Document



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): March 29, 2017
 Progress Software Corporation
(Exact name of registrant as specified in its charter)
 
Commission file number: 0-19417
 
 
 
Delaware
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 March 29, 2017, Progress Software Corporation ("Progress") issued a press release announcing its financial results for the fiscal first quarter ended February 28, 2017. 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.

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 March 29, 2017







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:
March 29, 2017
Progress Software Corporation
 
 
 
 
 
 
By:
/s/ STEPHEN H. FABERMAN
 
 
 
Stephen H. Faberman
 
 
 
Chief Legal Officer





Exhibit Index

Exhibit No.
 
Description
99.1
 
Press release issued by Progress Software Corporation dated March 29, 2017



Exhibit
https://cdn.kscope.io/237435ebcee53ea15fa39a50b0d322f1-newprogresslogoa02.jpg
 
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 Reports 2017 Fiscal First Quarter Results

BEDFORD, MA, March 29, 2017 (BUSINESSWIRE) — Progress (NASDAQ: PRGS), today announced results for its fiscal first quarter ended February 28, 2017.

Revenue was $91.0 million during the quarter compared to $89.5 million in the same quarter last year, a year-over-year increase of 2% on an actual currency basis and 3% on a constant currency basis. On a non-GAAP basis, revenue was $91.2 million compared to $90.2 million in the same quarter last year, an increase of 1% on an actual currency basis and 2% on a constant currency basis.

Additional financial highlights included:

On a GAAP basis in the fiscal first quarter of 2017:

Revenue was $91.0 million compared to $89.5 million in the same quarter in fiscal year 2016;
Income from operations was $1.2 million (including a restructuring charge of $17.1 million) compared to $6.7 million in the same quarter last year;
Net loss was $0.5 million compared to net income of $3.2 million in the same quarter last year;
Diluted loss per share was $0.01 compared to diluted earnings per share of $0.06 in the same quarter last year; and
Cash from operations was $37.3 million compared to $22.5 million in the same quarter last year.

On a non-GAAP basis in the fiscal first quarter of 2017:

Revenue was $91.2 million compared to $90.2 million in the same quarter last year;
Income from operations was $27.1 million compared to $21.5 million in the same quarter last year;
Operating margin was 30% compared to 24% in the same quarter last year;
Net income was $16.8 million compared to $13.8 million in the same quarter last year;
Diluted earnings per share was $0.34 compared to $0.27 in the same quarter last year; and
Adjusted free cash flow was $43.0 million compared to $22.7 million in the same quarter last year.

Yogesh Gupta, CEO at Progress, said: “I am pleased with our Q1 performance. Our revenue and earnings per share were above our expectations, and we announced several important releases of our core technology during the quarter. I am also excited about our recent acquisition of DataRPM, which will enable us to accelerate the development of our next-generation Cognitive Applications platform, the driver for our future growth.”

Paul Jalbert, newly appointed CFO at Progress, said: “We achieved strong free cash flow during the quarter, driven largely by collections that resulted in an excellent DSO performance, a testament to the quality of our products and services. Our quarterly dividend and continued share repurchases underscore our confidence in our financial strength and ongoing cash flow generation.”

Other fiscal first quarter 2017 metrics and recent results included:

Cash, cash equivalents and short-term investments were $264.2 million;
DSO was 48 days compared to 59 days in the fiscal first quarter of 2016 and 50 days in the fiscal fourth quarter of 2016;

1


Under the previously announced authorization by the Board of Directors to repurchase up to $200 million of shares of common stock, Progress repurchased 0.6 million shares for $18.1 million during the fiscal first quarter of 2017. As of February 28, 2017, there was $117.3 million remaining under this authorization; and
On March 24, 2017, our Board of Directors declared a quarterly dividend of $0.125 per share of common stock that will be paid on June 15, 2017 to shareholders of record as of the close of business on June 1, 2017.

