Raises Guidance for Operating Margin and Earnings per Share
Announces 6% Dividend Increase
BEDFORD, Mass., Sept. 26, 2019 (GLOBE NEWSWIRE) -- Progress (NASDAQ: 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 (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.
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)
| 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 | 15 | % | $ | 19,103 | 21 | % | ||||||||
| Amortization of acquired intangibles | 14,526 | 13 | % | 8,828 | 9 | % | ||||||||||
| Restructuring expenses and other | 801 | 1 | % | 135 | — | % | ||||||||||
| Stock-based compensation | 5,490 | 4 | % | 4,566 | 5 | % | ||||||||||
| Acquisition-related revenue(2) and expenses | 9,058 | 7 | % | 135 | — | % | ||||||||||
| Non-GAAP income from operations | $ | 45,835 | 40 | % | $ | 32,767 | 35 | % | 40 | % | ||||||
| Adjusted net income: | ||||||||||||||||
| GAAP net income | $ | 13,557 | 13 | % | $ | 14,390 | 16 | % | ||||||||
| Amortization of acquired intangibles | 14,526 | 13 | % | 8,828 | 9 | % | ||||||||||
| Restructuring expenses and other | 801 | 1 | % | 135 | — | % | ||||||||||
| Stock-based compensation | 5,490 | 4 | % | 4,566 | 5 | % | ||||||||||
| Acquisition-related revenue(2) and expenses | 9,058 | 7 | % | 135 | — | % | ||||||||||
| Provision for income taxes | (9,583 | ) | (9 | )% | (3,199 | ) | (3 | )% | ||||||||
| Non-GAAP net income | $ | 33,849 | 29 | % | $ | 24,855 | 27 | % | 36 | % | ||||||
| Adjusted diluted earnings per share: | ||||||||||||||||
| GAAP diluted earnings per share | $ | 0.30 | $ | 0.32 | ||||||||||||
| Amortization of acquired intangibles | 0.32 | 0.20 | ||||||||||||||
| Restructuring expenses and other | 0.02 | — | ||||||||||||||
| Stock-based compensation | 0.12 | 0.10 | ||||||||||||||
| Acquisition-related revenue(2) and expenses | 0.20 | — | ||||||||||||||
| Provision for income taxes | (0.21 | ) | (0.07 | ) | ||||||||||||
| Non-GAAP diluted earnings per share | $ | 0.75 | $ | 0.55 | 36 | % | ||||||||||
| Non-GAAP weighted avg shares outstanding - diluted | 45,303 | 45,576 | (1 | )% | ||||||||||||
| (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) 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 in fiscal year 2019 and to Progress' OpenEdge business segment for Kinvey and Application Development and Deployment business segment for Telerik in fiscal year 2018. | ||||||||||||||||
RECONCILIATIONS OF GAAP TO NON-GAAP SELECTED FINANCIAL MEASURES - YEAR TO DATE
(Unaudited)
| Nine Months Ended | % Change | |||||||||||||||
| (In thousands, except per share data) | August 31, 2019 | August 31, 2018(1) | Non-GAAP | |||||||||||||
| Adjusted revenue: | ||||||||||||||||
| GAAP revenue | $ | 296,260 | $ | 280,877 | ||||||||||||
| Acquisition-related revenue(2) | 12,285 | 312 | ||||||||||||||
| Non-GAAP revenue | $ | 308,545 | 100 | % | $ | 281,189 | 100 | % | 10 | % | ||||||
| Adjusted income from operations: | ||||||||||||||||
| GAAP income from operations | $ | 46,110 | 16 | % | $ | 56,784 | 20 | % | ||||||||
| Amortization of acquired intangibles | 33,838 | 11 | % | 27,182 | 10 | % | ||||||||||
| Fees related to shareholder activist | — | — | % | 1,472 | 1 | % | ||||||||||
| Restructuring expenses and other | 3,969 | 1 | % | 2,382 | 1 | % | ||||||||||
| Stock-based compensation | 17,411 | 5 | % | 14,716 | 5 | % | ||||||||||
| Acquisition-related revenue(2) and expenses | 13,645 | 4 | % | 440 | — | % | ||||||||||
| Non-GAAP income from operations | $ | 114,973 | 37 | % | $ | 102,976 | 37 | % | 12 | % | ||||||
| Adjusted net income: | ||||||||||||||||
| GAAP net income | $ | 31,140 | 11 | % | $ | 41,026 | 15 | % | ||||||||
