, 2015, the negative currency translation impact on Progress Software's 2015 business outlook compared to 2014 exchange rates is $27 - $28 million on non-GAAP revenues and $0.14 - $0.15 on non-GAAP earnings per share (previously $17 - $18 million on non-GAAP revenues and $0.10 - $0.11 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 Software's business outlook.

Progress Software provides the following revised guidance for the fiscal year ending November 30, 2015:

•
Non-GAAP revenue is expected to be between $415 million and $425 million (previously $425 million and $435 million);
•
Non-GAAP earnings per share is expected to be between $1.35 and $1.45 (previously $1.37 and $1.47);
•
Non-GAAP operating margin is expected to be approximately 27% (unchanged);
•
Free cash flow is expected to be between $90 million and $93 million (unchanged); and
•
Non-GAAP effective tax rate is expected to be between 33% and 34% (unchanged).

Progress Software provides the following guidance for the second fiscal quarter ending May 31, 2015:

•
Non-GAAP revenue is expected to be between $97 million and $100 million; and
•
Non-GAAP earnings per share is expected to be between $0.29 and $0.32.

Conference Call

The Progress Software quarterly investor conference call to review its fiscal first quarter of 2015 will be broadcast live at 5:00 p.m. ET on Wednesday, April 1, 2015 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 1-888-455-2260, pass code 3502971. 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 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:


2

(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)
uncertainties relating to Progress’ acquisition of Telerik, including whether Progress will be able to realize expected benefits and anticipated synergies of the acquisition and whether Telerik’s business will be successfully integrated with Progress Software's business; (5) Progress's ability to make acquisitions and to realize the expected benefits and anticipated synergies from such acquisitions; (6) 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; (7) business and consumer use of the Internet and the continuing adoption of Cloud technologies; (8) the receipt and shipment of new orders; (9) Progress's ability to expand its relationships with channel partners and to manage the interaction of channel partners with its direct sales force; (10) the timely release of enhancements to Progress's products and customer acceptance of new products; (11) the positioning of Progress's products in its existing and new markets; (12) variations in the demand for professional services and technical support; (13) Progress's ability to penetrate international markets and manage its international operations; and (14) 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, 2014. Progress undertakes no obligation to update any forward-looking statements, which speak only as of the date of this press release.

Progress Software Corporation

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

Progress is a trademark or registered trademarks of Progress Software Corporation or one of its subsidiaries or affiliates in the U.S. and other countries. Any other trademarks contained herein are the property of their respective owners.





3

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

 
Three Months Ended
(In thousands, except per share data)
February 28, 2015
 
February 28, 2014
 
% Change
Revenue:
 
 
 
 
 
Software licenses
$
25,231

 
$
22,264

 
13
 %
Maintenance and services
56,150

 
52,274

 
7
 %
Total revenue
81,381

 
74,538

 
9
 %
Costs of revenue:
 
 
 
 
 
Cost of software licenses
1,720

 
2,007

 
(14
)%
Cost of maintenance and services
11,275

 
5,345

 
111
 %
Amortization of acquired intangibles
4,633

 
529

 
776
 %
Total costs of revenue
17,628

 
7,881

 
124
 %
Gross profit
63,753

 
66,657

 
(4
)%
Operating expenses:
 
 
 
 
 
Sales and marketing
30,751

 
24,509

 
25
 %
Product development
22,821

 
15,113

 
51
 %
General and administrative
14,315

 
11,727

 
22
 %
Amortization of acquired intangibles
3,202

 
164

 
1,852
 %
Restructuring expenses
2,344

 
196

 
1,096
 %
Acquisition-related expenses
1,506

 
946

 
59
 %
Total operating expenses
74,939

 
52,655

 
42
 %
(Loss) income from operations
(11,186
)
 
14,002

 
(180
)%
Other income (expense), net
933

 
6

 
*

(Loss) income before income taxes
(10,253
)
 
14,008

 
(173
)%
(Benefit) provision for income taxes
(9,282
)
 
