Progress Reports 2018 Third Quarter Results, Announces 11% Dividend Increase

September 27, 2018 4:15 PM

Solid Revenue and EPS Performance, Generates Strong Cash Flows

BEDFORD, Mass.--(BUSINESS WIRE)-- Progress (NASDAQ: PRGS), the leading provider of application development and digital experience technologies, today announced results for its fiscal third quarter ended August�31, 2018.

Revenue was $95.7 million during the quarter compared to $97.3 million in the same quarter last year, a year-over-year decrease of 2% on an actual currency basis, and 1% on a constant currency basis. On a non-GAAP basis, revenue was $95.8 million during the quarter compared to $97.6 million in the same quarter last year, a decrease of 2% on an actual currency basis, and 1% on a constant currency basis.

On a GAAP basis, diluted earnings per share was $0.37 compared to $0.23 in the same quarter last year, an increase of 61%.�On a non-GAAP basis, diluted earnings per share was $0.60 compared to $0.48 in the same quarter last year, an increase of 25%.

“We are pleased with our Q3 and year-to-date performance, and with the growing interest and pipelines we are seeing for our new initiatives” said Yogesh Gupta, CEO at Progress. "We continue to make the investments we need to further strengthen our business and support our long-term success, while maintaining best-in-class operating margins.”

Additional financial highlights included:

	�	�	�
				Three Months Ended
				GAAP														�	�	�	Non-GAAP
(In thousands, except percentages and per share amounts)				August 31, 2018			�	�	�	August 31, 2017			�	�	�	% Change					August 31, 2018			�	�	�	August 31, 2017			�	�	�	% Change
Revenue				$	95,683					$	97,310					(2	)%				$	95,794					$	97,623					(2	)%
Income from operations				22,183						20,299						9	%				35,865						35,669						1	%
Operating margin				23		%				21		%				10	%				37		%				37		%				—	%
Net income				16,746						11,172						50	%				27,168						23,043						18	%
Diluted earnings per share				0.37						0.23						61	%				0.60						0.48						25	%
Cash from operations (GAAP) /Adjusted free cash flow (Non-GAAP)				$	23,301					$	13,442					73	%				$	21,272					$	18,341					16	%
																																		�

Paul Jalbert, CFO, said: “We had a solid revenue and EPS performance in Q3, and our continued strong cash flows enabled us to increase our dividend, and return over $25 million of capital to shareholders during the quarter. We remain focused on running lean operationally, and maintaining healthy operating margins.”

Other fiscal third quarter 2018 metrics and recent results included:

Cash, cash equivalents and short-term investments were $137.9 million at the end of the quarter;
DSO was 43 days compared to 48 days in the fiscal third quarter of 2017, and 40 days in the fiscal second quarter of 2018;
Pursuant to the $250 million share authorization by the Board of Directors, Progress repurchased 0.5 million shares for $20.0 million during the fiscal third quarter of 2018. As of August�31, 2018, there was $110.0 million remaining under this authorization; and
On September 21, 2018, our Board of Directors declared a quarterly dividend of $0.155 per share of common stock that will be paid on December 17, 2018 to shareholders of record as of the close of business on December 3, 2018. This represents an increase of 11% to the Company's quarterly dividend.

2018 Business Outlook

Progress provides the following guidance for the fiscal year ending November�30, 2018 and for the fourth fiscal quarter ending November�30, 2018:

�

(In millions, except percentages and per share amounts)

FY 2018
GAAP

FY 2018
Non-GAAP

Q4 2018
GAAP

Q4 2018
Non-GAAP

Revenue

$393 - $396

$107 - $110

Diluted earnings per share

$1.41 - $1.44

$2.45 - $2.48

$0.44 - $0.48

$0.71 - $0.74

Operating margin

23%

38%

Cash from operations (GAAP) /

Adjusted free cash flow (Non-GAAP)

$120 - $126

$120 - $125

Effective tax rate

22%

* We do not provide guidance for this financial measure.