| Amortization of acquired intangibles | 33,838 | 11 | % | 27,182 | 10 | % | ||||||||||
| Fees related to shareholder activist | — | — | % | 1,472 | 1 | % | ||||||||||
| Restructuring expenses and other | 3,969 | 1 | % | 2,382 | 1 | % | ||||||||||
| Stock-based compensation | 17,411 | 5 | % | 14,716 | 5 | % | ||||||||||
| Acquisition-related revenue(2) and expenses | 13,645 | 4 | % | 440 | — | % | ||||||||||
| Provision for income taxes | (13,978 | ) | (4 | )% | (10,479 | ) | (5 | )% | ||||||||
| Non-GAAP net income | $ | 86,025 | 28 | % | $ | 76,739 | 27 | % | 12 | % | ||||||
| Adjusted diluted earnings per share: | ||||||||||||||||
| GAAP diluted earnings per share | $ | 0.69 | $ | 0.88 | ||||||||||||
| Amortization of acquired intangibles | 0.75 | 0.59 | ||||||||||||||
| Fees related to shareholder activist | — | 0.03 | ||||||||||||||
| Restructuring expenses and other | 0.09 | 0.05 | ||||||||||||||
| Stock-based compensation | 0.38 | 0.32 | ||||||||||||||
| Acquisition-related revenue(2) and expenses | 0.30 | 0.01 | ||||||||||||||
| Provision for income taxes | (0.31 | ) | (0.23 | ) | ||||||||||||
| Non-GAAP diluted earnings per share | $ | 1.90 | $ | 1.65 | 15 | % | ||||||||||
| Non-GAAP weighted avg shares outstanding - diluted | 45,292 | 46,380 | (2 | )% | ||||||||||||
| (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) 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 in fiscal year 2019 and to Progress' OpenEdge business segment for Kinvey and Application Development and Deployment business segment for Telerik in fiscal year 2018. | ||||||||||||||||
OTHER NON-GAAP FINANCIAL MEASURES - THIRD QUARTER
(Unaudited)
| Revenue by Type | |||||||||||
| (In thousands) | Q3 2019 | Non-GAAP Adjustment(1) | Non-GAAP Revenue | ||||||||
| Software licenses | $ | 30,686 | $ | 89 | $ | 30,775 | |||||
| Maintenance | 67,611 | 8,472 | 76,083 | ||||||||
| Services | 8,419 | 244 | 8,663 | ||||||||
| Total revenue | $ | 106,716 | $ | 8,805 | $ | 115,521 | |||||
| Revenue by Region | |||||||||||
| (In thousands) | Q3 2019 | Non-GAAP Adjustment(1) | Non-GAAP Revenue | ||||||||
| North America | $ | 61,816 | $ | 4,946 | $ | 66,762 | |||||
| EMEA | 35,109 | 1,526 | 36,635 | ||||||||
| Latin America | 3,862 | 1,765 | 5,627 | ||||||||
| Asia Pacific | 5,929 | 568 | 6,497 | ||||||||
| Total revenue | $ | 106,716 | $ | 8,805 | $ | 115,521 | |||||
| Revenue by Segment | |||||||||||
| (In thousands) | Q3 2019 | Non-GAAP Adjustment(1) | Non-GAAP Revenue | ||||||||
| OpenEdge | $ | 78,607 | $ | 8,805 | $ | 87,412 | |||||
| Data Connectivity and Integration | 8,754 | — | 8,754 | ||||||||
| Application Development and Deployment | 19,355 | — | 19,355 | ||||||||
| Total revenue | $ | 106,716 | $ | 8,805 | $ | 115,521 | |||||
| (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 in fiscal year 2019. | |||||||||||
| Adjusted Free Cash Flow | |||||||||||
| (In thousands) | Q3 2019 | Q3 2018 | % Change | ||||||||
| Cash flows from operations | $ | 26,766 | $ | 23,301 | 15 | % | |||||
| Purchases of property and equipment | (750 | ) | (2,772 | ) | (73 | )% | |||||
| Free cash flow | 26,016 | 20,529 | 27 | % | |||||||
| Add back: restructuring payments | 1,378 | 743 | 85 | % | |||||||
| Adjusted free cash flow | $ | 27,394 | $ | 21,272 | 29 | % | |||||
OTHER NON-GAAP FINANCIAL MEASURES - YEAR TO DATE
(Unaudited)
| Revenue by Type | |||||||||||
| (In thousands) | YTD 2019 | Non-GAAP Adjustment(1) | Non-GAAP Revenue | ||||||||
| Software licenses | $ | 83,216 | $ | 122 | $ | 83,338 | |||||
| Maintenance | 190,138 | 11,595 | 201,733 | ||||||||
