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Progress 2019 Third Quarter Results Exceed Guidance

Progress 2019 Third Quarter Results Exceed Guidance

Raises Guidance for Operating Margin and Earnings per Share

Announces 6% Dividend Increase

BEDFORD, Mass., Sept. 26, 2019 (GLOBE NEWSWIRE) -- Progress (PRGS), the leading provider of application development and digital experience technologies, today announced results for its fiscal third quarter ended August 31, 2019.

On a GAAP basis, revenue was $106.7 million during the quarter compared to $92.6 million in the same quarter last year, a year-over-year increase of 15% on an actual currency basis, and 17% on a constant currency basis. On a non-GAAP basis, revenue was $115.5 million during the quarter compared to $92.7 million in the same quarter last year, an increase of 25% on an actual currency basis and 26% on a constant currency basis.

On a GAAP basis, diluted earnings per share during the quarter was $0.30 compared to $0.32 in the same quarter last year, a decrease of 6%. On a non-GAAP basis, diluted earnings per share during the quarter was $0.75 compared to $0.55 in the same quarter last year, an increase of 36%.

“Our third quarter performance was very strong, sustaining the momentum we’ve seen in our business throughout the year,” said Yogesh Gupta, CEO at Progress. “We exceeded both our revenue and EPS guidance, with a better-than-expected contribution from Ipswitch, our recent acquisition. Our core business continues to perform well, and with our focus on accretive M&A going forward, I’m excited about our opportunity to create long-term value for our shareholders.”

Additional financial highlights included(1):

  Three Months Ended
  GAAP   Non-GAAP
(In thousands, except percentages and per share amounts) August 31,
2019
  August 31,
2018
  %
Change
  August 31,
2019
  August 31,
2018
  %
Change
Revenue $ 106,716     $ 92,603     15 %   $ 115,521     $ 92,696     25 %
Income from operations 15,960     19,103     (16 )%   45,835     32,767     40 %
Operating margin 15 %   21 %   (29 )%   40 %   35 %   14 %
Net income 13,557     14,390     (6 )%   33,849     24,855     36 %
Diluted earnings per share 0.30     0.32     (6 )%   0.75     0.55     36 %
Cash from operations (GAAP) /Adjusted free cash flow (Non-GAAP) $ 26,766     $ 23,301     15 %   $ 27,394     $ 21,272     29 %
(1) The Company adopted the new accounting standard related to revenue recognition ("ASC 606") effective December 1, 2018, using the full retrospective method.  Prior period results have been adjusted to reflect the adoption of this standard.
 

Paul Jalbert, CFO, said: “I’m very pleased that we were able to raise our full year guidance for both operating margin and EPS, reflecting our ability to operate our business efficiently. Our integration efforts for Ipswitch remain on track, and we expect to have substantially all of the $15 million of cost synergies in place by the end of 2019, well ahead of schedule. We are focused on a strong Q4, and are confident we will achieve our financial goals for 2019.”

Other fiscal third quarter 2019 metrics and recent results included:

  • Cash, cash equivalents and short-term investments were $145.4 million at the end of the quarter;
  • DSO was 53 days compared to 43 days in the fiscal third quarter of 2018 and 42 days in the fiscal second quarter of 2019; and
  • On September 24, 2019, our Board of Directors declared a quarterly dividend of $0.165 per share of common stock that will be paid on December 16, 2019 to shareholders of record as of the close of business on December 2, 2019.
    This represents an increase of 6% to the Company’s quarterly dividend.

2019 Business Outlook

Progress provides the following revised guidance for the fiscal year ending November 30, 2019 and the fiscal fourth quarter ending November 30, 2019:

(In millions, except percentages and per share amounts) FY 2019
GAAP
  FY 2019
Non-GAAP
  Q4 2019
GAAP
  Q4 2019
Non-GAAP
Revenue $406 - $409   $425 - $428   $110 - $113   $116 - $119
Diluted earnings per share $0.88 - $0.90   $2.63 - $2.65   $0.19 - $0.22   $0.73 - $0.75
Operating margin 15%   37%   *   *
Cash from operations (GAAP) /
Adjusted free cash flow (Non-GAAP)
$125 - $129   $125 - $130   *   *
Effective tax rate 17%   19%   *   *
*We do not provide guidance for this financial measure.
 