�

“While I’m disappointed in our moderated revenue outlook for the year, our business remains solid, led by the consistent performance of our OpenEdge ISVs”, said Mr. Gupta. “I’m confident in our strategy, and in our ability to take advantage of the opportunities we see in modern application development."

Based on current exchange rates, the expected positive currency translation impact on Progress' fiscal year 2018 business outlook compared to 2017 exchange rates is approximately $3.2 million on GAAP and non-GAAP revenue, and $0.01 on GAAP and non-GAAP diluted earnings per share. The expected negative currency translation impact on Progress' fiscal Q4 2018 business outlook compared to 2017 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

The Progress quarterly investor conference call to review its fiscal third quarter of 2018 will be broadcast live at 5:00 p.m. ET on Thursday, September�27, 2018 and 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 1-888-259-8544, pass code 8650705. 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.

Non-GAAP Financial Information

Progress provides non-GAAP supplemental information to its financial results.

We use this non-GAAP information to evaluate our period-over-period operating performance because our management believes the information helps illustrate underlying trends in our business and provides us with a more comparable measure of our continuing business, as well as a greater understanding of the results from the primary operations of our business, by excluding the effects of certain items that do not reflect the ordinary earnings of our operations. Management also uses this non-GAAP financial information to establish budgets and operational goals, which are communicated internally and externally, evaluate performance, and allocate resources. In addition, compensation of our executives and non-executive employees is based in part on the performance of our business evaluated using this same non-GAAP information.

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 below and is available on the Progress website at www.progress.com within the investor relations section.

As described in more detail below, non-GAAP revenue, non-GAAP costs of sales and operating expenses, non-GAAP income from operations and operating margin, non-GAAP net income, and non-GAAP diluted earnings per share exclude the effect of purchase accounting on the fair value of acquired deferred revenue, amortization of acquired intangible assets, stock-based compensation expense, fees related to shareholder activist, restructuring charges, acquisition-related expenses, certain identified non-operating gains and losses, and the related tax effects of the preceding items. 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.

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 - In all periods presented, we include acquisition-related revenue, which constitutes revenue reflected as pre-acquisition deferred revenue that would otherwise have been recognized but for the purchase accounting treatment of acquisitions. The acquisition-related revenue relates to Telerik, which we acquired on December 2, 2014, and Kinvey, which we acquired on June 1, 2017. Since GAAP accounting requires the elimination of this revenue, 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. Additionally, although acquisition-related revenue adjustments are non-recurring with respect to past acquisitions, we expect to incur these adjustments in connection with any future acquisitions.
Amortization of acquired intangibles - In all periods presented, 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.
Stock-based compensation - In all periods presented, 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. Stock-based compensation will continue in future periods.
Fees related to shareholder activist - In September 2017, Praesidium Investment Management publicly announced in a Schedule 13D filed with the Securities and Exchange Commission its disagreement with our strategy and stated that it was seeking changes in the composition of our Board of Directors. We incurred professional and other fees relating to Praesidium’s actions. We exclude these fees because they distort trends and are not part of our core operating results. We do not expect to incur additional professional and other fees related to this matter.
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.
Acquisition-related and transition expenses - In all periods presented, we exclude acquisition-related expenses because those expenses distort trends and are not part of our core operating results. In recent years, we have completed a number of acquisitions, which result in our incurring operating expenses which would not otherwise have been incurred. By excluding certain transition, integration and other acquisition-related expense items in connection with acquisitions, this provides more meaningful comparisons 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.
Income tax adjustment - In all periods presented, 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. For example, if the local currencies of our foreign subsidiaries strengthen, our consolidated results stated in U.S. dollars are positively impacted.

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.

