Progress Announces Third Quarter 2022 Financial Results
Revenue and EPS Exceed Prior Guidance
BURLINGTON, Mass, September 27, 2022 (GlobeNewswire) — Progress (Nasdaq: PRGS), the trusted provider of infrastructure software, today announced financial results for its fiscal third quarter ended August 31, 2022.
Third Quarter 2022 Highlights1:
•Revenue of $151.2 million increased 3% year-over-year on an actual currency basis, and 6% on a constant currency basis.
•Non-GAAP revenue of $153.1 million remained flat year-over-year on an actual currency basis, and increased 4% on a constant currency basis.
•Annualized Recurring Revenue (“ARR”) of $495 million increased 13% year-over-year on a constant currency basis.
•Operating margin was 21% and Non-GAAP operating margin was 39%.
•Diluted earnings per share was $0.50 compared to $0.70 in the same quarter last year, a decrease of 29%.
•Non-GAAP diluted earnings per share was $1.00 compared to $1.18 in the same quarter last year, a decrease of 15%.
“We’re very pleased to report excellent quarterly results with revenue and earnings per share both exceeding the high end of our guidance ranges for the third consecutive quarter,” said Yogesh Gupta, CEO at Progress. “Our continued execution is further evident in our quarter ending ARR of $495 million and net dollar retention rates that exceeded 101%. The strength in our results was reflected across virtually all our products and provides a strong, durable base for Progress to continue to pursue our Total Growth Strategy.”
Additional financial highlights included:
Three Months Ended
GAAP
Non-GAAP1
(In thousands, except percentages and per share amounts)
August 31, 2022
August 31, 2021
% Change
August 31, 2022
August 31, 2021
% Change
Revenue
$
151,217
$
147,417
3
%
$
153,060
$
152,597
—
%
Income from operations
$
32,021
$
46,046
(30)
%
$
60,075
$
71,163
(16)
%
Operating margin
21
%
31
%
(1000) bps
39
%
47
%
(800) bps
Net income
$
21,797
$
30,976
(30)
%
$
44,090
$
52,577
(16)
%
Diluted earnings per share
$
0.50
$
0.70
(29)
%
$
1.00
$
1.18
(15)
%
Cash from operations (GAAP) /Adjusted free cash flow (Non-GAAP)
$
39,670
$
35,224
13
%
$
39,237
$
35,022
12
%
Other fiscal third quarter 2022 metrics and recent results included:
•Cash, cash equivalents and short-term investments were $224.9 million at the end of the quarter.
•Days sales outstanding was 48 days compared to 54 days in the fiscal third quarter of 2021 and 39 days in the fiscal second quarter of 2022.
•On September 23, 2022, our Board of Directors declared a quarterly dividend of $0.175 per share of common stock which will be paid on December 15, 2022 to shareholders of record as of the close of business on December 1, 2022.
Anthony Folger, CFO, said: “For the third consecutive quarter, Progress has delivered results that have exceeded the high end of our guidance ranges. These results were delivered in the face of global economic uncertainty and significant foreign exchange headwinds and demonstrate the incredible strength of our operating platform.”
1 See Important Information Regarding Non-GAAP Financial Information and a reconciliation of non-GAAP adjustments to Progress’ GAAP financial results at the end of this press release.
