Form 8-K PROGRESS SOFTWARE CORP For: Jun 28
 | Exhibit 99.1 | |||||||
P R E S S A N N O U N C E M E N T
Progress Announces Second Quarter 2022 Financial Results
Revenue and EPS Exceed Prior Guidance
BURLINGTON, Mass, June 28, 2022 (GlobeNewswire) — Progress (Nasdaq: PRGS), the trusted provider of infrastructure software, today announced financial results for its fiscal second quarter ended May 31, 2022.
Second Quarter 2022 Highlights:
•Revenue of $148.7 million increased 21% year-over-year on an actual currency basis, and 24% on a constant currency basis.
•Non-GAAP revenue of $150.9 million increased 17% on an actual currency basis, and 19% on a constant currency basis.
•Annualized Recurring Revenue (ARR) of $486 million increased 13% year-over-year on a constant currency basis.
•Operating margin was 27% and Non-GAAP operating margin was 41%.
•Diluted earnings per share was $0.66 compared to $0.30 in the same quarter last year, an increase of 120%.
•Non-GAAP diluted earnings per share was $1.04 compared to $0.82 in the same quarter last year, an increase of 27%.
“Once again, we are very pleased to report excellent quarterly results, especially during so much market turmoil and global uncertainty,” said Yogesh Gupta, CEO at Progress. “Progress again performed exceptionally well across the board, exceeding revenue and EPS guidance, which was driven by a Total Growth Strategy that layers accretive M&A over a highly profitable and predictable business with strong recurring revenue and very high retention rates. Despite a tumultuous market and an economy with increasing risks, Progress remains well positioned to continue our steady execution for the remainder of 2022 and beyond.”
Additional financial highlights included(1):
| Three Months Ended | |||||||||||||||||||||||||||||||||||
| GAAP | Non-GAAP | ||||||||||||||||||||||||||||||||||
| (In thousands, except percentages and per share amounts) | May 31, 2022 | May 31, 2021 | % Change | May 31, 2022 | May 31, 2021 | % Change | |||||||||||||||||||||||||||||
| Revenue | $ | 148,747 | $ | 122,488 | 21 | % | $ | 150,879 | $ | 129,198 | 17 | % | |||||||||||||||||||||||
| Income from operations | $ | 40,235 | $ | 22,282 | 81 | % | $ | 61,298 | $ | 49,712 | 23 | % | |||||||||||||||||||||||
| Operating margin | 27 | % | 18 | % | 900bps | 41 | % | 38 | % | 300bps | |||||||||||||||||||||||||
| Net income | $ | 29,110 | $ | 13,557 | 115 | % | $ | 45,886 | $ | 36,513 | 26 | % | |||||||||||||||||||||||
| Diluted earnings per share | $ | 0.66 | $ | 0.30 | 120 | % | $ | 1.04 | $ | 0.82 | 27 | % | |||||||||||||||||||||||
| Cash from operations (GAAP) /Adjusted free cash flow (Non-GAAP) | $ | 68,260 | $ | 54,690 | 25 | % | $ | 68,038 | $ | 55,411 | 23 | % | |||||||||||||||||||||||
(1)See Legal Notice Regarding Non-GAAP Financial Information
Other fiscal second quarter 2022 metrics and recent results included:
•Cash, cash equivalents and short-term investments were $225.9 million at the end of the quarter.
•DSO was 39 days compared to 44 days in the fiscal second quarter of 2021 and 52 days in the fiscal first quarter of 2022.
•On June 21, 2022, our Board of Directors declared a quarterly dividend of $0.175 per share of common stock that will be paid on September 15, 2022 to shareholders of record as of the close of business on September 1, 2022.
Anthony Folger, CFO, said: “Despite the recent challenges in the global economy, our business continues to perform well across virtually all product lines. Our integration of Kemp is on track, our balance sheet continues to strengthen, and the recurring nature of our revenues and our strong retention rates will continue to serve us well in this environment.”