Business Outlook

Progress provides the following guidance for the fiscal year ending November 30, 2017 and the second fiscal quarter ending May 31, 2017:

(In millions, except percentages and per share amounts)
FY 2017
GAAP
 
FY 2017
Non-GAAP (unchanged)
 
Q2 2017
GAAP
 
Q2 2017
Non-GAAP
Revenue
$387 - $395

 
$388 - $396

 
$89 - $92
 
$89 - $92
Diluted earnings per share
$0.64 - $0.70

 
$1.64 - $1.69

 
$0.13 - $0.15
 
$0.35 - $0.37
Operating margin
15% - 17%

 
32% - 33%

 
*
 
*
Adjusted free cash flow
$85 - $93

 
$95 - $100

 
*
 
*
Effective tax rate
43
%
 
33
%
 
*
 
*
* We do not provide guidance for this financial measure.

Progress' fiscal 2017 financial guidance is based on current exchange rates. The negative currency translation impact on Progress' fiscal year 2017 business outlook compared to 2016 exchange rates is approximately $5.0 million on GAAP and non-GAAP revenue. The negative currency translation impact on Progress' fiscal Q2 2017 business outlook compared to 2016 exchange rates is approximately $2.0 million on GAAP and non-GAAP revenue. 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 first quarter of 2017 will be broadcast live at 5:00 p.m. ET on Wednesday, March 29, 2017 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 1-877-857-6173, pass code 9231513. 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

2


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.

Constant Currency

Revenue from our international operations has historically represented a substantial portion 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

3


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 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, 2016. 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 enterprises to build mission-critical business applications to succeed in an evolving business environment. With offerings spanning web, mobile and data for on-premise and cloud environments, Progress powers businesses worldwide, promoting success one application 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.


4


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 
Three Months Ended
(In thousands, except per share data)
February 28, 2017
 
February 29, 2016
 
% Change
Revenue:
 
 
 
 
 
Software licenses
$
24,322

 
$
23,955

 
2
 %
Maintenance and services
66,648

 
65,526

 
2
 %
Total revenue
90,970

 
89,481

 
2
 %
Costs of revenue:
 
 
 
 
 
Cost of software licenses
1,588

 
1,482

 
7
 %
Cost of maintenance and services
10,492

 
10,329

 
2
 %
Amortization of acquired intangibles
3,678

 
3,939

 
(7
)%
Total costs of revenue
15,758

 
15,750

 
 %
Gross profit
75,212

 
73,731

 
2
 %
Operating expenses:
 
 
 
 
 
Sales and marketing
25,721

 
29,658

 
(13
)%
Product development
17,334

 
21,797

 
(20
)%
General and administrative
10,568

 
12,380

 
(15
)%
Amortization of acquired intangibles
3,179

 
3,185

 
 %
Restructuring expenses
17,139

 
(66
)
 
*

Acquisition-related expenses
49

 
72

 
(32
)%
Total operating expenses
73,990

 
67,026

 
10
 %
Income from operations
1,222

 
6,705

 
(82
)%
Other (expense) income, net
(1,347
)
 
(1,825
)
 
26
 %
(Loss) income before income taxes
(125
)
 
4,880

 
(103
)%
Provision for income taxes
400

 
1,664

 
(76
)%
Net (loss) income
(525
)
 
3,216

 
(116
)%
 
 
 
 
 
 
(Loss) earnings per share:
 
 
 
 
 
Basic
$
(0.01
)
 
$
0.06

 
(117
)%
Diluted
$
(0.01
)
 
$
0.06

 
(117
)%
Weighted average shares outstanding:
 
 
 
 
 
Basic
48,733

 
50,810

 
(4
)%
Diluted
48,733

 
51,440

 
(5
)%
*Not meaningful

5



CONDENSED CONSOLIDATED BALANCE SHEETS
 
(In thousands)
February 28,
2017
 
November 30, 2016
Assets
 
 
 
Current assets:
 
 
 