1
2022 Business Outlook
Progress provides the following guidance for the fiscal year ending November 30, 2022 and the fiscal fourth quarter ending November 30, 2022:
Updated FY 2022 Guidance (September 27, 2022)
Prior FY 2022 Guidance (June 28, 2022)
(In millions, except percentages and per share amounts)
GAAP
Non-GAAP1
GAAP
Non-GAAP1
Revenue
$601 - 609
$609 - $617
$601 - $609
$609 - $617
Diluted earnings per share
$2.12 - $2.20
$4.08 - $4.12
$2.11 - $2.21
$4.05 - $4.11
Operating margin
22% - 23%
39% - 40%
22% - 23%
39% - 40%
Cash from operations (GAAP) / Adjusted free cash flow (Non-GAAP)
$188 - $193
$185 - $190
$188 - $193
$185 - $190
Effective tax rate
20% - 21%
20% - 21%
21
%
20% - 21%
Q4 2022 Guidance
(In millions, except per share amounts)
GAAP
Non-GAAP1
Revenue
$156 - $164
$158 - $166
Diluted earnings per share
$0.53 - $0.57
$1.06 - $1.10
Based on current exchange rates, the expected negative currency translation impact on Progress' fiscal year 2022 business outlook compared to 2021 exchange rates is approximately $15.9 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 2022 business outlook compared to 2021 exchange rates on GAAP and non-GAAP revenue is approximately $5.0 million. The expected negative impact on GAAP and non-GAAP diluted Q4 2022 earnings per share is $0.02. 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 2022 at 5:00 p.m. ET on Tuesday, September 27, 2022. 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 866-374-5140 or +1 404-400-0571, passcode 824-86-411#. 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.
Important Information Regarding Non-GAAP Financial Information
Progress furnishes certain non-GAAP supplemental information to its financial results. We use such non-GAAP financial measures to evaluate our period-over-period operating performance because our management believes that by excluding the effects of certain items that do not reflect the ordinary earnings of our operations, such information helps illustrate underlying trends in our business and provides us with a more comparable measure of our continuing business, as well as greater understanding of the results from the primary operations of our business. Management also uses such non-GAAP financial measures to establish budgets and operational goals (which are communicated internally and externally), evaluate performance, and allocate resources. In addition, the compensation of our executives and non-executive employees is based in part on the performance of our business as evaluated by such non-GAAP financial measures. We believe these non-GAAP financial measures enhance investors’ overall understanding of our current financial performance and our prospects for the future by: (i) providing more transparency for certain financial measures, (ii) presenting disclosure that helps investors understand how we plan and measure our business, (iii) affords a view of our operating results that may be more easily compared to our peer companies, and (iv) enables investors to consider our operating results on both a GAAP and non-GAAP basis during and following the integration period of our acquisitions.
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 - We include acquisition-related revenue, which constitutes revenue reflected as pre-acquisition deferred revenue related to Chef Software, Inc. and Ipswitch, Inc that would otherwise have been recognized
2
but for the purchase accounting treatment of acquisitions. We believe these adjustments are useful to 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.
•Amortization of acquired intangibles - 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. Adjustments include preliminary estimates relating to the valuation of intangible assets acquired from Kemp. The final amounts will not be available until the Company's internal procedures and reviews are completed.
•Stock-based compensation - 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.
•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. Adjustments include preliminary estimates relating to restructuring expenses from Kemp. The final amounts will not be available until the Company's internal procedures and reviews are completed.
•Acquisition-related and transition expenses - We exclude acquisition-related expenses in order to provide a more meaningful comparison 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.
•Amortization of the discount on our convertible senior notes - In April 2021, in a private offering, we issued 1.0% Convertible Senior Notes with an aggregate principal amount of $360 million, including the over allotment, due April 15, 2026, unless earlier repurchased, redeemed or converted (the "Notes"). We exclude the portion of amortization of debt discount that relates to the equity component of the Notes as they are non-cash and have no direct correlation to the operations of our business. Upon adoption of ASU 2020-06 on December 1, 2021, the Company reversed the separation of the debt and equity components and accounted for the Notes wholly as debt.
•Gain on sale of assets held for sale - We exclude the gain associated with the sale of our Bedford, Massachusetts headquarters during fiscal year 2022. We don’t believe such gains are part of our core operating results because they are inconsistent in amount and frequency and therefore may distort operating trends.
•Income tax adjustment - 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.
•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.
Annual Recurring Revenue ("ARR") - We provide an ARR performance metric to help investors better understand and assess the performance of our business because our mix of revenue generated from recurring sources has increased in recent years. ARR represents the annualized contract value for all active and contractually binding term-based contracts at the end of a period. ARR includes maintenance, software upgrade rights, public cloud and on-premises subscription-based transactions and managed services.
