Document
false0000876167PROGRESS SOFTWARE CORP /MA 0000876167 2020-06-25 2020-06-25



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

June 25, 2020
Date of Report (Date of earliest event reported)
 
 Progress Software Corporation
(Exact name of registrant as specified in its charter)
 
Delaware
0-19417
04-2746201
(State or other jurisdiction of incorporation or organization)
(Commission file number)
(I.R.S. Employer Identification No.)
14 Oak Park
Bedford, Massachusetts 01730
(Address of principal executive offices, including zip code)
(781280-4000
(Registrant’s telephone number, including area code)
Not applicable
(Former name or former address, if changed since last report.)

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:
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.01 par value per share
PRGS
The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant is an emerging growth company as defined in as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.





Section 2 – Financial Information

Item 2.02 Results of Operations and Financial Condition

On June 25, 2020, Progress Software Corporation ("Progress") issued a press release announcing its financial results for the fiscal second quarter ended May 31, 2020. 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 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. We believe this non-GAAP financial information enhances investors’ overall understanding of our current financial performance and our prospects for the future by providing more transparency for certain financial measures and providing a level of disclosure that helps investors understand how we plan and measure our business. We believe that providing this non-GAAP information affords investors a view of our operating results that may be more easily compared to our peer companies and enables investors to consider our operating results on both a GAAP and non-GAAP basis during and following the integration period of our acquisitions.

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 in the press release and is available on the Progress website at www.progress.com within the investor relations section.

As described in more detail below, non-GAAP revenue, non-GAAP costs of sales and operating expenses, non-GAAP income from operations and operating margin, non-GAAP net income, and non-GAAP diluted earnings per share exclude the effect of purchase accounting on the fair value of acquired deferred revenue, amortization of acquired intangible assets, stock-based compensation expense, restructuring charges, acquisition-related and transition expenses, 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, 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 that would otherwise have been recognized but for the purchase accounting treatment of acquisitions. The acquisition-related revenue relates to Ipswitch, which we acquired on April 30, 2019. 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 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 strengthen, our consolidated results stated in U.S. dollars are positively impacted.

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

Section 7 – Regulation FD

Item 7.01 Regulation FD Disclosure

In connection with the issuance of the press release attached hereto as Exhibit 99.1, the supplemental data attached as Exhibit 99.3 to this Current Report will be available on the Progress website within the investor relations section prior to the live conference call.

Section 9 – Financial Statements and Exhibits

Item 9.01 Financial Statements and Exhibits

(d) Exhibits.
Exhibit No.
 
Description
99.1
 
99.3
 





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:
June 25, 2020
Progress Software Corporation
 
 
 
 
 
 
By:
/s/ ANTHONY FOLGER
 
 
 
Anthony Folger
 
 
 
Chief Financial Officer




Exhibit
https://cdn.kscope.io/6f71c0540fd6bb9117a7796d4046ff20-newprogresslogoa30.jpg
 
Exhibit 99.1


P R E S S A N N O U N C E M E N T

Progress 2020 Second Quarter Revenue Exceeds Guidance

Increases 2020 Guidance for Revenue and Earnings Per Share


BEDFORD, MA, June 25, 2020 (GlobeNewswire) — Progress (NASDAQ: PRGS), the leading provider of application development and digital experience technologies, today announced financial results for its fiscal second quarter ended May 31, 2020.

Second Quarter 2020 Highlights:

Revenue of $100.4 million remained flat year-over-year on an actual currency basis, and increased 2% year-over-year on a constant currency basis.
Non-GAAP revenue of $102.5 million decreased 1% on an actual currency basis and increased 1% year-over-year on a constant currency basis.
Diluted earnings per share was $0.37 compared to $0.18 in the same quarter last year, an increase of 106%
Non-GAAP diluted earnings per share was $0.63 compared to $0.65 in the same quarter last year, a decrease of 3%.

“Q2 was a very strong quarter for us,” said Yogesh Gupta, CEO at Progress. “We had solid performances across our segments and products, and our business has proven to be extremely durable, despite the ongoing economic disruption caused by COVID-19. Our confidence in our ability to execute is reflected in our increased full year guidance for revenue and EPS.”

Additional financial highlights included:

 
Three Months Ended
 
GAAP
 
Non-GAAP
(In thousands, except percentages and per share amounts)
May 31, 2020
 
May 31, 2019
 
% Change
 
May 31, 2020
 
May 31, 2019
 
% Change
Revenue
$
100,383

 
$
99,995

 
 %
 
$
102,505

 
$
103,475

 
(1
)%
Income from operations
$
25,309

 
$
14,741

 
72
 %
 
$
39,590

 
$
38,888

 
2
 %
Operating margin
25
%
 
15
%
 
67
 %
 
39
%
 
38
%
 
3
 %
Net income
$
16,968

 
$
8,181

 
107
 %
 
$
28,656

 
$
29,417

 
(3
)%
Diluted earnings per share
$
0.37

 
$
0.18

 
106
 %
 
$
0.63

 
$
0.65

 
(3
)%
Cash from operations (GAAP) /Adjusted free cash flow (Non-GAAP)
$
37,957

 
$
40,674

 
(7
)%
 
$
38,399

 
$
40,438

 
(5
)%

Other fiscal second quarter 2020 metrics and recent results included:

Cash, cash equivalents and short-term investments were $203.6 million at the end of the quarter;
DSO was 47 days compared to 42 days in the fiscal second quarter of 2019 and 49 days in the fiscal first quarter of 2020; and
On June 23, 2020, our Board of Directors declared a quarterly dividend of $0.165 per share of common stock that will be paid on September 15, 2020 to shareholders of record as of the close of business on September 1, 2020.

Anthony Folger, CFO, said: “We are confident in the stability of our business model and our ability to deliver solid results even in this uncertain environment, and will utilize our strong balance sheet to execute aggressively on our strategy to drive long-term value through accretive M&A.”

1


2020 Business Outlook

Progress provides the following updated guidance for the fiscal year ending November 30, 2020 and the fiscal third quarter ending August 31, 2020:

 
Prior FY 2020 Guidance
(March 26, 2020)
 
Updated FY 2020 Guidance
(June 25, 2020)
(In millions, except percentages and per share amounts)
FY 2020
GAAP
 
FY 2020
Non-GAAP
 
FY 2020
GAAP
 
FY 2020
Non-GAAP
Revenue
$420 - $430

 
$428 - $438

 
$425 - $435

 
$433 - $443

Diluted earnings per share
$1.73 - $1.80

 
$2.73 - $2.80

 
$1.81 - $1.85

 
$2.82 - $2.86

Operating margin
27%

 
39%

 
27%

 
40%

Cash from operations (GAAP) /
Adjusted free cash flow (Non-GAAP)
$128 - $138

 
$125 - $135

 
$129 - $139

 
$125 - $135

Effective tax rate
22
%
 
21
%
 
22
%
 
21
%
 
Q3 2020 Guidance
(In millions, except per share amounts)
Q3 2020
GAAP
 
Q3 2020
Non-GAAP
Revenue
$103 - $108
 
$104 - $109
Diluted earnings per share
$0.47 - $0.49
 
$0.69 - $0.71

The expected economic impact of the COVID-19 crisis on our current 2020 business outlook is a reduction of approximately $10 to $13 million on GAAP and non-GAAP revenue, and approximately $0.06 to $0.08 on GAAP and non-GAAP earnings per share.

Based on current exchange rates, the expected negative currency translation impact on Progress' fiscal year 2020 business outlook compared to 2019 exchange rates is approximately $2.2 million on GAAP and non-GAAP revenue, and approximately $0.02 on GAAP and non-GAAP diluted earnings per share. The expected negative currency translation impact on Progress' fiscal Q3 2020 business outlook compared to 2019 exchange rates on GAAP and non-GAAP revenue and earnings per share is not meaningful. To the extent that there are changes in exchange rates versus the current environment, this may have an impact on Progress' business outlook.

Conference Call

Progress will hold a conference call to review its financial results for the fiscal second quarter of 2020 at 5:00 p.m. ET on Thursday, June 25, 2020. The call 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 1-800-458-4121, pass code 5687996. The conference call will include 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.

Legal Notice Regarding Non-GAAP Financial Information

Progress 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 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.  A reconciliation of non-GAAP adjustments to the company's 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. 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 also available on the Progress website within the investor relations section.


2


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 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 have made acquisitions, including our recent acquisition of Ipswitch, and 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. (9) The coronavirus disease (COVID-19) outbreak and the impact it could have on our employees, customers, partners, and the global financial markets could adversely affect our business, results of operations and financial condition. 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, 2019. 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) offers the leading platform for developing and deploying strategic business applications. We enable customers and partners to deliver modern, high-impact digital experiences with a fraction of the effort, time and cost. Progress offers powerful tools for easily building adaptive user experiences across any type of device or touchpoint, the flexibility of a cloud-native app dev platform to deliver modern apps, leading data connectivity technology, web content management, business rules, secure file transfer, network monitoring, plus award-winning machine learning that enables cognitive capabilities to be a part of any application. Over 1,700 independent software vendors, 100,000 enterprise customers, and two million developers rely on Progress to power their applications. Learn about Progress at www.progress.com or +1-800-477-6473.

Progress and Progress Software are trademarks or registered trademarks of Progress Software Corporation and/or its subsidiaries or affiliates in the U.S. and other countries. Any other names contained herein may be trademarks of their respective owners.