Based on current exchange rates, the expected negative currency translation impact on Progress' fiscal year 2019 business outlook compared to 2018 exchange rates is approximately $7.4 million on GAAP and non-GAAP revenue, and approximately $0.06 on GAAP and non-GAAP diluted earnings per share. The expected negative currency translation impact on Progress' fiscal Q4 2019 business outlook compared to 2018 exchange rates on GAAP and non-GAAP revenue, and on GAAP and non-GAAP diluted earnings per share is approximately $1.3 million and $0.01, respectively. 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 third quarter of 2019 at 5:00 p.m. ET on Thursday, September 26, 2019. 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 8707166. 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.

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. 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, 2018. Progress undertakes no obligation to update any forward-looking statements, which speak only as of the date of this press release.

About Progress

Progress (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.


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

  Three Months Ended   Nine Months Ended
(In thousands, except per share data) August 31,
2019
  August 31,
2018(1)
  %
Change
  August 31,
2019
  August 31,
2018(1)
  %
Change
Revenue:                      
Software licenses $ 30,686     $ 22,852     34 %   $ 83,216     $ 71,432     16 %
Maintenance and services 76,030     69,751     9 %   213,044     209,445     2 %
Total revenue 106,716     92,603     15 %   296,260     280,877     5 %
Costs of revenue:                      
Cost of software licenses 1,204     1,077     12 %   3,296     3,571     (8 )%
Cost of maintenance and services 12,163     10,110     20 %   32,182     29,445     9 %
Amortization of acquired intangibles 7,458     5,509     35 %   18,997     17,226     10 %
Total costs of revenue 20,825     16,696     25 %   54,475     50,242     8 %
Gross profit 85,891     75,907     13 %   241,785     230,635     5 %
Operating expenses:                      
Sales and marketing 25,177     21,752     16 %   72,332     64,838     12 %
Product development 23,126     19,338     20 %   64,704     59,405     9 %
General and administrative 13,506     12,218     11 %   38,445     35,670     8 %
Amortization of acquired intangibles 7,068     3,319     113 %   14,841     9,956     49 %
Fees related to shareholder activist         *         1,472     *  
Restructuring expenses 801     135     493 %   3,993     2,382     68 %
Acquisition-related expenses 253     42     502 %   1,360     128     963 %
Total operating expenses 69,931     56,804     23 %   195,675     173,851     13 %
Income from operations 15,960     19,103     (16 )%   46,110     56,784     (19 )%
Other expense, net (3,718 )   (1,961 )   (90 )%   (8,038 )   (4,830 )   (66 )%
Income before income taxes 12,242     17,142     (29 )%   38,072     51,954     (27 )%
(Benefit) provision for income taxes(2) (1,315 )   2,752     (148 )%   6,932     10,928     (37 )%
Net income $ 13,557     $ 14,390     (6 )%   $ 31,140     $ 41,026     (24 )%
                       
Earnings per share:                      
Basic $ 0.30     $ 0.32     (6 )%   $ 0.70     $ 0.90     (22 )%
Diluted $ 0.30     $ 0.32     (6 )%   $ 0.69     $ 0.88     (22 )%
Weighted average shares outstanding:                      
Basic 44,716     45,130     (1 )%   44,761     45,730     (2 )%
Diluted 45,303     45,576     (1 )%   45,292     46,380     (2 )%
                       
Cash dividends declared per common share $ 0.155     $ 0.140     11 %   $ 0.465     $ 0.420     11 %
(1) The Company adopted ASC 606 effective December 1, 2018, using the full retrospective method.  Prior period results have been adjusted to reflect the adoption of this standard.
(2) In the third quarter of fiscal 2019, an out of period tax benefit of $3.6 million was recorded to adjust for overstated GAAP tax expenses of $1.1 million and $2.5 million in the first and second quarters of fiscal 2019, respectively. This tax benefit does not affect our non-GAAP results.