| Services | 22,906 | 568 | 23,474 | ||||||||
| Total revenue | $ | 296,260 | $ | 12,285 | $ | 308,545 | |||||
| Revenue by Region | |||||||||||
| (In thousands) | YTD 2019 | Non-GAAP Adjustment(1) | Non-GAAP Revenue | ||||||||
| North America | $ | 165,374 | $ | 7,566 | $ | 172,940 | |||||
| EMEA | 102,114 | 2,105 | 104,219 | ||||||||
| Latin America | 12,431 | 1,826 | 14,257 | ||||||||
| Asia Pacific | 16,341 | 788 | 17,129 | ||||||||
| Total revenue | $ | 296,260 | $ | 12,285 | $ | 308,545 | |||||
| Revenue by Segment | |||||||||||
| (In thousands) | YTD 2019 | Non-GAAP Adjustment(1) | Non-GAAP Revenue | ||||||||
| OpenEdge | $ | 211,679 | $ | 12,285 | $ | 223,964 | |||||
| Data Connectivity and Integration | 27,686 | — | 27,686 | ||||||||
| Application Development and Deployment | 56,895 | — | 56,895 | ||||||||
| Total revenue | $ | 296,260 | $ | 12,285 | $ | 308,545 | |||||
| (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 in fiscal year 2019. | |||||||||||
| Adjusted Free Cash Flow | |||||||||||
| (In thousands) | YTD 2019 | YTD Q3 2018 | % Change | ||||||||
| Cash flows from operations | $ | 91,883 | $ | 97,025 | (5 | )% | |||||
| Purchases of property and equipment | (1,830 | ) | (5,968 | ) | (69 | )% | |||||
| Free cash flow | 90,053 | 91,057 | (1 | )% | |||||||
| Add back: restructuring payments | 2,135 | 5,924 | (64 | )% | |||||||
| Adjusted free cash flow | $ | 92,188 | $ | 96,981 | (5 | )% | |||||
Non-GAAP Bookings from Application Development and Deployment Segment
(Unaudited)
| (In thousands) | Q1 2018(1) | Q2 2018(1) | Q3 2018(1) | Q4 2018(1) | FY 2018(1) | Q1 2019 | Q2 2019 | Q3 2019 | |||||||||||||||||||||||
| GAAP revenue | $ | 19,255 | $ | 19,846 | $ | 19,521 | $ | 19,424 | $ | 78,046 | $ | 18,297 | $ | 19,243 | $ | 19,355 | |||||||||||||||
| Add: change in deferred revenue | |||||||||||||||||||||||||||||||
| Beginning balance, as adjusted | 42,128 | 42,041 | 41,593 | 42,789 | 42,128 | 45,291 | 43,817 | 44,704 | |||||||||||||||||||||||
| Ending balance, as adjusted | 42,041 | 41,593 | 42,789 | 45,291 | 45,291 | 43,817 | 44,704 | 44,737 | |||||||||||||||||||||||
| Change in deferred revenue | (87 | ) | (448 | ) | 1,196 | 2,502 | 3,163 | (1,474 | ) | 887 | 33 | ||||||||||||||||||||
| Non-GAAP bookings | $ | 19,168 | $ | 19,398 | $ | 20,717 | $ | 21,926 | $ | 81,209 | $ | 16,823 | $ | 20,130 | $ | 19,388 | |||||||||||||||
| (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 FINANCIAL MEASURES FOR FISCAL YEAR 2019 GUIDANCE
(Unaudited)
| Fiscal Year 2019 Revenue Guidance | |||||||||||||||||
| Fiscal Year Ended | Fiscal Year Ending | ||||||||||||||||
| November 30, 2018(1) | November 30, 2019 | ||||||||||||||||
| (In millions) | Low | % Change | High | % Change | |||||||||||||
| GAAP revenue | $ | 379.0 | $ | 406.4 | 7 | % | $ | 409.4 | 8 | % | |||||||
| Acquisition-related adjustments - revenue(2) | 0.4 | 18.6 | * | 18.6 | * | ||||||||||||
| Non-GAAP revenue | $ | 379.4 | $ | 425.0 | 12 | % | $ | 428.0 | 13 | % | |||||||
| (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) 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 in fiscal year 2019 and to Progress' OpenEdge business segment for Kinvey and Application Development and Deployment business segment for Telerik in fiscal year 2018. | |||||||||||||||||
| *Not meaningful | |||||||||||||||||
| Fiscal Year 2019 Non-GAAP Operating Margin Guidance | |||||||
| Fiscal Year Ending November 30, 2019 | |||||||
| (In millions) | Low | High | |||||
| GAAP income from operations | $ | 60.4 | $ | 59.5 | |||
| GAAP operating margins | 15 | % | 15 | % | |||
| Acquisition-related revenue | 18.6 | 18.6 | |||||