Investor Contact:
 
Press Contact:
Brian Flanagan
 
Erica McShane
Progress Software
 
Progress Software
+1 781 280 4817
 
+1 888 365 2779 (x3135)
Investor-Relations@progress.com
 
PR@progress.com


3


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
Three Months Ended
 
Six Months Ended
(In thousands, except per share data)
May 31, 2020
 
May 31, 2019
 
% Change
 
May 31, 2020
 
May 31, 2019
 
% Change
Revenue:
 
 
 
 
 
 
 
 
 
 
 
Software licenses
$
19,663

 
$
29,728

 
(34
)%
 
$
50,292

 
$
52,530

 
(4
)%
Maintenance and services
80,720

 
70,267

 
15
 %
 
159,774

 
137,014

 
17
 %
Total revenue
100,383

 
99,995

 
 %
 
210,066

 
189,544

 
11
 %
Costs of revenue:
 
 
 
 
 
 
 
 
 
 
 
Cost of software licenses
810

 
925

 
(12
)%
 
2,199

 
2,092

 
5
 %
Cost of maintenance and services
11,785

 
10,580

 
11
 %
 
23,636

 
20,019

 
18
 %
Amortization of acquired intangibles
1,664

 
6,106

 
(73
)%
 
3,310

 
11,539

 
(71
)%
Total costs of revenue
14,259

 
17,611

 
(19
)%
 
29,145

 
33,650

 
(13
)%
Gross profit
86,124

 
82,384

 
5
 %
 
180,921

 
155,894

 
16
 %
Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
Sales and marketing
21,716

 
24,832

 
(13
)%
 
45,914

 
47,155

 
(3
)%
Product development
21,787

 
21,688

 
 %
 
43,441

 
41,578

 
4
 %
General and administrative
12,440

 
12,654

 
(2
)%
 
25,188

 
24,939

 
1
 %
Amortization of acquired intangibles
4,177

 
4,585

 
(9
)%
 
8,308

 
7,773

 
7
 %
Restructuring expenses
695

 
2,777

 
(75
)%
 
1,735

 
3,192

 
(46
)%
Acquisition-related expenses

 
1,107

 
*

 
314

 
1,107

 
(72
)%
Total operating expenses
60,815

 
67,643

 
(10
)%
 
124,900

 
125,744

 
(1
)%
Income from operations
25,309

 
14,741

 
72
 %
 
56,021

 
30,150

 
86
 %
Other expense, net
(2,847
)
 
(2,317
)
 
(23
)%
 
(6,244
)
 
(4,320
)
 
(45
)%
Income before income taxes
22,462

 
12,424

 
81
 %
 
49,777

 
25,830

 
93
 %
Provision for income taxes
5,494

 
4,243

 
29
 %
 
11,693

 
8,247

 
42
 %
Net income
$
16,968

 
$
8,181

 
107
 %
 
$
38,084

 
$
17,583

 
117
 %
 
 
 
 
 
 
 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
 
 
 
 
 
 
Basic
$
0.38

 
$
0.18

 
111
 %
 
$
0.85

 
$
0.39

 
118
 %
Diluted
$
0.37

 
$
0.18

 
106
 %
 
$
0.84

 
$
0.39

 
115
 %
Weighted average shares outstanding:
 
 
 
 
 
 
 
 
 
 
 
Basic
44,889

 
44,611

 
1
 %
 
44,893

 
44,784

 
 %
Diluted
45,267

 
45,287

 
 %
 
45,391

 
45,287

 
 %
 
 
 
 
 
 
 
 
 
 
 
 
Cash dividends declared per common share
$
0.165

 
$
0.155

 
6
 %
 
$
0.330

 
$
0.310

 
6
 %
*Not meaningful
Stock-based compensation is included in the condensed consolidated statements of operations, as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of revenue
$
338

 
$
250

 
35
 %
 
$
657

 
$
494

 
33
 %
Sales and marketing
1,110

 
1,190

 
(7
)%
 
2,160

 
2,238

 
(3
)%
Product development
1,899

 
1,936

 
(2
)%
 
3,825

 
3,864

 
(1
)%
General and administrative
2,276

 
2,740

 
(17
)%
 
5,032

 
5,326

 
(6
)%
Total
$
5,623

 
$
6,116

 
(8
)%
 
$
11,674

 
$
11,922

 
(2
)%


4


CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
(In thousands)
May 31,
2020
 
November 30,
2019
Assets
 
 
 
Current assets:
 
 
 
Cash, cash equivalents and short-term investments
$
203,645

 
$
173,685

Accounts receivable, net
54,527

 
72,820

Unbilled receivables and contract assets
12,540

 
10,880

Other current assets
20,686

 
27,280

Total current assets
291,398

 
284,665

Long-term unbilled receivables and contract assets
10,194

 
12,492

Property and equipment, net
27,693

 
29,765

Goodwill and intangible assets, net
519,643

 
532,216

Right-of-use lease assets
24,681

 

Other assets
21,993

 
22,133

Total assets
$
895,602

 
$
881,271

Liabilities and shareholders’ equity
 
 
 
Current liabilities:
 
 
 
