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Revenue and Earnings Per Share Exceed Guidance
ARR surges to $569M; MarkLogic Integration Underway
BURLINGTON, Mass., March 28, 2023 (GLOBE NEWSWIRE) — Progress (Nasdaq: PRGS), the trusted provider of infrastructure software, today announced financial results for its fiscal first quarter ended February 28, 2023.
First Quarter 2023 Highlights1:
Revenue of $164.2 million increased 13% year-over-year on an actual currency basis, and 15% on a constant currency basis.Non-GAAP revenue of $165.6 million increased 12% year-over-year on an actual currency basis, and increased 14% on a constant currency basis.Annualized Recurring Revenue (“ARR”) of $569 million increased 20% year-over-year on a constant currency basis.Operating margin was 22% and Non-GAAP operating margin was 44%.Diluted earnings per share was $0.53 compared to $0.46 in the same quarter last year, an increase of 15%. Non-GAAP diluted earnings per share was $1.19 compared to $0.97 in the same quarter last year, an increase of 23%.
“Our fiscal 2023 started off very strong, with excellent results across virtually all products and geographies and a continuation of the strong demand and superb execution we saw in 2022,” said Yogesh Gupta, CEO at Progress. “Our customers continue to depend heavily on Progress products for reliable, cost-effective, highly functional solutions that help them develop, deploy and manage their high-impact business applications in difficult macroeconomic conditions. Importantly, our integration of MarkLogic, which closed just a couple of weeks before quarter-end, is gaining steam. We are thrilled to welcome our new team-members and look forward to their continued contributions through the year.”
Additional financial highlights included:
Three Months Ended GAAP Non-GAAP1(In thousands, except percentages and per share amounts)February 28,
2023 February 28,
Change February 28,
2023 February 28,
ChangeRevenue$164,226 $144,922 13% $165,611 $147,505 12%Income from operations$35,588 $29,432 21% $72,432 $58,732 23%Operating margin 22% 20% 200 bps 44% 40% 400 bpsNet income$23,674 $20,454 16% $52,759 $43,560 21%Diluted earnings per share$0.53 $0.46 15% $1.19 $0.97 23%Cash from operations (GAAP) /Adjusted free cash flow (Non-GAAP)$46,767 $44,093 6% $46,871 $44,681 5%
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.
Other fiscal first quarter 2023 metrics and recent results included:
Cash, cash equivalents and short-term investments were $122.9 million at the end of the quarter.Days sales outstanding was 42 days compared to 52 days in the fiscal first quarter of 2022 and 62 days in the fiscal fourth quarter of 2022.On March 17, 2023, our Board of Directors declared a quarterly dividend of $0.175 per share of common stock which will be paid on June 15, 2023 to shareholders of record as of the close of business on June 1, 2023.
Anthony Folger, CFO, said: “I’m very pleased with our first quarter results, driven by a strong top line performance across nearly every product line. ARR of $569M grew 20% in constant currency and 4% on a pro-forma basis, while net retention rates increased to 102%. Operating margins came in strong at almost 44%, and our balance sheet remains in great shape, with modest net leverage.”