2,908

 
(419
)%
Net (loss) income
(971
)
 
11,100

 
(109
)%
 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
Basic
$
(0.02
)
 
$
0.22

 
(109
)%
Diluted
$
(0.02
)
 
$
0.21

 
(110
)%
Weighted average shares outstanding:
 
 
 
 
 
Basic
50,668

 
51,494

 
(2
)%
Diluted
50,668

 
52,165

 
(3
)%
 
 
 
 
 
 
* Not meaningful
 
 
 
 
 

4


CONDENSED CONSOLIDATED BALANCE SHEETS
 
(In thousands)
February 28,
2015
 
November 30, 2014
Assets
 
 
 
Current assets:
 
 
 
Cash, cash equivalents and short-term investments
$
211,164

 
$
283,268

Accounts receivable, net
59,647

 
68,311

Other current assets
40,194

 
34,094

Total current assets
311,005

 
385,673

Property and equipment, net
61,994

 
59,351

Goodwill and intangible assets, net
506,476

 
253,414

Other assets
8,824

 
4,623

Total assets
$
888,299

 
$
703,061

Liabilities and shareholders’ equity
 
 
 
Current liabilities:
 
 
 
Accounts payable and other current liabilities
$
62,017

 
$
60,746

Current portion of long-term debt
7,500

 
—

Short-term deferred revenue
123,005

 
92,557

Total current liabilities
192,522

 
153,303

Long-term deferred revenue
2,883

 
3,683

Long-term debt
140,625

 
—

Other long-term liabilities
14,199

 
2,830

Shareholders’ equity:
 
 
 
Common stock and additional paid-in capital
215,140

 
209,778

Retained earnings
322,930

 
333,467

Total shareholders’ equity
538,070

 
543,245

Total liabilities and shareholders’ equity
$
888,299

 
$
703,061




5

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  
 
Three Months Ended
(In thousands)
February 28,
2015
 
February 28,
2014
Cash flows from operating activities:
 
 
 
Net income
$
(971
)
 
$
11,100

Depreciation and amortization
11,135

 
3,474

Stock-based compensation
5,836

 
5,545

Other non-cash adjustments
(20,779
)
 
(1,491
)
Changes in operating assets and liabilities
41,919

 
6,796

Net cash flows from operating activities
37,140

 
25,424

Capital expenditures
(2,641
)
 
(6,518
)
Issuances of common stock, net of repurchases
(4,489
)
 
(5,899
)
Payments for acquisitions
(246,275
)
 
—

Proceeds from the issuance of debt, net of payments of principle and debt issuance costs
146,418

 
—

Proceeds from divestitures, net
4,500

 
3,300

Other
(6,757
)
 
302

Net change in cash, cash equivalents and short-term investments
(72,104
)
 
16,609

Cash, cash equivalents and short-term investments, beginning of period
283,268

 
231,440

Cash, cash equivalents and short-term investments, end of period
$
211,164

 
$
248,049




6

RESULTS OF OPERATIONS BY SEGMENT
 
Three Months Ended
(In thousands)
February 28, 2015
 
February 28, 2014
 
% Change
Segment revenue:
 
 
 
 
 
OpenEdge
$
69,471

 
$
66,734

 
4
 %
Data Connectivity and Integration
7,113

 
7,639

 
(7
)%
Application Development and Deployment
4,797

 
165

 
2,807
 %
Total revenue
81,381

 
74,538

 
9
 %
Segment costs of revenue and operating expenses:
 
 
 
 

OpenEdge
19,534

 
17,391

 
12
 %
Data Connectivity and Integration
3,250

 
2,797

 
16
 %
Application Development and Deployment
9,384

 
1,553

 
504
 %
Total costs of revenue and operating expenses
32,168

 
21,741

 
48
 %
Segment contribution:
 
 
 
 

OpenEdge
49,937

 
49,343

 
1
 %
Data Connectivity and Integration
3,863

 
4,842

 
(20
)%
Application Development and Deployment
(4,587
)
 