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, 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, 2017, as amended. 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, award-winning machine learning that enables cognitive capabilities to be a part of any application, the flexibility of a serverless cloud to deploy modern apps, business rules, web content management, plus leading data connectivity technology. Over 1,700 independent software vendors, 100,000 enterprise customers, and 2 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, 2018			�	�	August 31, 2017			�	�	% Change					August 31, 2018			�	�	August 31, 2017			�	�	% Change
Revenue:
Software licenses				$	27,204				$	28,529				(5	)%				$	78,986				$	78,443				1	%
Maintenance and services				68,479		�			68,781		�			—	%				206,846		�			203,050		�			2	%
Total revenue				95,683		�			97,310		�			(2	)%				285,832		�			281,493		�			2	%
Costs of revenue:
Cost of software licenses				1,077					1,337					(19	)%				3,571					4,347					(18	)%
Cost of maintenance and services				10,110					10,970					(8	)%				29,445					32,724					(10	)%
Amortization of acquired intangibles				5,509		�			5,768		�			(4	)%				17,226		�			14,129		�			22	%
Total costs of revenue				16,696		�			18,075		�			(8	)%				50,242		�			51,200		�			(2	)%
Gross profit				78,987		�			79,235		�			—	%				235,590		�			230,293		�			2	%
Operating expenses:
Sales and marketing				21,752					23,159					(6	)%				64,838					70,116					(8	)%
Product development				19,338					19,620					(1	)%				59,405					55,745					7	%
General and administrative				12,218					11,164					9	%				35,670					33,338					7	%
Amortization of acquired intangibles				3,319					3,319					—	%				9,956					9,721					2	%
Fees related to shareholder activist				—					—					*					1,472					—					*
Restructuring expense				135					923					(85	)%				2,382					18,724					(87	)%
Acquisition-related expenses				42		�			751		�			(94	)%				128		�			844		�			(85	)%
Total operating expenses				56,804		�			58,936		�			(4	)%				173,851		�			188,488		�			(8	)%
Income from operations				22,183		�			20,299		�			9	%				61,739		�			41,805		�			48	%
Other (expense) income, net				(1,961		)			(1,400		)			(40	)%				(4,830		)			(4,299		)			(12	)%
Income before income taxes				20,222		�			18,899		�			7	%				56,909		�			37,506		�			52	%
Provision for income taxes				3,476		�			7,727		�			(55	)%				11,848		�			16,518		�			(28	)%
Net income				$	16,746	�			$	11,172	�			50	%				$	45,061	�			$	20,988	�			115	%
																													�
Earnings per share:
Basic				$	0.37				$	0.23				61	%				$	0.99				$	0.43				130	%
Diluted				$	0.37				$	0.23				61	%				$	0.97				$	0.43				126	%
Weighted average shares outstanding:
Basic				45,130					48,071					(6	)%				45,730					48,342					(5	)%
Diluted				45,576					48,370					(6	)%				46,380					48,631					(5	)%
																													�
Cash dividends declared per common share				$	0.140				$	0.125				12	%				$	0.420				$	0.375				12	%
																														�

																	�	�	�	�			�	�	�	�			�	�	�
Stock-based compensation is included in the condensed consolidated statements of operations, as follows:
	�	�	�				�	�	�	�			�	�
Cost of revenue				$	(96	)				$	239				(140	)%				$	419					$	790					(47	)%
Sales and marketing				762						808					(6	)%				2,127						1,371						55	%
Product development				1,744						1,645					6	%				5,774						2,699						114	%
General and administrative				2,156		�				1,604		�			34	%				6,396		�				4,699		�				36	%
Total				$	4,566	�				$	4,296	�			6	%				$	14,716	�				$	9,559	�				54	%
																																	�

*Not meaningful

	�	�	�				�	�	�
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
�
(In thousands)				August 31, 2018						November 30, 2017
Assets
Current assets:
Cash, cash equivalents and short-term investments				$	137,881					$	183,609
Accounts receivable, net				45,817						61,210
Other current assets				13,696		�				18,588
Total current assets				197,394		�				263,407
Property and equipment, net				42,689						42,261
Goodwill and intangible assets, net				382,663						409,935
Other assets				2,686		�				3,115
Total assets				$	625,432	�				$	718,718
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable and other current liabilities				$	50,544					$	69,661
Current portion of long-term debt, net				5,819						5,819
Short-term deferred revenue				131,854		�				132,538
Total current liabilities				188,217		�				208,018
Long-term deferred revenue				12,975						9,750
Long-term debt, net				111,725						116,090
Other long-term liabilities				7,043						8,776
Shareholders’ equity:
Common stock and additional paid-in capital				263,255						249,836
Retained earnings				42,217		�				126,248
Total shareholders’ equity				305,472		�				376,084
Total liabilities and shareholders’ equity				$	625,432	�				$	718,718
											�

	�	�	�										�	�	�
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
																�
				Three Months Ended												Nine Months Ended
(In thousands)				August 31, 2018			�	�	�	August 31, 2017						August 31, 2018			�	�	�	August 31, 2017
Cash flows from operating activities:
Net income				$	16,746					$	11,172					$	45,061					$	20,988
Depreciation and amortization				11,014						11,476						33,647						31,324
Stock-based compensation				4,566						4,296						14,716						9,559
Other non-cash adjustments				105						(1,217		)				(1,146		)				3,354
Changes in operating assets and liabilities				(9,130		)				(12,285		)				4,747		�				7,946		�
Net cash flows from operating activities				23,301		�				13,442		�				97,025		�				73,171		�
Capital expenditures				(2,772		)				(342		)				(5,968		)				(865		)
Repurchases of common stock, net of issuances				(16,728		)				(16,768		)				(102,057		)				(36,691		)
Dividend payments to shareholders				(6,371		)				(6,035		)				(19,472		)				(18,151		)
Payments for acquisitions, net of cash acquired				—						(48,879		)				—						(77,149		)
Payments of principal on long-term debt				(1,547		)				(3,750		)				(4,641		)				(11,250		)
Other				(2,202		)				8,566		�				(10,615		)				12,497		�
Net change in cash, cash equivalents and short-term investments				(6,319		)				(53,766		)				(45,728		)				(58,438		)
Cash, cash equivalents and short-term investments, beginning of period				144,200		�				245,082		�				183,609		�				249,754		�
Cash, cash equivalents and short-term investments, end of period				$	137,881	�				$	191,316	�				$	137,881	�				$	191,316	�
																								�

	�	�	�															�	�	�
RESULTS OF OPERATIONS BY SEGMENT
(Unaudited)
																					�
				Three Months Ended																	Nine Months Ended
(In thousands)				August 31, 2018			�	�	�	August 31, 2017			�	�	�	% Change					August 31, 2018			�	�	�	August 31, 2017			�	�	�	% Change
Segment revenue:
OpenEdge				$	68,029					$	68,135					—	%				$	204,404					$	198,533					3	%
Data Connectivity and Integration				7,597						8,987						(15	)%				20,989						22,911						(8	)%
Application Development and Deployment				20,057		�				20,188		�				(1	)%				60,439		�				60,049		�				1	%
Total revenue				95,683		�				97,310		�				(2	)%				285,832		�				281,493		�				2	%
Segment costs of revenue and operating expenses:
OpenEdge				16,419						18,374						(11	)%				47,194						52,538						(10	)%
Data Connectivity and Integration				1,520						2,200						(31	)%				4,823						6,531						(26	)%
Application Development and Deployment				7,071		�				6,369		�				11	%				20,068		�				19,896		�				1	%
Total costs of revenue and operating expenses				25,010		�				26,943		�				(7	)%				72,085		�				78,965		�				(9	)%
Segment contribution margin:
OpenEdge				51,610						49,761						4	%				157,210						145,995						8	%
Data Connectivity and Integration				6,077						6,787						(10	)%				16,166						16,380						(1	)%
Application Development and Deployment				12,986		�				13,819		�				(6	)%				40,371		�				40,153		�				1	%
Total contribution margin				70,673		�				70,367		�				—	%				213,747		�				202,528		�				6	%
Other unallocated expenses (1)				48,490		�				50,068		�				(3	)%				152,008		�				160,723		�				(5	)%
Income from operations				22,183		�				20,299		�				9	%				61,739		�				41,805		�				48	%
Other (expense) income, net				(1,961		)				(1,400		)				(40	)%				(4,830		)				(4,299		)				(12	)%
Income before income taxes				$	20,222	�				$	18,899	�				7	%				$	56,909	�				$	37,506	�				52	%
																																	�
�

(1) 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.