1
2022 Business Outlook
Progress provides the following guidance for the fiscal year ending November 30, 2022 and the fiscal third quarter ending August 31, 2022:
| Updated FY 2022 Guidance (June 28, 2022) | Prior FY 2022 Guidance (March 29, 2022) | ||||||||||||||||||||||
| (In millions, except percentages and per share amounts) | GAAP | Non-GAAP | GAAP | Non-GAAP | |||||||||||||||||||
| Revenue | $601 - $609 | $609 - $617 | $601 - $609 | $609 - $617 | |||||||||||||||||||
| Diluted earnings per share | $2.11 - $2.21 | $4.05 - $4.11 | $2.16 - $2.23 | $4.01 - $4.09 | |||||||||||||||||||
| Operating margin | 22% - 23% | 39% - 40% | 23% | 39% - 40% | |||||||||||||||||||
| Cash from operations (GAAP) / Adjusted free cash flow (Non-GAAP) | $188 - $193 | $185 - $190 | $188 - $193 | $185 - $190 | |||||||||||||||||||
| Effective tax rate | 21 | % | 20% - 21% | 21 | % | 20% - 21% | |||||||||||||||||
| Q3 2022 Guidance | |||||||||||
| (In millions, except per share amounts) | GAAP | Non-GAAP | |||||||||
| Revenue | $145 - $148 | $147 - $150 | |||||||||
| Diluted earnings per share | $0.46 - $0.48 | $0.96 - $0.98 | |||||||||
Based on current exchange rates, the expected negative currency translation impact on Progress' fiscal year 2022 business outlook compared to 2021 exchange rates is approximately $11.7 million on GAAP and non-GAAP revenue, and approximately $0.04 on GAAP and non-GAAP diluted earnings per share. The expected negative currency translation impact on Progress' fiscal Q3 2022 business outlook compared to 2021 exchange rates on GAAP and non-GAAP revenue is approximately $3.6 million. The expected negative impact on GAAP and non-GAAP diluted Q3 2022 earnings per share is $0.02. To the extent that there are changes in exchange rates versus the current environment, this may have an impact on Progress' business outlook.
Conference Call
Progress will hold a conference call to review its financial results for the fiscal second quarter of 2022 at 5:00 p.m. ET on Tuesday, June 28, 2022. The call can be accessed on the investor relations section of the company’s website, located at www.progress.com. Additionally, you can listen to the call by telephone by dialing 866-374-5140 or +1 404-400-0571, passcode 186-83-835#. The conference call will include comments followed by questions and answers. An archived version of the conference call and supporting materials will be available on the Progress website within the investor relations section after the live conference call.
Legal Notice Regarding Non-GAAP Financial Information
Progress provides non-GAAP financial information as additional information for investors. These non-GAAP measures are not in accordance with, or an alternative to, generally accepted accounting principles in the United States ("GAAP"). Progress believes that the non-GAAP results described in this release are useful for an understanding of its ongoing operations and provide additional detail and an alternative method of assessing its operating results. A reconciliation of non-GAAP adjustments to the company's GAAP financial results is included in the tables below and is available on the Progress website at www.progress.com within the investor relations section. Additional information regarding the company's non-GAAP financial information is contained in the company's Current Report on Form 8-K furnished to the Securities and Exchange Commission in connection with this press release, which is also available on the Progress website within the investor relations section.
Note Regarding Forward-Looking Statements
This press release contains statements that are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Progress has identified some of these forward-looking statements with words like “believe,” “may,” “could,” “would,” “might,” “should,” “expect,” “intend,” “plan,” “target,” “anticipate” and “continue,” the negative of these words, other terms of similar meaning or the use of future dates.
2
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, 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. (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. (9) Delay or failure to realize the expected synergies and benefits of the Kemp acquisition could negatively impact our future results of operations and financial condition; (10) The continuing impact of the coronavirus disease (COVID-19) outbreak on our employees, customers, partners, and the global financial markets could adversely affect our business, results of operations and financial condition. For further information regarding risks and uncertainties associated with Progress' business, please refer to Progress' filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the fiscal year ended November 30, 2021. Progress undertakes no obligation to update any forward-looking statements, which speak only as of the date of this press release.
About Progress
Dedicated to propelling business forward in a technology-driven world, Progress (Nasdaq: PRGS) helps businesses drive faster cycles of innovation, fuel momentum and accelerate their path to success. As the trusted provider of the best products to develop, deploy and manage high-impact applications, Progress enables customers to develop the applications and experiences they need, deploy where and how they want and manage it all safely and securely. Hundreds of thousands of enterprises, including 1,700 software companies and 3.5 million developers, depend on Progress to achieve their goals—with confidence. Learn more at www.progress.com.