(1,388
)
 
(230
)%
Total contribution
49,213

 
52,797

 
(7
)%
Other unallocated expenses (1)
60,399

 
38,795

 
56
 %
(Loss) income from operations
(11,186
)
 
14,002

 
(180
)%
Other income (expense), net
933

 
6

 
*

(Loss) income before provision for income taxes
(10,253
)
 
14,008

 
(173
)%
 
 
 
 
 
 
(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.
* Not meaningful
 
 
 
 
 

7

SUPPLEMENTAL INFORMATION

Revenue by Type
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
Q1 2014
 
Q2 2014
 
Q3 2014
 
Q4 2014
 
Q1 2015
License
$
22,264

 
$
27,988

 
$
26,393

 
$
41,154

 
$
25,231

Maintenance
50,181

 
50,305

 
50,746

 
51,268

 
49,239

Services
2,093

 
2,534

 
2,135

 
5,472

 
6,911

Total revenue
$
74,538

 
$
80,827

 
$
79,274

 
$
97,894

 
$
81,381

 
 
 
 
 
 
 
 
 
 
Revenue by Region
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
Q1 2014
 
Q2 2014
 
Q3 2014
 
Q4 2014
 
Q1 2015
North America
$
34,586

 
$
36,827

 
$
35,654

 
$
43,654

 
$
42,125

EMEA
29,315

 
33,698

 
32,995

 
35,327

 
27,863

Latin America
5,108

 
5,703

 
5,695

 
8,406

 
4,967

Asia Pacific
5,529

 
4,599

 
4,930

 
10,507

 
6,426

Total revenue
$
74,538

 
$
80,827

 
$
79,274

 
$
97,894

 
$
81,381

 
 
 
 
 
 
 
 
 
 
Revenue by Segment
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
Q1 2014
 
Q2 2014
 
Q3 2014
 
Q4 2014
 
Q1 2015
OpenEdge
$
66,734

 
$
73,192

 
$
71,847

 
$
84,948

 
$
69,471

Data Connectivity and Integration
7,639

 
7,407

 
7,175

 
12,551

 
7,113

Application Development and Deployment
165

 
228

 
252

 
395

 
4,797

Total revenue
$
74,538

 
$
80,827

 
$
79,274

 
$
97,894

 
$
81,381













8

RECONCILIATIONS OF GAAP TO NON-GAAP SELECTED FINANCIAL MEASURES
 
Three Months Ended February 28,
 
% Change
 
2015
 
2014
 
 
(In thousands, except per share data)
GAAP
 
Adj.
 
Non-GAAP
 
GAAP
 
Adj.
 
Non-GAAP
 
Non-GAAP
TOTAL REVENUE
$
81,381

 
$
14,074

 
$
95,455

 
$
74,538

 
$
—

 
$
74,538

 
28
 %
Software licenses (1)
25,231

 
3,746

 
28,977

 
22,264

 
—

 
22,264

 
30
 %
Maintenance and services (1)
56,150

 
10,328

 
66,478

 
52,274

 
—

 
52,274

 
27
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
TOTAL COSTS OF REVENUE
$
17,628

 
$
(4,798
)
 
$
12,830

 
$
7,881

 
$
(681
)
 
$
7,200

 
78
 %
Amortization of acquired intangibles
4,633

 
(4,633
)
 
—

 
529

 
(529
)
 
—

 
 
Stock-based compensation (2)
165

 
(165
)
 
—

 
152

 
(152
)
 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GROSS MARGIN %
78
 %
 
 
 
87
%
 
89
%
 
 
 
90
%
 
(3
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
TOTAL OPERATING EXPENSES
$
74,939

 
$
(12,723
)
 
$
62,216

 
$
52,655

 
$
(6,699
)
 
$
45,956

 
35
 %
Amortization of acquired intangibles
3,202

 
(3,202
)
 
—

 
164

 
(164
)
 
—

 
 
Restructuring expenses
2,344

 
(2,344
)
 