Accounts payable and other current liabilities
$
50,525

 
$
72,674

Current portion of long-term debt, net
14,480

 
10,717

Short-term lease liability
6,618

 

Short-term deferred revenue
153,549

 
157,494

Total current liabilities
225,172

 
240,885

Long-term debt, net
276,762

 
284,002

Long-term lease liability
19,896

 

Long-term deferred revenue
19,741

 
19,752

Other long-term liabilities
14,070

 
6,350

Shareholders’ equity:
 
 
 
Common stock and additional paid-in capital
304,282

 
295,953

Retained earnings
35,679

 
34,329

Total shareholders’ equity
339,961

 
330,282

Total liabilities and shareholders’ equity
$
895,602

 
$
881,271




5


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)  
 
Three Months Ended
 
Six Months Ended
(In thousands)
May 31,
2020
 
May 31,
2019
 
May 31,
2020
 
May 31,
2019
Cash flows from operating activities:
 
 
 
 
 
 
 
Net income
$
16,968

 
$
8,181

 
$
38,084

 
$
17,583

Depreciation and amortization
7,572

 
12,852

 
15,241

 
23,338

Stock-based compensation
5,623

 
6,116

 
11,674

 
11,922

Other non-cash adjustments
2,309

 
(3,611
)
 
7,656

 
(6,438
)
Changes in operating assets and liabilities
5,485

 
17,136

 
(1,682
)
 
18,713

Net cash flows from operating activities
37,957

 
40,674

 
70,973

 
65,118

Capital expenditures
(609
)
 
(834
)
 
(1,757
)
 
(1,080
)
Issuances of common stock, net of repurchases
3,063

 
2,409

 
(12,692
)
 
(20,697
)
Dividend payments to shareholders
(7,438
)
 
(6,894
)
 
(14,906
)
 
(13,886
)
Payments for acquisitions, net of cash acquired

 
(225,298
)
 

 
(225,298
)
Proceeds from the issuance of debt, net of payment of issuance costs

 
183,374

 

 
183,374

Proceeds from sale of property, plant and equipment, net

 
6,146

 

 
6,146

Payments of principal on long-term debt
(1,880
)
 

 
(3,762
)
 
(1,547
)
Other
(4,503
)
 
(4,482
)
 
(7,896
)
 
(3,090
)
Net change in cash, cash equivalents and short-term investments
26,590

 
(4,905
)
 
29,960

 
(10,960
)
Cash, cash equivalents and short-term investments, beginning of period
177,055

 
133,458

 
173,685

 
139,513

Cash, cash equivalents and short-term investments, end of period
$
203,645

 
$
128,553

 
$
203,645

 
$
128,553







6


RECONCILIATIONS OF GAAP TO NON-GAAP SELECTED FINANCIAL MEASURES - SECOND QUARTER
(Unaudited)
 
Three Months Ended
 
% Change
(In thousands, except per share data)
May 31, 2020
 
May 31, 2019
 
Non-GAAP
Adjusted revenue:
 
 
 
 
 
 
 
 
 
GAAP revenue
$
100,383

 
 
 
$
99,995

 
 
 
 
Acquisition-related revenue(1)
2,122

 
 
 
3,480

 
 
 
 
Non-GAAP revenue
$
102,505

 
100
 %
 
$
103,475

 
100
 %
 
(1
)%
 
 
 
 
 
 
 
 
 
 
Adjusted income from operations:
 
 
 
 
 
 
 
 
 
GAAP income from operations
$
25,309

 
25
 %
 
$
14,741

 
15
 %
 
 
Amortization of acquired intangibles
5,841

 
6
 %
 
10,691

 
10
 %
 
 
Restructuring expenses and other
695

 
1
 %
 
2,753

 
3
 %
 
 
Stock-based compensation
5,623

 
5
 %
 
6,116

 
6
 %
 
 
Acquisition-related revenue(1) and expenses
2,122

 
2
 %
 
4,587

 
4
 %
 
 
Non-GAAP income from operations
$
39,590

 
39
 %
 
$
38,888

 
38
 %
 
2
 %
 
 
 
 
 
 
 
 
 
 
Adjusted net income:
 
 
 
 
 
 
 
 
 
GAAP net income
$
16,968

 
17
 %
 
$
8,181

 
8
 %
 
 
Amortization of acquired intangibles
5,841

 
6
 %
 
10,691

 
10
 %
 
 
Restructuring expenses and other
695

 
1
 %
 
2,753

 
2
 %
 
 
Stock-based compensation
5,623

 
5
 %
 
6,116

 
6
 %
 
 
Acquisition-related revenue(1) and expenses
2,122

 
2
 %
 
4,587

 
5
 %
 
 
Provision for income taxes
(2,593
)
 
(3
)%
 
(2,911
)
 
(3
)%
 
 
Non-GAAP net income
$
28,656

 
28
 %
 
$
29,417

 
28
 %
 
(3
)%
 
 
 
 
 
 
 
 
 