Cash, cash equivalents and short-term investments
$
264,192

 
$
249,754

Accounts receivable, net
48,905

 
65,678

Other current assets
23,841

 
20,621

Total current assets
336,938

 
336,053

Property and equipment, net
48,258

 
50,105

Goodwill and intangible assets, net
352,102

 
358,894

Other assets
3,833

 
9,775

Total assets
$
741,131

 
$
754,827

Liabilities and shareholders’ equity
 
 
 
Current liabilities:
 
 
 
Accounts payable and other current liabilities
$
69,607

 
$
59,778

Current portion of long-term debt
14,643

 
15,000

Short-term deferred revenue
136,919

 
128,960

Total current liabilities
221,169

 
203,738

Long-term deferred revenue
10,032

 
8,801

Long-term debt
115,625

 
120,000

Other long-term liabilities
8,119

 
15,659

Shareholders’ equity:
 
 
 
Common stock and additional paid-in capital
239,759

 
239,496

Retained earnings
146,427

 
167,133

Total shareholders’ equity
386,186

 
406,629

Total liabilities and shareholders’ equity
$
741,131

 
$
754,827




6


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  
 
Three Months Ended
(In thousands)
February 28,
2017
 
February 29,
2016
Cash flows from operating activities:
 
 
 
Net (loss) income
$
(525
)
 
$
3,216

Depreciation and amortization
9,358

 
9,940

Stock-based compensation
1,630

 
6,937

Other non-cash adjustments
4,127

 
(715
)
Changes in operating assets and liabilities
22,710

 
3,124

Net cash flows from operating activities
37,300

 
22,502

Capital expenditures
(383
)
 
(1,414
)
Repurchases of common stock, net of issuances
(18,492
)
 
(5,371
)
Payments of debt principal
(3,750
)
 
(3,750
)
Other
(237
)
 
(1,755
)
Net change in cash, cash equivalents and short-term investments
14,438

 
10,212

Cash, cash equivalents and short-term investments, beginning of period
249,754

 
241,279

Cash, cash equivalents and short-term investments, end of period
$
264,192

 
$
251,491




7


RESULTS OF OPERATIONS BY SEGMENT
 
Three Months Ended
(In thousands)
February 28, 2017
 
February 29, 2016
 
% Change
Segment revenue:
 
 
 
 
 
OpenEdge
$
64,508

 
$
64,133

 
1
 %
Data Connectivity and Integration
6,828

 
6,596

 
4
 %
Application Development and Deployment
19,634

 
18,752

 
5
 %
Total revenue
90,970

 
89,481

 
2
 %
Segment costs of revenue and operating expenses:
 
 
 
 

OpenEdge
17,877

 
18,064

 
(1
)%
Data Connectivity and Integration
2,262

 
2,901

 
(22
)%
Application Development and Deployment
7,536

 
8,811

 
(14
)%
Total costs of revenue and operating expenses
27,675

 
29,776

 
(7
)%
Segment contribution:
 
 
 
 

OpenEdge
46,631

 
46,069

 
1
 %
Data Connectivity and Integration
4,566

 
3,695

 
24
 %
Application Development and Deployment
12,098

 
9,941

 
22
 %
Total contribution
63,295

 
59,705

 
6
 %
Other unallocated expenses (1)
62,073

 
53,000

 
17
 %
Income from operations
1,222

 
6,705

 
(82
)%
Other (expense) income, net
(1,347
)
 
(1,825
)
 
26
 %
(Loss) income before provision for income taxes
$
(125
)
 
$
4,880

 
(103
)%
 
 
 
 
 
 
(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.

8


SUPPLEMENTAL INFORMATION

Revenue by Type
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
Q1 2016
 
Q2 2016
 
Q3 2016
 
Q4 2016
 
Q1 2017
License
$
23,955

 
$
28,787

 
$
33,624

 
$
48,497

 
$
24,322

Maintenance
58,336

 
59,485

 
60,368

 
60,188

 
59,138

Services
7,190

 
7,846

 
8,026

 
9,039

 
7,510

Total revenue
$
89,481

 
$
96,118

 
$
102,018

 
$
117,724

 
$
90,970

 
 
 
 
 
 
 
 
 
 