—

 
196

 
(196
)
 
—

 
 
Acquisition-related expenses
1,506

 
(1,506
)
 
—

 
946

 
(946
)
 
—

 
 
Stock-based compensation (2)
5,671

 
(5,671
)
 
—

 
5,393

 
(5,393
)
 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(LOSS) INCOME FROM OPERATIONS
$
(11,186
)
 
$
31,595

 
$
20,409

 
$
14,002

 
$
7,380

 
$
21,382

 
(5
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
OPERATING MARGIN
(14
)%
 
 
 
21
%
 
19
%
 
 
 
29
%
 
(8
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
TOTAL OTHER INCOME (EXPENSE), NET (3)
$
933

 
$
266

 
$
1,199

 
$
6

 
$
—

 
$
6

 
*

 
 
 
 
 
 
 
 
 
 
 
 
 
 
(BENEFIT) PROVISION FOR INCOME TAXES
$
(9,282
)
 
$
15,751

 
$
6,469

 
$
2,908

 
$
3,926

 
$
6,834

 
(5
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NET (LOSS) INCOME
$
(971
)
 
$
16,110

 
$
15,139

 
$
11,100

 
$
3,454

 
$
14,554

 
4
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
DILUTED (LOSS) EARNINGS PER SHARE
$
(0.02
)
 
$
0.31

 
$
0.29

 
$
0.21

 
$
0.07

 
$
0.28

 
4
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED
50,668

 
695

 
51,363

 
52,165

 
—

 
52,165

 
(2
)%
* Not meaningful
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(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
165

 
 
 
 
 
152

 
 
 
 
 
 
Sales and marketing
1,237

 
 
 
 
 
1,199

 
 
 
 
 
 
Product development
1,502

 
 
 
 
 
1,353

 
 
 
 
 
 
General and administrative
2,932

 
 
 
 
 
2,841

 
 
 
 
 
 
Total
$
5,836

 
 
 
 
 
$
5,545

 
 
 
 
 
 
(3) Adjustment to other income (expense), net relates to the termination of Progress' prior revolving credit facility with JPMorgan Chase Bank, N.A. and the other lenders party to the credit facility in connection with entering into the new credit facility, which was used to partially fund the acquisition of Telerik. 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.

9

OTHER NON-GAAP FINANCIAL MEASURES

Revenue by Type
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
Q1 2015
 
Non-GAAP Adjustment (1)
 
Non-GAAP Revenue
License
$
25,231

 
$
3,746

 
$
28,977

Maintenance
49,239

 
10,328

 
59,567

Services
6,911

 
—

 
6,911

Total revenue
$
81,381

 
$
14,074

 
$
95,455

 
 
 
 
 
 
Revenue by Region
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
Q1 2015
 
Non-GAAP Adjustment (1)
 
Non-GAAP Revenue
North America
$
42,125

 
$
11,277

 
$
53,402

EMEA
27,863

 
2,093

 
29,956

Latin America
4,967

 
127

 
5,094

Asia Pacific
6,426

 
577

 
7,003

Total revenue
$
81,381

 
$
14,074

 
$
95,455

 
 
 
 
 
 
Revenue by Segment
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
Q1 2015
 
Non-GAAP Adjustment (1)
 
Non-GAAP Revenue
OpenEdge
$
69,471

 
$
—

 
$
69,471

Data Connectivity and Integration
$
7,113

 
$
—

 
$
7,113

Application Development and Deployment
$
4,797

 
$
14,074

 
$
18,871

Total revenue
$
81,381

 
$
14,074

 
$
95,455

 
 
 
 
 
 
(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.
 