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SUPPLEMENTAL INFORMATION
(Unaudited)
																													�
Revenue by Type
	�	�	�	�
(In thousands)					Q3 2017						Q4 2017						Q1 2018						Q2 2018						Q3 2018
Software licenses					$	28,529					$	45,963					$	25,343					$	26,439					$	27,204
Maintenance					60,536						61,826						61,479						62,323						60,566
Services					8,245		�				8,290		�				7,225		�				7,340		�				7,913
Total revenue					$	97,310	�				$	116,079	�				$	94,047	�				$	96,102	�				$	95,683
																													�
Revenue by Region
																													�
(In thousands)					Q3 2017						Q4 2017						Q1 2018						Q2 2018						Q3 2018
North America					$	55,703					$	66,504					$	51,641					$	50,823					$	52,212
EMEA					31,830						38,039						33,014						35,333						33,422
Latin America					5,009						5,489						4,461						4,256						4,341
Asia Pacific					4,768		�				6,047		�				4,931		�				5,690		�				5,708
Total revenue					$	97,310	�				$	116,079	�				$	94,047	�				$	96,102	�				$	95,683
																													�
Revenue by Segment
																													�
(In thousands)					Q3 2017						Q4 2017						Q1 2018						Q2 2018						Q3 2018
OpenEdge					$	68,135					$	77,639					$	66,408					$	69,967					$	68,029
Data Connectivity and Integration					8,987						18,044						7,604						5,788						7,597
Application Development and Deployment					20,188		�				20,396		�				20,035		�				20,347		�				20,057
Total revenue					$	97,310	�				$	116,079	�				$	94,047	�				$	96,102	�				$	95,683
																														�

	�	�	�																				�	�	�
RECONCILIATIONS OF GAAP TO NON-GAAP SELECTED FINANCIAL MEASURES - QTD
(Unaudited)
																										�
				Three Months Ended																						% Change
(In thousands, except per share data)				August 31, 2018								�	�	�	August 31, 2017											Non-GAAP
Adjusted revenue:							�	�	�									�	�	�
GAAP revenue				$	95,683										$	97,310
Acquisition-related revenue (1)				111		�				�					313		�				�
Non-GAAP revenue				$	95,794	�				100	%				$	97,623	�				100	%				(2	)%
																										�
Adjusted gross margin:
GAAP gross margin				$	78,987					83	%				$	79,235					81	%
Amortization of acquired intangibles				5,509						5	%				5,768						7	%
Stock-based compensation				(96		)				—	%				239						—	%
Acquisition-related revenue (1)				111		�				—	%				313		�				—	%
Non-GAAP gross margin				$	84,511	�				88	%				$	85,555	�				88	%				(1	)%
																										�
Adjusted operating expenses:
GAAP operating expenses				$	56,804					59	%				$	58,936					61	%
Amortization of acquired intangibles				(3,319		)				(3	)%				(3,319		)				(3	)%
Restructuring expenses and other				(135		)				—	%				(923		)				(1	)%
Acquisition-related expenses				(42		)				—	%				(751		)				(1	)%
Stock-based compensation				(4,662		)				(5	)%				(4,057		)				(5	)%
Non-GAAP operating expenses				$	48,646	�				51	%				$	49,886	�				51	%				(2	)%
																										�
Adjusted income from operations:
GAAP income from operations				$	22,183					23	%				$	20,299					21	%
Amortization of acquired intangibles				8,828						9	%				9,087						10	%
Restructuring expenses and other				135						—	%				923						1	%
Stock-based compensation				4,566						5	%				4,296						4	%
Acquisition-related				153		�				—	%				1,064		�				1	%
Non-GAAP income from operations				$	35,865	�				37	%				$	35,669	�				37	%				1	%
																										�
Adjusted diluted earnings per share:
GAAP diluted earnings per share				$	0.37										$	0.23
Amortization of acquired intangibles				0.20											0.19
Restructuring expenses and other				—											0.02
Stock-based compensation				0.10											0.09
Acquisition-related				—											0.02
Provision for income taxes				(0.07		)									(0.07		)
Non-GAAP diluted earnings per share				$	0.60	�									$	0.48	�									25	%
																										�
Non-GAAP weighted avg shares outstanding - diluted				45,576											48,370											(6	)%
																										�

(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. Note that acquisition-related revenue adjustments relate to Progress' OpenEdge and Application Development and Deployment business segments for Kinvey and Telerik, respectively.