 
Adjusted diluted earnings per share:
 
 
 
 
 
 
 
 
 
GAAP diluted earnings per share
$
0.37

 


 
$
0.18

 


 
 
Amortization of acquired intangibles
0.13

 


 
0.24

 


 
 
Restructuring expenses and other
0.02

 


 
0.06

 


 
 
Stock-based compensation
0.12

 


 
0.13

 


 
 
Acquisition-related revenue(1) and expenses
0.05

 
 
 
0.10

 
 
 
 
Provision for income taxes
(0.06
)
 


 
(0.06
)
 


 
 
Non-GAAP diluted earnings per share
$
0.63

 


 
$
0.65

 


 
(3
)%
 
 
 
 
 
 
 
 
 
 
Non-GAAP weighted avg shares outstanding - diluted
45,267

 
 
 
45,287

 
 
 
 %
 
 
 
 
 
 
 
 
 
 
(1)Acquisition-related revenue constitutes revenue reflected as pre-acquisition deferred revenue that would otherwise have been recognized but for the purchase accounting treatment of acquisitions. Since GAAP accounting requires the elimination of this revenue, GAAP results alone do not fully capture all of our economic activities. Acquisition-related revenue adjustments relate to Progress' OpenEdge business segment for Ipswitch.

7


RECONCILIATIONS OF GAAP TO NON-GAAP SELECTED FINANCIAL MEASURES - YEAR TO DATE
(Unaudited)
 
Six Months Ended
 
% Change
(In thousands, except per share data)
May 31, 2020
 
May 31, 2019
 
Non-GAAP
Adjusted revenue:
 
 
 
 
 
 
 
 
 
GAAP revenue
$
210,066

 
 
 
$
189,544

 
 
 
 
Acquisition-related revenue(1)
6,201

 
 
 
3,480

 
 
 
 
Non-GAAP revenue
$
216,267

 
100
 %
 
$
193,024

 
100
 %
 
12
%
 
 
 
 
 
 
 
 
 
 
Adjusted income from operations:
 
 
 
 
 
 
 
 
 
GAAP income from operations
$
56,021

 
27
 %
 
$
30,150

 
16
 %
 
 
Amortization of acquired intangibles
11,618

 
5
 %
 
19,312

 
10
 %
 
 
Restructuring expenses and other
1,735

 
 %
 
3,168

 
2
 %
 
 
Stock-based compensation
11,674

 
5
 %
 
11,922

 
6
 %
 
 
Acquisition-related revenue(1) and expenses
6,515

 
3
 %
 
4,587

 
2
 %
 
 
Non-GAAP income from operations
$
87,563

 
40
 %
 
$
69,139

 
36
 %
 
27
%
 
 
 
 
 
 
 
 
 
 
Adjusted net income:
 
 
 
 
 
 
 
 
 
GAAP net income
$
38,084

 
18
 %
 
$
17,583

 
9
 %
 
 
Amortization of acquired intangibles
11,618

 
6
 %
 
19,312

 
10
 %
 
 
Restructuring expenses and other
1,735

 
1
 %
 
3,168

 
2
 %
 
 
Stock-based compensation
11,674

 
5
 %
 
11,922

 
6
 %
 
 
Acquisition-related revenue(1) and expenses
6,515

 
2
 %
 
4,587

 
2
 %
 
 
Provision for income taxes
(6,267
)
 
(3
)%
 
(4,395
)
 
(2
)%
 
 
Non-GAAP net income
$
63,359

 
29
 %
 
$
52,177

 
27
 %
 
21
%
 
 
 
 
 
 
 
 
 
 
Adjusted diluted earnings per share:
 
 
 
 
 
 
 
 
 
GAAP diluted earnings per share
$
0.84

 


 
$
0.39

 


 
 
Amortization of acquired intangibles
0.26

 


 
0.43

 


 
 
Restructuring expenses and other
0.04

 


 
0.07

 


 
 
Stock-based compensation
0.26

 


 
0.26

 


 
 
Acquisition-related revenue(1) and expenses
0.14

 
 
 
0.10

 
 
 
 
Provision for income taxes
(0.14
)
 


 
(0.10
)
 


 
 
Non-GAAP diluted earnings per share
$
1.40

 


 
$
1.15

 


 
22
%
 
 
 
 
 
 
 
 
 
 
Non-GAAP weighted avg shares outstanding - diluted
45,391

 
 
 
45,287

 
 
 
%
 
 
 
 
 
 
 
 
 
 
(1)Acquisition-related revenue constitutes revenue reflected as pre-acquisition deferred revenue that would otherwise have been recognized but for the purchase accounting treatment of acquisitions. Since GAAP accounting requires the elimination of this revenue, GAAP results alone do not fully capture all of our economic activities. Acquisition-related revenue adjustments relate to Progress' OpenEdge business segment for Ipswitch.