 
 
 
 
 
Free Cash Flow
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
Q1 2015
 
Q1 2014
 
% Change
Cash flows from operations
$
37,140

 
$
25,424

 
46
%
Purchases of property and equipment
$
(2,335
)
 
$
(5,697
)
 
59
%
Capitalized software development costs
$
(306
)
 
$
(821
)
 
63
%
Free cash flow
$
34,499

 
$
18,906

 
82
%


10

RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES FOR FISCAL YEAR 2015 GUIDANCE
(Unaudited)

Fiscal Year 2015 Revenue Growth Guidance
 
Fiscal Year Ended
 
Fiscal Year Ending
 
November 30, 2014
 
November 30, 2015
(In millions)
 
 
Low
 
% Change
 
High
 
% Change
GAAP revenue
$
332.5

 
$
380.0

 
14
%
 
$
390.0

 
17
%
Acquisition-related adjustments - revenue (1)
$
—

 
$
35.0

 
100
%
 
$
35.0

 
100
%
Non-GAAP revenue
$
332.5

 
$
415.0

 
25
%
 
$
425.0

 
28
%
 
 
 
 
 
 
 
 
 
 
(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 2015 Non-GAAP Operating Margin Guidance
 
Fiscal Year Ending November 30, 2015
(In millions)
Low
 
High
GAAP income from operations
$
8.6

 
$
14.2

GAAP operating margins
2
%
 
4
%
Acquisition-related revenue
35.0

 
35.0

Restructuring expense
6.1

 
6.1

Stock-based compensation
26.6

 
26.6

Acquisition related expense
4.5

 
4.5

Amortization of intangibles
29.6

 
29.6

Total adjustments
101.8

 
101.8

Non-GAAP income from operations
$
110.4

 
$
116.0

Non-GAAP operating margin
27
%
 
27
%

Fiscal Year 2015 Non-GAAP Earnings per Share and Effective Tax Rate Guidance
 
Fiscal Year Ending November 30, 2015
(In millions, except per share data)
Low
 
High
GAAP net income
$
4.2

 
$
7.7

Adjustments (from previous table)
101.8

 
101.8

Income tax adjustment (2)
(34.4
)
 
(33.5
)
Non-GAAP net income
$
71.6

 
$
76.0

 
 
 
 
GAAP diluted earnings per share
$
0.08

 
$
0.15

Non-GAAP diluted earnings per share
$
1.35

 
$
1.45

 
 
 
 
Diluted weighted average shares outstanding
53.0

 
52.5

 
 
 
 
(2) Tax adjustment is based on a non-GAAP effective tax rate of 34% for Low and 33% for High, calculated as follows:
Non-GAAP income from operations
$
110.4

 
$
116.0

Other income (expense)
(1.9
)
 
(1.9
)
Non-GAAP income from continuing operations before income taxes
108.5

 
114.1

Non-GAAP net income
71.6

 
76.0

Tax provision
$
36.9

 
$
38.1

Non-GAAP tax rate
34
%
 
33
%

11

RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES FOR Q2 2015 GUIDANCE
(Unaudited)

Q2 2015 Revenue Growth Guidance
 
Three Months Ended
 
Three Months Ending
 
May 31, 2014
 
May 31, 2015
(In millions)
 
 
Low
 
% Change
 
High
 
% Change
GAAP revenue
$
80.8

 
$
85.0

 
5
%
 
$
88.0

 
9
%
Acquisition-related adjustments - revenue (1)
$
—

 
$
12.0

 
100
%
 
$
12.0

 
100
%
Non-GAAP revenue
$
80.8

 
$
97.0

 
20
%
 
$
100.0

 
24
%
 
 
 
 
 
 
 
 
 
 
(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.


Q2 2015 Non-GAAP Earnings per Share Guidance
 
Three Months Ending May 31, 2015
 
Low
 
High
GAAP diluted earnings per share
$
0.12

 
$
0.15

Acquisition-related revenue
0.23

 
0.23

Restructuring expense
0.07

 
0.07

Stock-based compensation
0.14

 
0.14

Acquisition related expense
0.02

 
0.02

Amortization of intangibles
0.14

 
0.14

Total adjustments
0.60

 
0.60

Income tax adjustment
$
(0.43
)
 
$
(0.43
)
Non-GAAP diluted earnings per share
$
0.29

 
$
0.32




12