| Acquisition-related expense | 1.5 | 1.5 | |||||
| Restructuring expense | 6.0 | 8.0 | |||||
| Stock-based compensation | 23.9 | 23.9 | |||||
| Amortization of acquired intangibles | 48.1 | 48.1 | |||||
| Total adjustments | 98.1 | 100.1 | |||||
| Non-GAAP income from operations | $ | 158.5 | $ | 159.6 | |||
| Non-GAAP operating margin | 37 | % | 37 | % | |||
| Fiscal Year 2019 Non-GAAP Earnings per Share and Effective Tax Rate Guidance | |||||||
| Fiscal Year Ending November 30, 2019 | |||||||
| (In millions, except per share data) | Low | High | |||||
| GAAP net income | $ | 40.8 | $ | 40.0 | |||
| Adjustments (from previous table) | 98.1 | 100.1 | |||||
| Income tax adjustment(3) | (19.6 | ) | (20.0 | ) | |||
| Non-GAAP net income | $ | 119.3 | $ | 120.1 | |||
| GAAP diluted earnings per share | $ | 0.90 | $ | 0.88 | |||
| Non-GAAP diluted earnings per share | $ | 2.63 | $ | 2.65 | |||
| Diluted weighted average shares outstanding | 45.4 | 45.4 | |||||
| (3)Tax adjustment is based on a non-GAAP effective tax rate of approximately 19% for Low and High, calculated as follows: | |||||||
| Non-GAAP income from operations | $ | 158.5 | $ | 159.6 | |||
| Other (expense) income | (11.3 | ) | (11.3 | ) | |||
| Non-GAAP income from continuing operations before income taxes | 147.2 | 148.3 | |||||
| Non-GAAP net income | 119.3 | 120.1 | |||||
| Tax provision | $ | 27.9 | $ | 28.2 | |||
| Non-GAAP tax rate | 19 | % | 19 | % | |||
RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES FOR FISCAL YEAR 2019 GUIDANCE
(Unaudited)
| Fiscal Year 2019 Adjusted Free Cash Flow Guidance | |||||||
| Fiscal Year Ending November 30, 2019 | |||||||
| (In millions) | Low | High | |||||
| Cash flows from operations (GAAP) | $ | 125 | $ | 129 | |||
| Purchases of property and equipment | (4 | ) | (4 | ) | |||
| Add back: restructuring payments | 4 | 5 | |||||
| Adjusted free cash flow (non-GAAP) | $ | 125 | $ | 130 | |||
RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES FOR Q4 2019 GUIDANCE
(Unaudited)
| Q4 2019 Revenue Guidance | |||||||||||||||||
| Three Months Ended | Three Months Ending | ||||||||||||||||
| November 30, 2018(1) | November 30, 2019 | ||||||||||||||||
| (In millions) | Low | % Change | High | % Change | |||||||||||||
| GAAP revenue | $ | 98.1 | $ | 109.6 | 12 | % | $ | 112.6 | 15 | % | |||||||
| Acquisition-related adjustments - revenue(2) | 0.2 | 6.4 | * | 6.4 | * | ||||||||||||
| Non-GAAP revenue | $ | 98.3 | $ | 116.0 | 18 | % | $ | 119.0 | 21 | % | |||||||
| (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) 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 in fiscal year 2019 and to Progress' OpenEdge business segment for Kinvey and Application Development and Deployment business segment for Telerik in fiscal year 2018. | |||||||||||||||||
| *Not meaningful | |||||||||||||||||
| Q4 2019 Non-GAAP Earnings per Share Guidance | |||||||
| Three Months Ending November 30, 2019 | |||||||
| Low | High | ||||||
| GAAP diluted earnings per share | $ | 0.22 | $ | 0.19 | |||
| Acquisition-related revenue | 0.14 | 0.14 | |||||
| Restructuring expense | 0.04 | 0.09 | |||||
| Stock-based compensation | 0.14 | 0.14 | |||||
| Amortization of acquired intangibles | 0.31 | 0.31 | |||||
| Total adjustments | 0.63 | 0.68 | |||||
| Income tax adjustment | (0.12 | ) | (0.12 | ) | |||
| Non-GAAP diluted earnings per share | $ | 0.73 | $ | 0.75 | |||
| Investor Contact: | Press Contact: | |
| Brian Flanagan | Erica McShane | |
| Progress Software | Progress Software | |
| +1 781 280 4817 | +1 888 365 2779 (x3135) | |
| flanagan@progress.com | erica.mcshane@progress.com |