8


OTHER NON-GAAP FINANCIAL MEASURES
(Unaudited)

Quarter to Date Adjusted Free Cash Flow
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
Q2 2020
 
Q2 2019
 
% Change
Cash flows from operations
$
37,957

 
$
40,674

 
(7
)%
Purchases of property and equipment
(609
)
 
(834
)
 
(27
)%
Free cash flow
37,348

 
39,840

 
(6
)%
Add back: restructuring payments
1,051

 
598

 
76
 %
Adjusted free cash flow
$
38,399

 
$
40,438

 
(5
)%

Year to Date Adjusted Free Cash Flow
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
YTD 2020
 
YTD Q2 2019
 
% Change
Cash flows from operations
$
70,973

 
$
65,118

 
9
%
Purchases of property and equipment
(1,757
)
 
(1,080
)
 
63
%
Free cash flow
69,216

 
64,038

 
8
%
Add back: restructuring payments
2,480

 
757

 
228
%
Adjusted free cash flow
$
71,696

 
$
64,795

 
11
%

9


RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES FOR FISCAL YEAR 2020 GUIDANCE
(Unaudited)
Fiscal Year 2020 Updated Revenue Guidance
 
Fiscal Year Ended
 
Fiscal Year Ending
 
November 30, 2019
 
November 30, 2020
(In millions)
 
 
Low
 
% Change
 
High
 
% Change
GAAP revenue
$
413.3

 
$
424.7

 
3
 %
 
$
434.7

 
5
 %
Acquisition-related adjustments - revenue(1)
18.7

 
8.3

 
(56
)%
 
8.3

 
(56
)%
Non-GAAP revenue
$
432.0

 
$
433.0

 
 %
 
$
443.0

 
3
 %
(1)Acquisition-related revenue constitutes revenue reflected as pre-acquisition deferred revenue that would otherwise have been recognized but for the purchase accounting treatment of acquisitions. Since GAAP accounting requires the elimination of this revenue, GAAP results alone do not fully capture all of our economic activities. Acquisition-related revenue adjustments relate to Progress' OpenEdge business segment for Ipswitch.
Fiscal Year 2020 Updated Non-GAAP Operating Margin Guidance
 
Fiscal Year Ending November 30, 2020
(In millions)
Low
 
High
GAAP income from operations
$
116.6

 
$
118.8

GAAP operating margins
27
%
 
27
%
Acquisition-related revenue
8.3

 
8.3

Acquisition-related expense
0.3

 
0.3

Restructuring expense
1.7

 
1.7

Stock-based compensation
22.9

 
22.9

Amortization of acquired intangibles
23.2

 
23.2

Total adjustments
56.4

 
56.4

Non-GAAP income from operations
$
173.0

 
$
175.2

Non-GAAP operating margin
40
%
 
40
%
Fiscal Year 2020 Updated Non-GAAP Earnings per Share and Effective Tax Rate Guidance
 
Fiscal Year Ending November 30, 2020
(In millions, except per share data)
Low
 
High
GAAP net income
$
82.1

 
$
83.9

Adjustments (from previous table)
56.4

 
56.4

Income tax adjustment(2)
(10.8
)
 
(10.8
)
Non-GAAP net income
$
127.7

 
$
129.5

 
 
 
 
GAAP diluted earnings per share
$
1.81

 
$
1.85

Non-GAAP diluted earnings per share
$
2.82

 
$
2.86

 
 
 
 
Diluted weighted average shares outstanding
45.3

 
45.3

 
 
 
 
(2)Tax adjustment is based on a non-GAAP effective tax rate of approximately 21% for Low and High, calculated as follows:
Non-GAAP income from operations
$
173.0

 
$
175.2

Other (expense) income
(11.3
)
 
(11.3
)
Non-GAAP income from continuing operations before income taxes
161.7

 
163.9

Non-GAAP net income
127.7

 
129.5

Tax provision
$
34.0

 
$
34.4

Non-GAAP tax rate
21
%
 
21
%

10


RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES FOR FISCAL YEAR 2020 GUIDANCE
(Unaudited)

Fiscal Year 2020 Adjusted Free Cash Flow Guidance
 
Fiscal Year Ending November 30, 2020
(In millions)
Low
 
High
Cash flows from operations (GAAP)
$
129

 
$
139

Purchases of property and equipment
(7
)
 
(7
)
Add back: restructuring payments
3

 
3

Adjusted free cash flow (non-GAAP)
$
125

 
$
135



11


RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES FOR Q3 2020 GUIDANCE
(Unaudited)

Q3 2020 Revenue Guidance
 
Three Months Ended
 
Three Months Ending
 
August 31, 2019
 
August 31, 2020
(In millions)
 
 
Low
 
% Change
 
High
 
% Change
GAAP revenue
$
106.7

 
$
102.8

 
(4
)%
 
$
107.8

 
1
 %
Acquisition-related adjustments - revenue(1)
8.8

 
1.2

 
(86
)%
 
1.2

 
(86
)%
Non-GAAP revenue
$
115.5

 
$
104.0

 
(10
)%
 
$
109.0

 
(6
)%
(1)Acquisition-related revenue constitutes revenue reflected as pre-acquisition deferred revenue that would otherwise have been recognized but for the purchase accounting treatment of acquisitions. Since GAAP accounting requires the elimination of this revenue, GAAP results alone do not fully capture all of our economic activities. Acquisition-related revenue adjustments relate to Progress' OpenEdge business segment for Ipswitch.