	�	�	�																				�	�	�
RECONCILIATIONS OF GAAP TO NON-GAAP SELECTED FINANCIAL MEASURES - YTD
(Unaudited)
																										�
				Nine Months Ended																						% Change
(In thousands, except per share data)				August 31, 2018								�	�	�	August 31, 2017											Non-GAAP
Adjusted revenue:							�	�	�									�	�	�
GAAP revenue				$	285,832										$	281,493
Acquisition-related revenue (1)				368		�				�					759		�				�
Non-GAAP revenue				$	286,200	�				100	%				$	282,252	�				100	%				1	%
																										�
Adjusted gross margin:
GAAP gross margin				$	235,590					82	%				$	230,293					82	%
Amortization of acquired intangibles				17,226						6	%				14,129						5	%
Stock-based compensation				419						1	%				790						—	%
Acquisition-related revenue (1)				368		�				—	%				759		�				—	%
Non-GAAP gross margin				$	253,603	�				89	%				$	245,971	�				87	%				3	%
																										�
Adjusted operating expenses:
GAAP operating expenses				$	173,851					61	%				$	188,488					67	%
Amortization of acquired intangibles				(9,956		)				(3	)%				(9,721		)				(3	)%
Fees related to shareholder activist				(1,472		)				(1	)%				—						—	%
Restructuring expenses and other				(2,382		)				(1	)%				(18,560		)				(8	)%
Acquisition-related expenses				(128		)				—	%				(844		)				—	%
Stock-based compensation				(14,297		)				(5	)%				(8,769		)				(3	)%
Non-GAAP operating expenses				$	145,616	�				51	%				$	150,594	�				53	%				(3	)%
																										�
Adjusted income from operations:
GAAP income from operations				$	61,739					22	%				$	41,805					15	%
Amortization of acquired intangibles				27,182						9	%				23,850						8	%
Fees related to shareholder activist				1,472						1	%				—						—	%
Restructuring expenses and other				2,382						1	%				18,560						7	%
Stock-based compensation				14,716						5	%				9,559						3	%
Acquisition-related				496		�				—	%				1,603		�				1	%
Non-GAAP income from operations				$	107,987	�				38	%				$	95,377	�				34	%				13	%
																										�
Adjusted diluted earnings per share:
GAAP diluted earnings per share				$	0.97										$	0.43
Amortization of acquired intangibles				0.59											0.49
Fees related to shareholder activist				0.03											—
Restructuring expenses and other				0.05											0.38
Stock-based compensation				0.31											0.20
Acquisition-related				0.01											0.03
Provision for income taxes				(0.23		)									(0.29		)
Non-GAAP diluted earnings per share				$	1.73	�									$	1.24	�									40	%
																										�
Non-GAAP weighted avg shares outstanding - diluted				46,380											48,631											(5	)%
																										�

	�	�	�				�	�	�				�	�	�
OTHER NON-GAAP FINANCIAL MEASURES - QTD
(Unaudited)
																�
Revenue by Type
																�
(In thousands)				Q3 2018						Non-GAAP Adjustment (1)						Non-GAAP Revenue
Software licenses				$	27,204					$	19					$	27,223
Maintenance				60,566						69						60,635
Services				7,913		�				23		�				7,936		�
Total revenue				$	95,683	�				$	111	�				$	95,794	�
																�
Revenue by Region
																�
(In thousands)				Q3 2018						Non-GAAP Adjustment (1)						Non-GAAP Revenue
North America				$	52,212					$	111					$	52,323
EMEA				33,422						—						33,422
Latin America				4,341						—						4,341
Asia Pacific				5,708		�				—		�				5,708		�
Total revenue				$	95,683	�				$	111	�				$	95,794	�
																�
Revenue by Segment
																�
(In thousands)				Q3 2018						Non-GAAP Adjustment (1)						Non-GAAP Revenue
OpenEdge				$	68,029					$	23					$	68,052
Data Connectivity and Integration				7,597						—						7,597
Application Development and Deployment				20,057		�				88		�				20,145		�
Total revenue				$	95,683	�				$	111	�				$	95,794	�
																�

	�	�	�				�	�	�				�	�	�
Adjusted Free Cash Flow
																�
(In thousands)				Q3 2018						Q3 2017						% Change
Cash flows from operations				$	23,301					$	13,442					73	%
Purchases of property and equipment				(2,772		)				(342		)				711	%
Free cash flow				20,529		�				13,100		�				57	%
Add back: restructuring payments				743		�				5,241		�				(86	)%
Adjusted free cash flow				$	21,272	�				$	18,341	�				16	%
																	�

	�	�	�				�	�	�				�	�	�
OTHER NON-GAAP FINANCIAL MEASURES - YTD
(Unaudited)
																�
Revenue by Type
																�
(In thousands)				YTD 2018						Non-GAAP Adjustment (1)						Non-GAAP Revenue
Software licenses				$	78,986					$	56					$	79,042
Maintenance				184,368						158						184,526
Services				22,478		�				154		�				22,632		�
Total revenue				$	285,832	�				$	368	�				$	286,200	�
																�
Revenue by Region
																�
(In thousands)				YTD 2018						Non-GAAP Adjustment (1)						Non-GAAP Revenue
North America				$	154,676					$	368					$	155,044
EMEA				101,769						—						101,769
Latin America				13,058						—						13,058
Asia Pacific				16,329		�				—		�				16,329		�
Total revenue				$	285,832	�				$	368	�				$	286,200	�
																�
Revenue by Segment
																�
(In thousands)				YTD 2018						Non-GAAP Adjustment (1)						Non-GAAP Revenue
OpenEdge				$	204,404					$	154					$	204,558
Data Connectivity and Integration				20,989						—						20,989
Application Development and Deployment				60,439		�				214		�				60,653		�
Total revenue				$	285,832	�				$	368	�				$	286,200	�
																�

	�	�	�				�	�	�				�	�	�
Adjusted Free Cash Flow
																�
(In thousands)				YTD 2018						YTD Q3 2017						% Change
Cash flows from operations				$	97,025					$	73,171					33	%
Purchases of property and equipment				(5,968		)				(865		)				590	%
Free cash flow				91,057		�				72,306		�				26	%
Add back: restructuring payments				5,924		�				16,871		�				(65	)%
Adjusted free cash flow				$	96,981	�				$	89,177	�				9	%
																	�

	�	�	�				�	�	�				�	�	�				�	�	�				�	�	�				�	�	�				�	�	�				�	�	�
Non-GAAP Bookings from Application Development and Deployment Segment
(Unaudited)
																																														�
(In thousands)				Q1 2017						Q2 2017						Q3 2017						Q4 2017						FY 2017						Q1 2018						Q2 2018						Q3 2018
GAAP revenue				$	19,634	�				$	20,227	�				$	20,188	�				$	20,396	�				$	80,445	�				$	20,035	�				$	20,347	�				$	20,057
Add: change in deferred revenue
Beginning balance				52,971						51,298						52,400						52,615						52,971						53,794						52,927						51,978
Ending balance				51,298		�				52,400		�				52,615		�				53,794		�				53,794		�				52,927		�				51,978		�				52,638
Change in deferred revenue				(1,673		)				1,102		�				215		�				1,179		�				823		�				(867		)				(949		)				660
Non-GAAP bookings				$	17,961	�				$	21,329	�				$	20,403	�				$	21,575	�				$	81,268	�				$	19,168	�				$	19,398	�				$	20,717
																																															�
																																															�

�
RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES FOR FISCAL YEAR 2018 GUIDANCE
(Unaudited)
�
Fiscal Year 2018 Revenue Guidance
	�	�	�	Fiscal Year Ended			�	�	�	Fiscal Year Ending
				November 30, 2017						November 30, 2018
(In millions)										Low			�	�	�	% Change		�	�	�	High			�	�	�	% Change
GAAP revenue				$	397.6					$	392.6					(1	)%				$	395.6					(1	)%
Acquisition-related adjustments - revenue (1)				1.0		�				0.4		�				(60	)%				0.4		�				(60	)%
Non-GAAP revenue				$	398.6	�				$	393.0	�				(1	)%				$	396.0	�				(1	)%
																											�

�
Fiscal Year 2018 Non-GAAP Operating Margin Guidance
	�	�	�	Fiscal Year Ending November 30, 2018
(In millions)				Low			�	�	�	High
GAAP income from operations				$	89.8					$	91.6
GAAP operating margins				23		%				23		%
Acquisition-related revenue				0.4						0.4
Acquisition-related expense				0.2						0.2
Restructuring expense				3.0						2.5
Stock-based compensation				20.0						20.0
Amortization of intangibles				36.0						36.0
Fees related to shareholder activist				1.5		�				1.5		�
Total adjustments				61.1		�				60.6		�
Non-GAAP income from operations				$	150.9	�				$	152.2	�
Non-GAAP operating margin				38		%				38		%
												�

�
Fiscal Year 2018 Non-GAAP Earnings per Share and Effective Tax Rate Guidance
	Fiscal Year Ending November 30, 2018
(In millions, except per share data)	Low			�	High
GAAP net income	$	65.1			$	66.5
Adjustments (from previous table)	61.1				60.6
Income tax adjustment (2)	(13.1		)		(12.7		)
Non-GAAP net income	$	113.1	�		$	114.4	�
					�
GAAP diluted earnings per share	$	1.41			$	1.44
Non-GAAP diluted earnings per share	$	2.45			$	2.48
					�
Diluted weighted average shares outstanding	46.2				46.2
					�
(2) Tax adjustment is based on a non-GAAP effective tax rate of approximately 22% for Low and High, calculated as follows:
Non-GAAP income from operations	$	150.9			$	152.2
Other (expense) income	(6.4		)		(6.4		)
Non-GAAP income from continuing operations before income taxes	144.5		�		145.8		�
Non-GAAP net income	113.0		�		114.4		�
Tax provision	$	31.5	�		$	31.4	�
Non-GAAP tax rate	22		%		22		%
							�

�
RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES FOR FISCAL YEAR 2018 GUIDANCE
(Unaudited)
�
Fiscal Year 2018 Adjusted Free Cash Flow Guidance
	Fiscal Year Ending November 30, 2018
(In millions)	Low			�	High
Cash flows from operations (GAAP)	$	120			$	126
Purchases of property and equipment	(7		)		(7		)
Add back: restructuring payments	7		�		6		�
Adjusted free cash flow (non-GAAP)	$	120	�		$	125	�
							�

�
RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES FOR Q4 2018 GUIDANCE
(Unaudited)
�
Q4 2018 Revenue Guidance
	�	�	�	Three Months Ended			�	�	�	Three Months Ending
				November 30, 2017						November 30, 2018
(In millions)										Low			�	�	�	% Change		�	�	�	High			�	�	�	% Change
GAAP revenue				$	116.1					$	106.7					(8	)%				$	109.7					(6	)%
Acquisition-related adjustments - revenue (1)				0.2		�				0.1		�				(50	)%				0.1		�				(50	)%
Non-GAAP revenue				$	116.3	�				$	106.8	�				(8	)%				$	109.8	�				(6	)%
																											�
�

�
Q4 2018 Non-GAAP Earnings per Share Guidance
	�	�	�	Three Months Ending November 30, 2018
				Low			�	�	�	High
GAAP diluted earnings per share				$	0.44					$	0.48
Restructuring expense				0.01						—
Stock-based compensation				0.12						0.12
Amortization of intangibles				0.19		�				0.19		�
Total adjustments				0.32		�				0.31		�
Income tax adjustment				(0.05		)				(0.05		)
Non-GAAP diluted earnings per share				$	0.71	�				$	0.74	�
												�

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