Progress Reports 2022 Fiscal Fourth Quarter and Year End Results
Q4 EPS Ahead of Guidance
Definitive Agreement to Acquire MarkLogic Expected to Drive Significant Growth
BURLINGTON, Mass, January 17, 2023 (GlobeNewswire) — Progress (NASDAQ: PRGS), the trusted provider of infrastructure software, today announced financial results for its fiscal fourth quarter and fiscal year ended November 30, 2022.
Fourth Quarter 2022 Highlights1:
•Revenue of $157.1 million increased 12% year-over-year on an actual currency basis and 16% year-over-year on a constant currency basis.
•Non-GAAP revenue of $159.2 million increased 11% year-over-year on an actual currency basis and 15% year-over-year on a constant currency basis.
•Annualized Recurring Revenue (“ARR”) of $497 million increased 3.5% year-over-year on a constant currency basis.
•Operating margin was 19% and Non-GAAP operating margin was 39%.
•Diluted earnings per share was $0.54 compared to $0.33 in the same quarter last year, an increase of 64%.
•Non-GAAP diluted earnings per share was $1.12 compared to $0.92 in the same quarter last year, an increase of 22%.
“The fourth quarter of Fiscal 2022 was the capstone of an outstanding and eventful year for Progress. Our business remained strong in a worsening global environment with steady demand across virtually all of our markets and product lines, and our teams continued to execute well and deliver results ahead of plan.” said Yogesh Gupta, CEO at Progress. “During the year, we successfully completed the integration of Kemp, held our first in-person customer and sales event in over two years, consistently beat consensus estimates and guidance, and we got 2023 off to a great start by signing a definitive agreement to acquire MarkLogic, which we expect will scale Progress to well above $700M in annualized sales. I’m extremely pleased with our fourth-quarter and Fiscal 2022 results, and I look forward to another great year ahead.”
Additional financial highlights included(1):
Three Months Ended
GAAP
Non-GAAP1
(In thousands, except percentages and per share amounts)
November 30, 2022
November 30, 2021
% Change
November 30, 2022
November 30, 2021
% Change
Revenue
$
157,127
$
140,128
12
%
$
159,174
$
143,725
11
%
Income from operations
$
30,443
$
20,358
50
%
$
61,983
$
51,627
20
%
Operating margin
19
%
15
%
400 bps
39
%
36
%
300 bps
Net income
$
23,708
$
14,926
59
%
$
49,238
$
41,292
19
%
Diluted earnings per share
$
0.54
$
0.33
64
%
$
1.12
$
0.92
22
%
Cash from operations (GAAP) /Adjusted free cash flow (Non-GAAP)
$
40,137
$
43,928
(9)
%
$
37,462
$
42,447
(12)
%
Other fiscal fourth quarter 2022 metrics and recent results included:
•Cash and cash equivalents were $251.8 million at the end of the quarter.
•Days sales outstanding was 62 days compared to 60 days in the fiscal fourth quarter of 2021, and 48 days in the fiscal third quarter of 2022.
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
•On January 10, 2023, our Board of Directors declared a quarterly dividend of $0.175 per share of common stock that will be paid on March 15, 2023 to shareholders of record as of the close of business on March 1, 2023, and increased our share repurchase authorization by $150 million to $228 million.
“Q4 results were strong across virtually every metric and we’re very pleased to deliver such a strong close to our fiscal 2022” said Anthony Folger, CFO at Progress. “Our fiscal 2022 performance coupled with the announcement of our entry into a definitive agreement to acquire MarkLogic position us very well to deliver strong financial results in 2023 and beyond.”
Full Year Results
Fiscal Year Ended
GAAP
Non-GAAP1
(In thousands, except percentages and per share amounts)
November 30, 2022
November 30, 2021
% Change
November 30, 2022
November 30, 2021
% Change
Revenue
$
602,013
$
531,313
13
%
$
610,618
$
557,304
10
%
Income from operations
$
132,131
$
116,102
14
%
$
242,088
$
229,159
6
%
Operating margin
22
%
22
%
—
40
%
41
%
(100) bps
Net income
$
95,069
$
78,420
21
%
$
182,774
$
172,886
6
%
Diluted earnings per share
$
2.15
$
1.76
22
%
$
4.13
$
3.87
7
%
Cash from operations (GAAP) /Adjusted free cash flow (Non-GAAP)
$
192,160
$
178,530
8
%
$
189,418
$
179,395
6
%
2023 Business Outlook
Progress provides the following guidance for the fiscal year ending November 30, 2023 and the fiscal first quarter ending February 28, 2023, together with actual results for the same periods in the fiscal year ending November 30, 2022:
FY 2023 Guidance
FY 2022 Actual
(In millions, except percentages and per share amounts)
FY 2023 GAAP
FY 2023
Non-GAAP1
FY 2022 GAAP
FY 2022
Non-GAAP1
Revenue
$671 - $681
$675 - $685
$
602
$
611
Diluted earnings per share
$1.38 - $1.46
$4.09 - $4.17
$
2.15
$
4.13
Operating margin
16%
38%
22%
40%
Cash from operations (GAAP) / Adjusted free cash flow (Non-GAAP)
$173 - $183
$175 - $185
$
192
$
189
Effective tax rate
20% - 21%
20% - 21%
19%
20%
Q1 2023 Guidance
Q1 2022 Actual
(In millions, except per share amounts)
Q1 2023 GAAP
Q1 2023 Non-GAAP
Q1 2022 GAAP
Q1 2022 Non-GAAP
Revenue
$156 - $160
$157 - $161
$
145
$
148
Diluted earnings per share
$0.35 - $0.39
$1.04 - $1.08
$
0.46
$
0.97
Based on current exchange rates, the expected negative currency translation impact on Progress' fiscal year 2023 business outlook compared to 2022 exchange rates is approximately $1.2 million on GAAP and non-GAAP revenue. The expected positive currency translation impact on GAAP and non-GAAP diluted earnings per share for fiscal year 2023 is approximately $0.01. The expected negative currency translation impact on Progress' fiscal Q1 2023 business outlook compared to 2022 exchange rates on GAAP and non-GAAP revenue is approximately $2.5 million. The expected currency translation impact on GAAP and non-GAAP diluted earnings per share for fiscal Q1 2023 is not expected to be material from an accounting perspective. To the extent that there are changes in exchange rates versus the current environment and/or our expectations, this may have an impact on Progress' business outlook.