Revenue by Region
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
Q1 2016
 
Q2 2016
 
Q3 2016
 
Q4 2016
 
Q1 2017
North America
$
49,065

 
$
53,392

 
$
58,275

 
$
68,471

 
$
50,305

EMEA
31,221

 
31,577

 
32,719

 
35,301

 
29,844

Latin America
3,693

 
4,389

 
4,667

 
8,407

 
5,023

Asia Pacific
5,502

 
6,760

 
6,357

 
5,545

 
5,798

Total revenue
$
89,481

 
$
96,118

 
$
102,018

 
$
117,724

 
$
90,970

 
 
 
 
 
 
 
 
 
 
Revenue by Segment
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
Q1 2016
 
Q2 2016
 
Q3 2016
 
Q4 2016
 
Q1 2017
OpenEdge
$
64,133

 
$
66,928

 
$
67,534

 
$
77,672

 
$
64,508

Data Connectivity and Integration
6,596

 
10,005

 
14,251

 
17,157

 
6,828

Application Development and Deployment
18,752

 
19,185

 
20,233

 
22,895

 
19,634

Total revenue
$
89,481

 
$
96,118

 
$
102,018

 
$
117,724

 
$
90,970













9


RECONCILIATIONS OF GAAP TO NON-GAAP SELECTED FINANCIAL MEASURES
 
Three Months Ended
 
% Change
(In thousands, except per share data)
February 28, 2017
 
February 29, 2016
 
Non-GAAP
Adjusted revenue:
 
 
 
 
 
 
 
 
 
GAAP revenue
$
90,970

 
 
 
$
89,481

 
 
 


Acquisition-related revenue (1)
233

 
 
 
757

 
 
 
 
Non-GAAP revenue
$
91,203

 
100
 %
 
$
90,238

 
100
 %
 
1
 %
 
 
 
 
 
 
 
 
 
 
Adjusted gross margin:


 
 
 
 
 
 
 


GAAP gross margin
$
75,212

 
83
 %
 
$
73,731

 
82
 %
 
 
Amortization of acquired intangibles
3,678

 
4
 %
 
3,939

 
4
 %
 
 
Stock-based compensation (2)
256

 
 %
 
196

 
 %
 
 
Acquisition-related revenue (1)
233

 
 %
 
757

 
1
 %
 
 
Non-GAAP gross margin
$
79,379

 
87
 %
 
$
78,623

 
87
 %
 
1
 %
 
 
 
 
 
 
 
 
 
 
Adjusted operating expenses:
 
 
 
 
 
 
 
 


GAAP operating expenses
$
73,990

 
81
 %
 
$
67,026

 
75
 %
 
 
Amortization of acquired intangibles
(3,179
)
 
(3
)%
 
(3,185
)
 
(4
)%
 
 
Restructuring expenses
(17,139
)
 
(19
)%
 
66

 
 %
 
 
Acquisition-related expenses
(49
)
 
 %
 
(72
)
 
 %
 
 
Stock-based compensation (2)
(1,374
)
 
(2
)%
 
(6,741
)
 
(8
)%
 
 
Non-GAAP operating expenses
$
52,249

 
57
 %
 
$
57,094

 
63
 %
 
(8
)%
 
 
 
 
 
 
 
 
 
 
Adjusted income from operations:
 
 
 
 
 
 
 
 
 
GAAP operating income
$
1,222

 
1
 %
 
$
6,705

 
7
 %
 


Amortization of acquired intangibles
6,857

 
8
 %
 
7,124

 
8
 %
 
 
Restructuring expenses
17,139

 
19
 %
 
(66
)
 
 %
 


Stock-based compensation (2)
1,630

 
2
 %
 
6,937

 
8
 %
 
 
Acquisition-related
282

 
 %
 
829

 
1
 %
 
 
Non-GAAP income from operations
$
27,130

 
30
 %
 
$
21,529

 
24
 %
 
26
 %
 
 
 
 
 
 
 
 
 
 
Adjusted diluted (loss) earnings per share:
 
 
 
 
 
 
 