•ARR does not have any standardized meaning and is therefore unlikely to be comparable to similarly titled measures presented by other companies. ARR should be viewed independently of revenue and deferred revenue and is not intended to be combined with or to replace either of those items. ARR is not a forecast and the active contracts at the end of a reporting period used in calculating ARR may or may not be extended or renewed by our customers.
3
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.
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 at the end of this press release and is available on the Progress website at www.progress.com within the investor relations section.
Note Regarding Forward-Looking Statements
This press release contains statements that are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Progress has identified some of these forward-looking statements with words like “believe,” “may,” “could,” “would,” “might,” “should,” “expect,” “intend,” “plan,” “target,” “anticipate” and “continue,” the negative of these words, other terms of similar meaning or the use of future dates.
Forward-looking statements in this press release include, but are not limited to, statements regarding Progress' business outlook, Total Growth Strategy, 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: (i) 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; (ii) 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; (iii) 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; (iv) if the security measures for our software, services, other offerings or our internal information technology infrastructure are compromised or subject to a successful cyber-attack, or if our software offerings contain significant coding or configuration errors, we may experience reputational harm, legal claims and financial exposure; (v) delay or failure to realize the expected synergies and benefits of the Kemp acquisition could negatively impact our future results of operations and financial condition; and (vi) optimization initiatives may disrupt our operations and we may not achieve the expected benefits from our efforts. 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, 2021. Progress undertakes no obligation to update any forward-looking statements, which speak only as of the date of this press release.
About Progress
Dedicated to propelling business forward in a technology-driven world, Progress (Nasdaq: PRGS) helps businesses drive faster cycles of innovation, fuel momentum and accelerate their path to success. As the trusted provider of the best products to develop, deploy and manage high-impact applications, Progress enables customers to develop the applications and experiences they need, deploy where and how they want and manage it all safely and securely. Hundreds of thousands of enterprises, including 1,700 software companies and 3.5 million developers, depend on Progress to achieve their goals—with confidence. Learn more at www.progress.com.
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:
Michael Micciche
Erica McShane
Progress Software
Progress Software
+1 781 850 8450
+1 781 280 4000
Investor-Relations@progress.com
PR@progress.com
4
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
Nine Months Ended
(In thousands, except per share data)
August 31, 2022
August 31, 2021
% Change
August 31, 2022
August 31, 2021
% Change
Revenue:
Software licenses
$
47,618
$
51,930
(8)
%
$
135,182
$
115,354
17
%
Maintenance and services
103,599
95,487
8
%
309,704
275,831
12
%
Total revenue
151,217
147,417
3
%
444,886
391,185
14
%
Costs of revenue:
Cost of software licenses
2,477
1,574
57
%
7,669
3,763
104
%
Cost of maintenance and services
15,761
14,895
6
%
46,707
42,887
9
%
Amortization of acquired intangibles
5,558
3,599
54
%
16,589
10,719
55
%
Total costs of revenue
23,796
20,068
19
%
70,965
57,369
24
%
Gross profit
127,421
127,349
—
%
373,921
333,816
12
%
Operating expenses:
Sales and marketing
34,595
29,737
16
%
100,768
88,468
14
%
Product development
28,650
25,616
12
%
85,966
76,579
12
%
General and administrative
20,141
16,451
22
%
56,339
46,335
22
%
Amortization of acquired intangibles