2023 Business Outlook
Progress provides the following guidance for the fiscal year ending November 30, 2023 and the fiscal second quarter ending May 31, 2023:
Updated FY 2023 Guidance
(March 28, 2023) Prior FY 2023 Guidance
(January 17, 2023)(In millions, except percentages and per share amounts)GAAP Non-GAAP1 GAAP Non-GAAP1Revenue$676 – $684 $680 – $688 $671 – $681 $675 – $685Diluted earnings per share$1.32 – $1.40 $4.09 – $4.17 $1.38 – $1.46 $4.09 – $4.17Operating margin15% – 16% 38% – 39% 16% 38%Cash from operations (GAAP) /
Adjusted free cash flow (Non-GAAP)$173 – $183 $175 – $185 $173 – $183 $175 – $185Effective tax rate20% – 21% 20% – 21% 20% – 21% 20% – 21% Q2 2023 Guidance(In millions, except per share amounts)GAAP Non-GAAP1Revenue$167 – $171 $168 – 172Diluted earnings per share$0.12 – $0.16 $0.88 – $0.92
Based on current exchange rates, the expected currency translation impact on Progress’ fiscal year 2023 business outlook compared to 2022 exchange rates on GAAP and non-GAAP revenue and GAAP and non-GAAP diluted earnings per share is not expected to be material from an accounting perspective. The expected negative currency translation impact on Progress’ fiscal Q2 2023 business outlook compared to 2022 exchange rates on GAAP and non-GAAP revenue is approximately $1.0 million. The expected impact on GAAP and non-GAAP diluted Q2 2023 earnings per share is not expected to be material from an accounting perspective. To the extent that there are changes in exchange rates versus the current environment, this may have an impact on Progress’ business outlook.
Progress will hold a conference call to review its financial results for the fiscal first quarter of 2023 at 5:00 p.m. ET on Tuesday, March 28, 2023. Participants must register for the conference call here: https://register.vevent.com/register/BIc9baf1a1c869434aafddfc9378718010. The webcast can be accessed at: https://edge.media-server.com/mmc/p/cgfomqnf. 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.
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 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 from MarkLogic Corporation (“MarkLogic”), which we acquired on February 7, 2023. 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, 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 those expenses distort trends and are not part of our core operating results. Adjustments include preliminary estimates relating to restructuring expenses from MarkLogic. The final amounts will not be available until the Company’s internal procedures and reviews are completed.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 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.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. Cyber incident costs are provided net of expected insurance recoveries, although the timing of recognizing insurance recoveries may differ from the timing of recognizing the associated expenses. Costs associated with the enhancement of our cybersecurity program are not included within this adjustment. 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.Provision for income taxes – 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.
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 (including the integration of MarkLogic) 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; and (v) risks related to the disruption associated with the ongoing integration 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, 2022. Progress undertakes no obligation to update any forward-looking statements, which speak only as of the date of this press release.