 
 
GAAP diluted (loss) earnings per share
$
(0.01
)
 
 
 
$
0.06

 
 
 
 
Amortization of acquired intangibles
0.14

 
 
 
0.14

 
 
 
 
Restructuring expenses
0.35

 
 
 

 
 
 
 
Stock-based compensation (2)
0.03

 
 
 
0.13

 
 
 
 
Acquisition-related

 
 
 
0.02

 
 
 
 
Provision for income taxes
(0.17
)
 


 
(0.08
)
 


 


Non-GAAP diluted earnings per share
$
0.34


 
 
$
0.27

 
 
 
26
 %
 


 
 
 


 
 
 


Non-GAAP weighted avg shares outstanding - diluted
49,034

 
 
 
51,440

 
 
 
(5
)%
 
 
 
 
 
 
 
 
 
 
(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
$
256

 
 
 
$
196

 
 
 
 
Sales and marketing
363

 
 
 
1,078

 
 
 
 
Product development
(104
)
 
 
 
2,679

 
 
 
 
General and administrative
1,115

 
 
 
2,984

 
 
 
 
Operating Expenses
1,374

 
 
 
6,741

 
 
 
 
Total
$
1,630

 
 
 
$
6,937

 
 
 
 

10


OTHER NON-GAAP FINANCIAL MEASURES

Revenue by Type
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
Q1 2017
 
Non-GAAP Adjustment (1)
 
Non-GAAP Revenue
License
$
24,322

 
$
53

 
$
24,375

Maintenance
59,138

 
180

 
59,318

Services
7,510

 

 
7,510

Total revenue
$
90,970

 
$
233

 
$
91,203

 
 
 
 
 
 
Revenue by Region
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
Q1 2017
 
Non-GAAP Adjustment (1)
 
Non-GAAP Revenue
North America
$
50,305

 
$
233

 
$
50,538

EMEA
29,844

 

 
29,844

Latin America
5,023

 

 
5,023

Asia Pacific
5,798

 

 
5,798

Total revenue
$
90,970

 
$
233

 
$
91,203

 
 
 
 
 
 
Revenue by Segment
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
Q1 2017
 
Non-GAAP Adjustment (1)
 
Non-GAAP Revenue
OpenEdge
$
64,508

 
$

 
$
64,508

Data Connectivity and Integration
6,828

 

 
6,828

Application Development and Deployment
19,634

 
233

 
19,867

Total revenue
$
90,970

 
$
233

 
$
91,203

 
 
 
 
 
 
(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)
Q1 2017
 
Q1 2016
 
% Change
Cash flows from operations
$
37,300

 
$
22,502

 
66
 %
Purchases of property and equipment
$
(383
)
 
$
(1,414
)
 
(73
)%
Capitalized software development costs
$

 
$

 
 %
Free cash flow
$
36,917

 
$
21,088

 
75
 %
Add back: restructuring payments
$
6,064

 
$
1,592

 
281
 %
Adjusted free cash flow
$
42,981

 
$
22,680

 
90
 %

11


Non-GAAP Bookings from Application Development and Deployment Segment
(Unaudited)

(In thousands)
Q1 2016
 
Q2 2016
 
Q3 2016
 
Q4 2016
 
FY 2016
 
Q1 2017
GAAP revenue
$
18,752

 
$
19,185

 
$
20,233

 
$
22,895

 
$
81,065

 
$
19,634

Add: change in deferred revenue
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
49,252

 
49,237

 
51,693

 
51,736

 
49,252

 
52,971

Ending balance
49,237

 
51,693

 
51,736

 
52,971

 
52,971

 
51,298

Change in deferred revenue
(15
)
 
2,456

 
43

 
1,235

 
3,719

 
(1,673
)
Non-GAAP bookings
$
18,737

 
$
21,641

 
$
20,276

 
$
24,130

 
$
84,784

 
$
17,951



SaaS Revenue (Hosted Services) from Application Development and Deployment Segment