11,716
7,978
47
%
35,330
22,836
55
%
Restructuring expenses
130
40
225
%
784
1,133
(31)
%
Acquisition-related expenses
168
1,481
(89)
%
3,816
2,721
40
%
Gain on sale of assets held for sale
—
—
*
(10,770)
—
*
Total operating expenses
95,400
81,303
17
%
272,233
238,072
14
%
Income from operations
32,021
46,046
(30)
%
101,688
95,744
6
%
Other expense, net
(4,339)
(6,539)
34
%
(11,209)
(14,409)
22
%
Income before income taxes
27,682
39,507
(30)
%
90,479
81,335
11
%
Provision for income taxes
5,885
8,531
(31)
%
19,118
17,841
7
%
Net income
$
21,797
$
30,976
(30)
%
$
71,361
$
63,494
12
%
Earnings per share:
Basic
$
0.50
$
0.71
(30)
%
$
1.64
$
1.45
13
%
Diluted
$
0.50
$
0.70
(29)
%
$
1.61
$
1.43
13
%
Weighted average shares outstanding:
Basic
43,211
43,762
(1)
%
43,589
43,896
(1)
%
Diluted
43,935
44,502
(1)
%
44,299
44,542
(1)
%
Cash dividends declared per common share
$
0.175
$
0.175
—
%
$
0.525
$
0.525
—
%
Stock-based compensation is included in the condensed consolidated statements of operations, as follows:
Cost of revenue
$
527
$
374
41
%
$
1,410
$
1,234
14
%
Sales and marketing
1,331
1,424
(7)
%
3,423
4,679
(27)
%
Product development
2,586
1,848
40
%
7,548
6,179
22
%
General and administrative
4,195
3,193
31
%
13,729
9,893
39
%
Total
$
8,639
$
6,839
26
%
$
26,110
$
21,985
19
%
*not meaningful
5
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
August 31, 2022
November 30, 2021
Assets
Current assets:
Cash, cash equivalents and short-term investments
$
224,864
$
157,373
Accounts receivable, net
82,258
99,815
Unbilled receivables and contract assets
27,847
25,816
Other current assets
29,465
39,549
Assets held for sale
—
15,255
Total current assets
364,434
337,808
Property and equipment, net
13,409
14,345
Goodwill and intangible assets, net
906,337
958,337
Right-of-use lease assets
18,950
25,253
Long-term unbilled receivables and contract assets
25,972
17,464
Other assets
17,190
10,330
Total assets
$
1,346,292
$
1,363,537
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable and other current liabilities
$
68,581
$
84,215
Current portion of long-term debt, net
6,234
25,767
Short-term operating lease liabilities
7,443
7,926
Short-term deferred revenue
197,425
205,021
Total current liabilities
279,683
322,929
Long-term debt, net
260,779
239,992
Convertible senior notes, net
352,108
294,535
Long-term operating lease liabilities
16,662
23,130
Long-term deferred revenue
53,696
47,359
Other long-term liabilities
16,391
23,103
Shareholders’ equity:
Common stock and additional paid-in capital
318,989
354,676
Retained earnings
47,984
57,813
Total shareholders’ equity
366,973
412,489
Total liabilities and shareholders’ equity
$
1,346,292
$
1,363,537
6
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
Nine Months Ended
(In thousands)
August 31, 2022
August 31, 2021
August 31, 2022
August 31, 2021
Cash flows from operating activities:
Net income
$
21,797
$
30,976
$
71,361
$
63,494
Depreciation and amortization
19,219
16,383
57,816
43,074
Gain on sale of assets held for sale
—
—
(10,770)
—
Stock-based compensation
8,639
6,839
26,110
21,985
Other non-cash adjustments
234
1,009
6,349
4,132
Changes in operating assets and liabilities
(10,219)
(19,983)
1,157
1,917
Net cash flows from operating activities
39,670
35,224
152,023
134,602
Capital expenditures
(1,107)
(625)
(3,086)
(2,741)
Repurchases of common stock, net of issuances
(21,438)
2,947
(65,140)
(25,753)
Dividend payments to shareholders
(7,778)
(7,755)
(23,351)
(23,372)
Proceeds from the issuance of debt, net of payment of issuance costs
—
—
5,517
—
Payments of principal on long-term debt
(1,719)
(5,644)
(5,154)
(111,669)
Proceeds from issuance of Notes, net of issuance costs
—
—
—
349,196
Purchase of capped calls
—
—
—
(43,056)
Other
(8,677)
(3,130)
6,682
475
Net change in cash, cash equivalents and short-term investments
(1,049)
21,017
67,491
277,682
Cash, cash equivalents and short-term investments, beginning of period
225,913
362,660
157,373
105,995
Cash, cash equivalents and short-term investments, end of period
$
224,864
$
383,677
$
224,864
$
383,677
7
RECONCILIATIONS OF GAAP TO NON-GAAP SELECTED FINANCIAL MEASURES - THIRD QUARTER1