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.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended(In thousands, except per share data)February 28, 2023 February 28, 2022 % ChangeRevenue: Software licenses$57,568 $42,750 35%Maintenance and services 106,658 102,172 4%Total revenue 164,226 144,922 13%Costs of revenue: Cost of software licenses 2,452 2,609 (6)%Cost of maintenance and services 17,501 15,145 16%Amortization of acquired intangibles 6,264 5,458 15%Total costs of revenue 26,217 23,212 13%Gross profit 138,009 121,710 13%Operating expenses: Sales and marketing 33,754 33,469 1%Product development 30,438 28,673 6%General and administrative 18,786 16,991 11%Amortization of acquired intangibles 13,611 11,722 16%Cyber incident 2,692 — *Restructuring expenses 1,397 511 173%Acquisition-related expenses 1,743 912 91%Total operating expenses 102,421 92,278 11%Income from operations 35,588 29,432 21%Other expense, net (5,664) (3,480) 63%Income before income taxes 29,924 25,952 15%Provision for income taxes 6,250 5,498 14%Net income$23,674 $20,454 16% Earnings per share: Basic$0.55 $0.47 17%Diluted$0.53 $0.46 15%Weighted average shares outstanding: Basic 43,300 43,981 (2)%Diluted 44,353 44,708 (1)% Cash dividends declared per common share$0.175 $0.175 —% Stock-based compensation is included in the condensed consolidated statements of operations, as follows:Cost of revenue$620 $411 51%Sales and marketing 1,495 1,402 7%Product development 2,998 2,222 35%General and administrative 4,639 4,079 14%Total$9,752 $8,114 20%
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)February 28, 2023 November 30, 2022Assets Current assets: Cash, cash equivalents and short-term investments$122,925 $256,277Accounts receivable, net 93,347 97,834Unbilled receivables and contract assets, net 33,596 29,158Other current assets 42,833 42,784Total current assets 292,701 426,053Property and equipment, net 14,981 14,927Goodwill and intangible assets, net 1,252,801 888,392Right-of-use lease assets 21,768 17,574Long-term unbilled receivables and contract assets, net 47,922 39,936Other assets 13,434 24,597Total assets$1,643,607 $1,411,479Liabilities and shareholders’ equity Current liabilities: Accounts payable and other current liabilities$75,150 $76,629Current portion of long-term debt, net 7,953 6,234Short-term operating lease liabilities 9,321 7,471Short-term deferred revenue, net 244,733 227,670Total current liabilities 337,157 318,004Long-term debt, net 450,943 259,220Convertible senior notes, net 353,159 352,625Long-term operating lease liabilities 17,341 15,041Long-term deferred revenue, net 57,114 54,770Other long-term liabilities 14,450 13,315Shareholders’ equity: Common stock and additional paid-in capital 338,803 332,083Retained earnings 74,640 66,421Total shareholders’ equity 413,443 398,504Total liabilities and shareholders’ equity$1,643,607 $1,411,479
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended(In thousands)February 28, 2023 February 28, 2022Cash flows from operating activities: Net income$23,674 $20,454 Depreciation and amortization 22,142 19,218 Stock-based compensation 9,752 8,114 Other non-cash adjustments (4,207) 4,442 Changes in operating assets and liabilities (4,594) (8,135)Net cash flows from operating activities 46,767 44,093 Capital expenditures (385) (831)Repurchases of common stock, net of issuances (5,643) (20,906)Dividend payments to shareholders (8,023) (7,784)Payments for acquisitions, net of cash acquired (355,821) — Proceeds from the issuance of debt, net of payment of issuance costs 195,000 5,517 Payments of principal on long-term debt (1,719) (1,719)Other (3,528) (2,421)Net change in cash, cash equivalents and short-term investments (133,352) 15,949 Cash, cash equivalents and short-term investments, beginning of period 256,277 157,373 Cash, cash equivalents and short-term investments, end of period$122,925 $173,322
RECONCILIATIONS OF GAAP TO NON-GAAP SELECTED FINANCIAL MEASURES1
Three Months Ended(In thousands, except per share data)February 28, 2023 February 28, 2022Adjusted revenue: GAAP revenue$164,226 $144,922 Acquisition-related revenue 1,385 2,583 Non-GAAP revenue$165,611 $147,505 Adjusted income from operations: GAAP income from operations$35,588 $29,432 Amortization of acquired intangibles 19,875 17,180 Restructuring expenses and other 1,397 511 Stock-based compensation 9,752 8,114 Acquisition-related revenue and expenses 3,128 3,495 Cyber incident 2,692 — Non-GAAP income from operations$72,432 $58,732 Adjusted net income: GAAP net income$23,674 $20,454 Amortization of acquired intangibles 19,875 17,180 Restructuring expenses and other 1,397 511 