Stock-based compensation is included in the condensed consolidated statements of operations, as follows:            
                       
Cost of revenue $ 317     $ (96 )   430 %   $ 811     $ 419     94 %
Sales and marketing 968     762     27 %   3,205     2,127     51 %
Product development 1,529     1,744     (12 )%   5,393     5,774     (7 )%
General and administrative 2,676     2,156     24 %   8,002     6,396     25 %
Total $ 5,490     $ 4,566     20 %   $ 17,411     $ 14,716     18 %
*Not meaningful
 


CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

(In thousands) August 31,
2019
  November 30,
2018(1)
Assets      
Current assets:      
Cash, cash equivalents and short-term investments $ 145,397     $ 139,513  
Accounts receivable, net 63,617     59,715  
Unbilled receivables 7,376     1,421  
Other current assets 19,904     25,080  
Assets held for sale     5,776  
Total current assets 236,294     231,505  
Property and equipment, net 31,573     30,714  
Goodwill and intangible assets, net 568,979     373,911  
Long-term unbilled receivables 9,987     1,811  
Other assets 13,092     6,209  
Total assets $ 859,925     $ 644,150  
Liabilities and shareholders’ equity      
Current liabilities:      
Accounts payable and other current liabilities $ 62,524     $ 57,005  
Current portion of long-term debt, net 8,836     5,819  
Short-term deferred revenue 143,972     123,210  
Total current liabilities 215,332     186,034  
Long-term deferred revenue 16,554     12,730  
Long-term debt, net 287,622     110,270  
Other long-term liabilities 7,465     11,114  
Shareholders’ equity:      
Common stock and additional paid-in capital 289,488     267,053  
Retained earnings 43,464     56,949  
Total shareholders’ equity 332,952     324,002  
Total liabilities and shareholders’ equity $ 859,925     $ 644,150  
(1) The Company adopted ASC 606 effective December 1, 2018, using the full retrospective method.  Prior period results have been adjusted to reflect the adoption of this standard.
 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)  

  Three Months Ended   Nine Months Ended
(In thousands) August 31,
2019
  August 31,
2018(1)
  August 31,
2019
  August 31,
2018(1)
Cash flows from operating activities:              
Net income $ 13,557     $ 14,390     $ 31,140     $ 41,026  
Depreciation and amortization 16,822     11,014     40,160     33,647  
Stock-based compensation 5,490     4,566     17,411     14,716  
Other non-cash adjustments 743     (617 )   (5,695 )   (2,065 )
Changes in operating assets and liabilities (9,846 )   (6,052 )   8,867     9,701  
Net cash flows from operating activities 26,766     23,301     91,883     97,025  
Capital expenditures (750 )   (2,772 )   (1,830 )   (5,968 )
Issuances of common stock, net of repurchases 2,044     (16,728 )   (18,653 )   (102,057 )
Dividend payments to shareholders (6,933 )   (6,371 )   (20,819 )   (19,472 )
Payments for acquisitions, net of cash acquired         (225,298 )    
Proceeds from the issuance of debt, net of payment of issuance costs         183,373      
Proceeds from sale of property, plant and equipment, net         6,146      
Payments of principal on long-term debt (1,880 )   (1,547 )   (3,427 )   (4,641 )
Other (2,403 )   (2,202 )   (5,491 )   (10,615 )
Net change in cash, cash equivalents and short-term investments 16,844     (6,319 )   5,884     (45,728 )
Cash, cash equivalents and short-term investments, beginning of period 128,553     144,200     139,513     183,609  
Cash, cash equivalents and short-term investments, end of period $ 145,397     $ 137,881     $ 145,397     $ 137,881  
(1) The Company adopted ASC 606 effective December 1, 2018, using the full retrospective method.  Prior period results have been adjusted to reflect the adoption of this standard.
 