Q3 2020 Non-GAAP Earnings per Share Guidance
 
Three Months Ending August 31, 2020
 
Low
 
High
GAAP diluted earnings per share
$
0.47

 
$
0.49

Acquisition-related revenue
0.03

 
0.03

Stock-based compensation
0.12

 
0.12

Amortization of acquired intangibles
0.13

 
0.13

Total adjustments
0.28

 
0.28

Income tax adjustment
(0.06
)
 
(0.06
)
Non-GAAP diluted earnings per share
$
0.69

 
$
0.71



12
a2020q2financialresults
Progress Financial Results Q2 2020 Supplemental Data


 
Legal Notice This presentation 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 presentation include, but are not limited to, statements regarding Progress’s strategy; acquisitions; future revenue growth, operating margin and cost savings; strategic partnering and marketing initiatives; and other statements regarding the future operation, direction, prospects 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: ▪ Economic, geopolitical and market conditions 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. ▪ 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. ▪ 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. ▪ 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. ▪ We depend upon our extensive partner channel and we may not be successful in retaining or expanding our relationships with channel partners. ▪ 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. ▪ 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. ▪ We have made acquisitions, including our recent acquisition of Ipswitch, and 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. The coronavirus disease (COVID-19) outbreak and the impact it could have on our employees, customers, partners, and the global financial markets could adversely affect our business, results of operations and financial condition For further information regarding risks and uncertainties associated with our business, please refer to our filings with the Securities and Exchange Commission. Progress undertakes no obligation to update any forward-looking statements, which speak only as of the date of this presentation, except for statements relating to Progress' projected results for the quarter ended August 31, 2020 and fiscal year ended November 30, 2020, which speak only as of June 25, 2020. Finally, during this presentation we will be referring to non-GAAP financial measures such as non-GAAP revenue, non-GAAP income from operations and operating margin, adjusted free cash flow and non-GAAP diluted earnings per share. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. A reconciliation between non-GAAP and the most directly comparable GAAP financial measures appears in our earnings press release for the fiscal quarter ended May 31, 2020 and is available in the Investor Relations section of our Web site. © 2020 Progress Software Corporation and/or its subsidiaries or affiliates. All rights reserved. 2


 
Conference Call Details What: Progress Q2 2020 Financial Results Conference Call When: Thursday, June 25th, 2020 Time: 5:00 p.m. ET Live Call: 1-800-458-4121, pass code 5687996 Live / Recorded Webcast: http://investors.progress.com © 2020 Progress Software Corporation and/or its subsidiaries or affiliates. All rights reserved. 3


 
Summary Highlights • Delivered strong financial results — Revenue above high end of guidance, EPS near high-end and strong cash flows — Increased full year guidance for revenue and EPS • Successfully navigating economic challenges resulting from COVID-19 — Entire global work force working from home for over 3 months without missing a beat — Recurring revenue and customer retention not materially impacted — Velocity of product releases uninterrupted; OpenEdge 12.2, MOVEit 2020 and DevTools products — Actively growing M&A pipeline despite uncertainty • Hired Jeremy Segal as SVP of Corporate Development • Committed to donating to causes that fight racial inequality © 2020 Progress Software Corporation and/or its subsidiaries or affiliates. All rights reserved. 4


 
M&A Framework --- Goal is to double the size of the company in 5 years --- Accretive M&A enables us to add scale and cash flows, and generate strong shareholder returns ▪ Target acquisition profile: ➢ Complementary to our business (product, audience & growth profile) ➢ Significant recurring revenue and excellent retention rates ➢ Cost synergistic and accretive ➢ Operating margins after synergies that are consistent with our overall margins ➢ ROIC above our weighted average cost of capital © 2020 Progress Software Corporation and/or its subsidiaries or affiliates. All rights reserved. 5


 
Progress Investment Highlights Durable, predictable financial model High quality revenue base and highly recurring revenue model Accretive M&A and operational efficiencies driving margin improvement Track record of successful acquisition integration and synergy achievement Delivering meaningful earnings per share and free cash flow growth Disciplined capital allocation strategy © 2020 Progress Software Corporation and/or its subsidiaries or affiliates. All rights reserved. 6