2
Conference Call
Progress will hold a conference call to review its financial results for the fiscal fourth quarter of 2022 at 5:00 p.m. ET on Tuesday, January 17, 2023. Participants must register for the conference call here: https://register.vevent.com/register/BIb02605ad0a6e40b4bedaeaabeb97147f. The webcast can be accessed at: https://edge.media-server.com/mmc/p/68hjkiqj. The conference call will include comments followed by questions and answers. Attendees must register for the webcast and 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 our financial results. We use such non-GAAP financial measures to evaluate our period-over-period operating performance because our management team believes that by excluding the effects of certain GAAP-related items that in their opinion do not reflect the ordinary earnings of our operations, such information helps to 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, 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 the performance of 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 (including following the integration period of our prior and proposed 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 may 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.
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 that would have been recognized prior to our adoption of Accounting Standards Update No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”) during the fourth quarter of fiscal year 2021. The acquisition-related revenue in our results relates to Chef Software, Inc. and Ipswitch, Inc., which we acquired on October 5, 2020 and April 30, 2019, respectively. Since GAAP accounting required the elimination of this revenue prior to the adoption of ASU 2021-08, 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. Upon our adoption of ASU 2021-08, this adjustment is no longer applicable to subsequent acquisitions. The remaining adjustment is related to our acquisition of Chef and is expected to continue through the end of fiscal year 2023.
•Amortization of acquired intangibles - We exclude amortization of acquired intangibles because we believe that 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 - We exclude stock-based compensation to be consistent with the way management and, in our view, the overall 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, in management's view, those expenses distort trends and are not part of our core operating results.
•Acquisition-related 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
3
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.
•Cyber incident - We exclude certain expenses resulting from the detection of irregular activity on certain portions of our corporate network, as more thoroughly described in the Form 8-K that we filed on December 19, 2022. Expenses include costs to investigate and remediate the cyber incident, as well as legal and other professional services related thereto. We expect to incur legal and other professional services expenses associated with this incident in future periods. The cyber incident is expected to result in operating expenses that would not have otherwise been incurred in the normal course of business operations. We believe that excluding these costs facilitates a more meaningful evaluation of our operating performance and comparisons to our past operating performance.
•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 reporting 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.
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.
4
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) the timing of, or our ability to close, the proposed MarkLogic acquisition or the results expected therefrom; and (vi) risks related to the potential disruption of management’s attention due to the pending acquisition of MarkLogic. 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 and its Quarterly Reports on Form 10-Q for the fiscal quarters ended February 28, 2022, and August 31, 2022. 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
5
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
Fiscal Year Ended
(In thousands, except per share data)
November 30, 2022
November 30, 2021
% Change
November 30, 2022
November 30, 2021
% Change
Revenue:
Software licenses
$
53,154
$
41,236
29
%
$
188,336
$
156,590
20
%
Maintenance and services
103,973
98,892
5
%
413,677
374,723
10
%
Total revenue
157,127
140,128
12
%
602,013
531,313
13
%
Costs of revenue:
Cost of software licenses
2,574
1,508
71
%
10,243
5,271
94
%
Cost of maintenance and services
15,470
15,355
1
%
62,177
58,242
7
%
Amortization of acquired intangibles
5,487
4,217
30
%
22,076
14,936
48
%