Stock-based compensation 9,752 8,114 Acquisition-related revenue and expenses 3,128 3,495 Cyber incident 2,692 — Provision for income taxes (7,759) (6,194)Non-GAAP net income$52,759 $43,560 Adjusted diluted earnings per share: GAAP diluted earnings per share$0.53 $0.46 Amortization of acquired intangibles 0.45 0.38 Stock-based compensation 0.22 0.18 Restructuring expenses and other 0.03 0.01 Acquisition-related revenue and expenses 0.07 0.08 Cyber incident 0.06 — Provision for income taxes (0.17) (0.14)Non-GAAP diluted earnings per share$1.19 $0.97 Non-GAAP weighted avg shares outstanding – diluted 44,353 44,708
OTHER NON-GAAP FINANCIAL MEASURES1
Adjusted Free Cash Flow (In thousands)Q1 2023 Q1 2022 % ChangeCash flows from operations$46,767 $44,093 6%Purchases of property and equipment (385) (831) (54)%Free cash flow 46,382 43,262 7%Add back: restructuring payments 489 1,419 (66)%Adjusted free cash flow$46,871 $44,681 5%
RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES FOR FISCAL YEAR 2023 GUIDANCE1
Fiscal Year 2023 Updated Revenue Guidance Fiscal Year Ended Fiscal Year Ending November 30, 2022 November 30, 2023(In millions) Low % Change High % ChangeGAAP revenue$602.0 $676.3 12% $684.3 14%Acquisition-related adjustments – revenue 8.6 3.7 (57)% 3.7 (57)%Non-GAAP revenue$610.6 $680.0 11% $688.0 13% Fiscal Year 2023 Updated Non-GAAP Operating Margin Guidance Fiscal Year Ending November 30, 2023(In millions)Low HighGAAP income from operations$104.7 $109.2 GAAP operating margins 15% 16%Acquisition-related revenue 3.7 3.7 Acquisition-related expense 4.5 4.5 Restructuring expense 5.0 5.0 Stock-based compensation 41.4 41.4 Amortization of acquired intangibles 98.0 98.0 Cyber incident 3.1 3.1 Total adjustments(2) 155.7 155.7 Non-GAAP income from operations$260.4 $264.9 Non-GAAP operating margin 38% 39%(2)Total adjustments include preliminary estimates relating to the valuation of intangible assets acquired from MarkLogic and restructuring expenses. The final amounts will not be available until the Company’s internal procedures and reviews are completed. Fiscal Year 2023 Updated Non-GAAP Earnings per Share and Effective Tax Rate Guidance Fiscal Year Ending November 30, 2023(In millions, except per share data)Low HighGAAP net income$58.8 $62.3 Adjustments (from previous table) 155.7 155.7 Income tax adjustment(3) (31.9) (31.9)Non-GAAP net income$182.6 $186.1 GAAP diluted earnings per share$1.32 $1.40 Non-GAAP diluted earnings per share$4.09 $4.17 Diluted weighted average shares outstanding 44.6 44.6 2Tax adjustment is based on a non-GAAP effective tax rate of approximately 20% for Low and 21% for High, calculated as follows:Non-GAAP income from operations$260.4 $264.9 Other (expense) income (30.8) (30.8)Non-GAAP income from continuing operations before income taxes 229.6 234.1 Non-GAAP net income 182.6 186.1 Tax provision$47.0 $48.0 Non-GAAP tax rate 20% 21%
RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES FOR FISCAL YEAR 2023 GUIDANCE1
Fiscal Year 2023 Adjusted Free Cash Flow Guidance Fiscal Year Ending November 30, 2023(In millions)Low HighCash flows from operations (GAAP)$173 $183 Purchases of property and equipment (5) (5)Add back: restructuring payments 7 7 Adjusted free cash flow (non-GAAP)$175 $185
RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES FOR Q2 2023 GUIDANCE1
Q2 2023 Revenue Guidance Three Months Ended Three Months Ending May 31, 2022 May 31, 2023(In millions) Low % Change High % ChangeGAAP revenue$148.7 $167.0 12% $171.0 15%Acquisition-related adjustments – revenue 2.2 1.0 (55)% 1.0 (55)%Non-GAAP revenue$150.9 $168.0 11% $172.0 14% Q2 2023 Non-GAAP Earnings per Share Guidance Three Months Ending May 31, 2023 Low HighGAAP diluted earnings per share$0.12 $0.16 Acquisition-related revenue 0.02 0.02 Acquisition-related expense 0.03 0.03 Restructure expense 0.06 0.06 Stock-based compensation 0.24 0.24 Amortization of acquired intangibles 0.59 0.59 Cyber incident 0.01 0.01 Total adjustments 0.95 0.95 Income tax adjustment (0.19) (0.19)Non-GAAP diluted earnings per share$0.88 $0.92
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