 
Summary Q2 2020 Financial Results Q2 2020 Outlook Q2 2020 Results (3/26/2020) GAAP Revenue $93 M - $99 M $100.4 M (+0% YoY) Non-GAAP Revenue $95 M - $101 M $102.5 M (-1% YoY) GAAP earnings per share (Diluted) $0.36 - $0.40 $0.37 (+106%) Non-GAAP earnings per share (Diluted) $0.60 - $0.64 $0.63 (-3%) GAAP Operating Margin Not guided 25% (+1,000 Bps YoY) Non-GAAP Operating Margin Not guided 39% (+100 Bps YoY) Adjusted Free Cash Flow Not guided $38 M (-5% YoY) © 2020 Progress Software Corporation and/or its subsidiaries or affiliates. All rights reserved. 7


 
Recurring Revenue Contributing to Stability Recurring Revenue % * Mission critical nature of the applications we power 81% 78% + 76% Net revenue retention rate on maintenance – 74% well over 90% = High percentage of recurring revenue and durability during uncertain times 2017 2018 2019 2020 YTD Recurring Revenue includes: Maintenance Revenue, Revenue derived from hosted/SaaS solutions and subscription revenue derived from subscription or term license arrangements * Excludes impact of FX by using constant exchange rates for all years. © 2020 Progress Software Corporation and/or its subsidiaries or affiliates. All rights reserved. 8


 
DCI Revenue vs. ACV the impact of ASC 606 DCI Revenue ($M) - ASC 606 DCI ACV ($M) • Variability in revenue primarily caused by multi- year term license $40 contracts 17% Decrease $32 $32 $32 -$33 $29 • Annual Contract $23 Value shows consistent performance FY17 FY18 FY19 FY20 FY18 FY19 FY20 Guidance Projected © 2020 Progress Software Corporation and/or its subsidiaries or affiliates. All rights reserved. 9


 
Driving Operating Leverage (% of non-GAAP revenue) Non-GAAP Operating Income Non-GAAP Operating Margin $174 40% $162 38% 35% $134 $132 34% 2017 2018 2019 2020 Guidance (Mid-point) 2017 2018 2019 2020 Guidance Focus on cost management and running a lean, profitable business Integrating acquisitions into our operating model drives more scale in operating margin (Ipswitch in May 2019) © 2020 Progress Software Corporation and/or its subsidiaries or affiliates. All rights reserved. 10


 
Strong Liquidity/Debt Capacity Non-GAAP Adjusted Free Cash Flow Leverage Ratios Net Leverage Ratio $125- $135 Gross Leverage Ratio $129 $122 $120 1.8 1.7 1.7 1.6 1.6 $101 1.0 0.9 0.7 0.6 0.5 2016 2017 2018 2019 2020 Guidance Q219 Q319 Q419 Q120 Q220 Strong free cash flow and low leverage ratios allow for greater financing flexibility © 2020 Progress Software Corporation and/or its subsidiaries or affiliates. All rights reserved. 11


 
Capital Allocation Primary focus Capital Allocation 2016 – 2020 • Continue to return capital to Cash shareholders in the form of dividends Dividends Share $93 Repurchases $318 Debt Principal Payments $36 • Accretive M&A that meets our disciplined criteria Capital Spending • Repurchase shares to offset dilution $22 from our equity programs Acquisitions — Existing authorization $250M; $230M $303 remaining Share repurchase authorization — Flexibility to increase, reduce or suspend repurchases, depending on market • Current total: $250M conditions and size and timing of M&A • Remaining: $230M © 2020 Progress Software Corporation and/or its subsidiaries or affiliates. All rights reserved. 12


 
Business Outlook (as of June 25, 2020) Q3 2020 FY 2020 FY 2020 Outlook Prior Outlook Current Outlook (6/25/2020) (3/26/2020) (6/25/2020) Non-GAAP Revenue $104 M - $109 M $428 M – $438 M $433 M – $443 M Non-GAAP EPS $0.69 - $0.71 $2.73 – $2.80 $2.82 – $2.86 Non-GAAP Operating Margin Not guided 39% 40% Non-GAAP Adjusted Free Cash Flow Not guided $125 M – $135 M $125 M – $135 M Non-GAAP Effective Tax Rate Not guided 21% 21% © 2020 Progress Software Corporation and/or its subsidiaries or affiliates. All rights reserved. 13


 
Supplemental Financial Information


 
Results of Operations by Segment (Unaudited) (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: certain product development and corporate sales and marketing expenses, customer support, administration, amortization of acquired intangibles, stock-based compensation, restructuring, and acquisition-related expenses. © 2020 Progress Software Corporation and/or its subsidiaries or affiliates. All rights reserved. 15


 
Supplemental Revenue Information (Unaudited) © 2020 Progress Software Corporation and/or its subsidiaries or affiliates. All rights reserved. 16


 
Other NON-GAAP Financial Measures (Unaudited) © 2020 Progress Software Corporation and/or its subsidiaries or affiliates. All rights reserved. 17


 
Other NON-GAAP Financial Measures (Unaudited) © 2020 Progress Software Corporation and/or its subsidiaries or affiliates. All rights reserved. 18