(In thousands)
Q1 2016
 
Q2 2016
 
Q3 2016
 
Q4 2016
 
FY 2016
 
Q1 2017
SaaS Revenue - Application Development and Deployment
$
1,071

 
$
1,079

 
$
1,160

 
$
1,163

 
$
4,473

 
$
963



12


RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES FOR FISCAL YEAR 2017 GUIDANCE
(Unaudited)

Fiscal Year 2017 Revenue Growth Guidance
 
Fiscal Year Ended
 
Fiscal Year Ending
 
November 30, 2016
 
November 30, 2017
(In millions)
 
 
Low
 
% Change
 
High
 
% Change
GAAP revenue
$
405.3

 
$
387.3

 
(4
)%
 
$
395.3

 
(2
)%
Acquisition-related adjustments - revenue (1)
$
2.1

 
$
0.7

 
(67
)%
 
$
0.7

 
(67
)%
Non-GAAP revenue
$
407.4

 
$
388.0

 
(5
)%
 
$
396.0

 
(3
)%
 
 
 
 
 
 
 
 
 
 
(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 2017 Non-GAAP Operating Margin Guidance
 
Fiscal Year Ending November 30, 2017
(In millions)
Low
 
High
GAAP income from operations
$
59.9

 
$
66.3

GAAP operating margins
15
%
 
17
%
Acquisition-related revenue
0.7

 
0.7

Stock-based compensation
14.6

 
14.6

Restructuring expense
20.0

 
18.0

Amortization of intangibles
29.7

 
29.7

Total adjustments
65.0

 
63.0

Non-GAAP income from operations
$
124.9

 
$
129.3

Non-GAAP operating margin
32
%
 
33
%

Fiscal Year 2017 Non-GAAP Earnings per Share and Effective Tax Rate Guidance
 
Fiscal Year Ending November 30, 2017
(In millions, except per share data)
Low
 
High
GAAP net income
$
31.0

 
$
34.6

Adjustments (from previous table)
65.0

 
63.0

Income tax adjustment (2)
(16.0
)
 
(14.7
)
Non-GAAP net income
$
80.0

 
$
82.9

 
 
 
 
GAAP diluted earnings per share
$
0.64

 
$
0.70

Non-GAAP diluted earnings per share
$
1.64

 
$
1.69

 
 
 
 
Diluted weighted average shares outstanding
48.7

 
49.1

 
 
 
 
(2) Tax adjustment is based on a non-GAAP effective tax rate of 33% for Low and High, calculated as follows:
Non-GAAP income from operations
$
124.9

 
$
129.3

Other income (expense)
(5.6
)
 
(5.6
)
Non-GAAP income from continuing operations before income taxes
119.3

 
123.7

Non-GAAP net income
80.0

 
82.9

Tax provision
$
39.3

 
$
40.8

Non-GAAP tax rate
33
%
 
33
%

13


RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES FOR Q2 2017 GUIDANCE
(Unaudited)

Q2 2017 Revenue Growth Guidance
 
Three Months Ended
 
Three Months Ending
 
May 31, 2016
 
May 31, 2017
(In millions)
 
 
Low
 
% Change
 
High
 
% Change
GAAP revenue
$
96.1

 
$
88.8

 
(8
)%
 
$
91.8

 
(4
)%
Acquisition-related adjustments - revenue (1)
$
0.6

 
$
0.2

 
(67
)%
 
$
0.2

 
(67
)%
Non-GAAP revenue
$
96.7

 
$
89.0

 
(8
)%
 
$
92.0

 
(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.


Q2 2017 Non-GAAP Earnings per Share Guidance
 
Three Months Ending May 31, 2017
 
Low
 
High
GAAP diluted earnings per share
$
0.13

 
$
0.15

Restructuring expense
0.02

 
0.02

Stock-based compensation
0.08

 
0.08

Amortization of intangibles
0.16

 
0.16

Total adjustments
0.26

 
0.26

Income tax adjustment
$
(0.04
)
 
$
(0.04
)
Non-GAAP diluted earnings per share
$
0.35

 
$
0.37




14