RESULTS OF OPERATIONS BY SEGMENT
(Unaudited)

  Three Months Ended   Nine Months Ended
(In thousands) August 31,
2019
  August 31,
2018(1)
  %
Change
  August 31,
2019
  August 31,
2018(1)
  %
Change
Segment revenue:                      
OpenEdge $ 78,607     $ 68,519     15 %   $ 211,679     $ 204,789     3 %
Data Connectivity and Integration 8,754     4,563     92 %   27,686     17,466     59 %
Application Development and Deployment 19,355     19,521     (1 )%   56,895     58,622     (3 )%
Total revenue 106,716     92,603     15 %   296,260     280,877     5 %
Segment costs of revenue and operating expenses:                      
OpenEdge 22,711     16,419     38 %   60,123     47,194     27 %
Data Connectivity and Integration 1,943     1,520     28 %   5,249     4,823     9 %
Application Development and Deployment 6,093     7,071     (14 )%   17,067     20,068     (15 )%
Total costs of revenue and operating expenses 30,747     25,010     23 %   82,439     72,085     14 %
Segment contribution margin:                      
OpenEdge 55,896     52,100     7 %   151,556     157,595     (4 )%
Data Connectivity and Integration 6,811     3,043     124 %   22,437     12,643     77 %
Application Development and Deployment 13,262     12,450     7 %   39,828     38,554     3 %
Total contribution margin 75,969     67,593     12 %   213,821     208,792     2 %
Other unallocated expenses(2) 60,009     48,490     24 %   167,711     152,008     10 %
Income from operations 15,960     19,103     (16 )%   46,110     56,784     (19 )%
Other expense, net (3,718 )   (1,961 )   (90 )%   (8,038 )   (4,830 )   (66 )%
Income before income taxes $ 12,242     $ 17,142     (29 )%   $ 38,072     $ 51,954     (27 )%
                       
(1) The Company adopted ASC 606 effective December 1, 2018, using the full retrospective method.  Prior period results have been adjusted to reflect the adoption of this standard.
(2) 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, fees related to shareholder activist, restructuring, and acquisition-related expenses.
 


SUPPLEMENTAL INFORMATION
(Unaudited)

Revenue by Type                
                   
(In thousands) Q3 2018(1)   Q4 2018(1)   Q1 2019   Q2 2019   Q3 2019
Software licenses $ 22,852     $ 28,367     $ 22,802     $ 29,728     $ 30,686  
Maintenance 62,170     61,759     59,999     62,528     67,611  
Services 7,581     7,977     6,748     7,739     8,419  
Total revenue $ 92,603     $ 98,103     $ 89,549     $ 99,995     $ 106,716  
                   
Revenue by Region                
                   
(In thousands) Q3 2018(1)   Q4 2018(1)   Q1 2019   Q2 2019   Q3 2019
North America $ 49,756     $ 54,952     $ 46,498     $ 57,060     $ 61,816  
EMEA 32,663     34,047     33,372     33,633     35,109  
Latin America 4,600     4,260     4,461     4,108     3,862  
Asia Pacific 5,584     4,844     5,218     5,194     5,929  
Total revenue $ 92,603     $ 98,103     $ 89,549     $ 99,995     $ 106,716  
                   
Revenue by Segment                  
                   
(In thousands) Q3 2018(1)   Q4 2018(1)   Q1 2019   Q2 2019   Q3 2019
OpenEdge $ 68,519     $ 73,016     $ 65,252     $ 67,820     $ 78,607  
Data Connectivity and Integration 4,563     5,663     6,000     12,932     8,754  
Application Development and Deployment 19,521     19,424     18,297     19,243     19,355  
Total revenue $ 92,603     $ 98,103     $ 89,549     $ 99,995     $ 106,716  
(1) The Company adopted ASC 606 effective December 1, 2018, using the full retrospective method.  Prior period results have been adjusted to reflect the adoption of this standard.
 

RECONCILIATIONS OF GAAP TO NON-GAAP SELECTED FINANCIAL MEASURES - THIRD QUARTER
(Unaudited)

null
  Three Months Ended   % Change
(In thousands, except per share data) August 31, 2019   August 31, 2018(1)   Non-GAAP
Adjusted revenue:                  
GAAP revenue $ 106,716         $ 92,603          
Acquisition-related revenue(2) 8,805         93          
Non-GAAP revenue $ 115,521     100 %   $ 92,696     100 %   25 %
                   
Adjusted income from operations:                  
GAAP income from operations $ 15,960