Total costs of revenue
23,531
21,080
12
%
94,496
78,449
20
%
Gross profit
133,596
119,048
12
%
507,517
452,864
12
%
Operating expenses:
Sales and marketing
39,992
37,422
7
%
140,760
125,890
12
%
Product development
28,602
26,759
7
%
114,568
103,338
11
%
General and administrative
21,537
18,793
15
%
77,876
65,128
20
%
Amortization of acquired intangibles
11,538
9,160
26
%
46,868
31,996
46
%
Restructuring expenses
95
5,175
(98)
%
879
6,308
(86)
%
Acquisition-related expenses
787
1,381
(43)
%
4,603
4,102
12
%
Cyber incident
602
—
*
602
—
*
Gain on sale of assets held for sale
—
—
*
(10,770)
—
*
Total operating expenses
103,153
98,690
5
%
375,386
336,762
11
%
Income from operations
30,443
20,358
50
%
132,131
116,102
14
%
Other expense, net
(3,667)
(6,159)
40
%
(14,876)
(20,568)
28
%
Income before income taxes
26,776
14,199
89
%
117,255
95,534
23
%
Provision (benefit) for income taxes
3,068
(727)
(522)
%
22,186
17,114
30
%
Net income
$
23,708
$
14,926
59
%
$
95,069
$
78,420
21
%
Earnings per share:
Basic
$
0.55
$
0.34
62
%
$
2.19
$
1.79
22
%
Diluted
$
0.54
$
0.33
64
%
$
2.15
$
1.76
22
%
Weighted average shares outstanding:
Basic
43,134
43,974
(2)
%
43,475
43,916
(1)
%
Diluted
44,091
44,853
(2)
%
44,247
44,620
(1)
%
Cash dividends declared per common share
$
0.175
$
0.175
—
%
$
0.700
$
0.700
—
%
*not meaningful
Stock-based compensation is included in the condensed consolidated statements of operations, as follows:
Cost of revenue
$
559
$
327
71
%
$
1,969
$
1,561
26
%
Sales and marketing
1,461
1,376
6
%
4,884
6,055
(19)
%
Product development
2,778
1,925
44
%
10,326
8,104
27
%
General and administrative
6,186
4,111
50
%
19,915
14,004
42
%
Total
$
10,984
$
7,739
42
%
$
37,094
$
29,724
25
%
6
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
November 30, 2022
November 30, 2021
Assets
Current assets:
Cash, cash equivalents and short-term investments
$
251,762
$
157,373
Accounts receivable, net
97,834
99,815
Unbilled receivables and contract assets, net
29,158
25,816
Other current assets
42,783
39,549
Assets held for sale
—
15,255
Total current assets
421,537
337,808
Property and equipment, net
14,927
14,345
Goodwill and intangible assets, net
888,392
958,337
Right-of-use lease assets
17,574
25,253
Long-term unbilled receivables and contract assets, net
39,936
17,464
Other assets
24,597
10,330
Total assets
$
1,406,963
$
1,363,537
Liabilities and shareholders' equity
Current liabilities:
Accounts payable and other current liabilities
$
76,629
$
84,215
Current portion of long-term debt, net
6,234
25,767
Short-term operating lease liabilities
7,471
7,926
Short-term deferred revenue, net
227,670
205,021
Total current liabilities
318,004
322,929
Long-term debt, net
259,220
239,992
Long-term operating lease liabilities
15,041
23,130
Long-term deferred revenue, net
54,770
47,359
Convertible senior notes, net
352,625
294,535
Other long-term liabilities
13,315
23,103
Shareholders' equity:
Common stock and additional paid-in capital
332,083
354,676
Retained earnings
61,905
57,813
Total shareholders' equity
393,988
412,489
Total liabilities and shareholders' equity
$
1,406,963
$
1,363,537
7
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
Fiscal Year Ended
(In thousands)
November 30, 2022
November 30, 2021
November 30, 2022
November 30, 2021
Cash flows from operating activities:
Net income
$
23,708
$
14,926
$
95,069
$
78,420
Depreciation and amortization
19,022
18,105
76,844
61,179
Gain on sale of assets held for sale
—
—
(10,770)
—
Stock-based compensation
10,984
7,739
37,094
29,724
Other non-cash adjustments
(5,390)
5,631
953
9,763
Changes in operating assets and liabilities
(8,187)
(2,473)
(7,030)
(556)
Net cash flows from operating activities
40,137
43,928
192,160
178,530
Capital expenditures
(3,004)
(1,913)
(6,090)
(4,654)
Issuances of common stock, net of repurchases
4,264
5,786
(60,876)
(19,967)
Dividend payments to shareholders
(7,712)
(8,189)
(31,063)
(31,561)
Payments for acquisitions, net of cash acquired
—
(253,961)
—
(253,961)
Proceeds from the issuance of debt, net of payment of issuance costs
(304)
—
5,213
—
Payments of principal on long-term debt
(1,719)
(5,644)
(6,873)
(117,313)
Proceeds from issuance of Notes, net of issuance costs
—
—
—
349,196
Purchase of capped calls
—
—
—
(43,056)
Other
(4,764)
(6,311)
1,918
(5,836)
Net change in cash, cash equivalents and short-term investments
26,898
(226,304)
94,389
51,378
Cash, cash equivalents and short-term investments, beginning of period
224,864
383,677
157,373
105,995
Cash, cash equivalents and short-term investments, end of period
$
251,762
$
157,373
$
251,762
$
157,373
8
RECONCILIATIONS OF GAAP TO NON-GAAP SELECTED FINANCIAL MEASURES - FOURTH QUARTER1