Progress and Progress Software are trademarks or registered trademarks of Progress Software Corporation and/or its subsidiaries or affiliates in the U.S. and other countries. Any other names contained herein may be trademarks of their respective owners.
| Investor Contact: | Press Contact: | |||||||
| Michael Micciche | Erica McShane | |||||||
| Progress Software | Progress Software | |||||||
| +1 781 850 8450 | +1 781 280 4000 | |||||||
| Investor-Relations@progress.com | PR@progress.com | |||||||
3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||||||||
| (In thousands, except per share data) | May 31, 2022 | May 31, 2021 | % Change | May 31, 2022 | May 31, 2021 | % Change | |||||||||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||||||||||||||
| Software licenses | $ | 44,814 | $ | 30,107 | 49 | % | $ | 87,564 | $ | 63,424 | 38 | % | |||||||||||||||||||||||
| Maintenance and services | 103,933 | 92,381 | 13 | % | 206,105 | 180,344 | 14 | % | |||||||||||||||||||||||||||
| Total revenue | 148,747 | 122,488 | 21 | % | 293,669 | 243,768 | 20 | % | |||||||||||||||||||||||||||
| Costs of revenue: | |||||||||||||||||||||||||||||||||||
| Cost of software licenses | 2,583 | 1,038 | 149 | % | 5,192 | 2,189 | 137 | % | |||||||||||||||||||||||||||
| Cost of maintenance and services | 15,801 | 14,673 | 8 | % | 30,946 | 27,992 | 11 | % | |||||||||||||||||||||||||||
| Amortization of acquired intangibles | 5,573 | 3,599 | 55 | % | 11,031 | 7,120 | 55 | % | |||||||||||||||||||||||||||
| Total costs of revenue | 23,957 | 19,310 | 24 | % | 47,169 | 37,301 | 26 | % | |||||||||||||||||||||||||||
| Gross profit | 124,790 | 103,178 | 21 | % | 246,500 | 206,467 | 19 | % | |||||||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||||||||||||||
| Sales and marketing | 32,704 | 29,262 | 12 | % | 66,173 | 58,731 | 13 | % | |||||||||||||||||||||||||||
| Product development | 28,643 | 26,415 | 8 | % | 57,316 | 50,963 | 12 | % | |||||||||||||||||||||||||||
| General and administrative | 19,207 | 16,460 | 17 | % | 36,198 | 29,884 | 21 | % | |||||||||||||||||||||||||||
| Amortization of acquired intangibles | 11,892 | 7,979 | 49 | % | 23,614 | 14,858 | 59 | % | |||||||||||||||||||||||||||
| Restructuring expenses | 143 | (64) | (323) | % | 654 | 1,093 | (40) | % | |||||||||||||||||||||||||||
| Acquisition-related expenses | 2,736 | 844 | 224 | % | 3,648 | 1,240 | 194 | % | |||||||||||||||||||||||||||
| Gain on sale of assets held for sale | (10,770) | — | * | (10,770) | — | * | |||||||||||||||||||||||||||||
| Total operating expenses | 84,555 | 80,896 | 5 | % | 176,833 | 156,769 | 13 | % | |||||||||||||||||||||||||||
| Income from operations | 40,235 | 22,282 | 81 | % | 69,667 | 49,698 | 40 | % | |||||||||||||||||||||||||||
| Other expense, net | (3,390) | (5,218) | 35 | % | (6,870) | (7,870) | 13 | % | |||||||||||||||||||||||||||
| Income before income taxes | 36,845 | 17,064 | 116 | % | 62,797 | 41,828 | 50 | % | |||||||||||||||||||||||||||
| Provision for income taxes | 7,735 | 3,507 | 121 | % | 13,233 | 9,310 | 42 | % | |||||||||||||||||||||||||||
| Net income | $ | 29,110 | $ | 13,557 | 115 | % | $ | 49,564 | $ | 32,518 | 52 | % | |||||||||||||||||||||||
| Earnings per share: | |||||||||||||||||||||||||||||||||||
| Basic | $ | 0.67 | $ | 0.31 | 116 | % | $ | 1.13 | $ | 0.74 | 53 | % | |||||||||||||||||||||||
| Diluted | $ | 0.66 | $ | 0.30 | 120 | % | $ | 1.11 | $ | 0.73 | 52 | % | |||||||||||||||||||||||
| Weighted average shares outstanding: | |||||||||||||||||||||||||||||||||||
| Basic | 43,575 | 43,818 | (1) | % | 43,778 | 43,963 | — | % | |||||||||||||||||||||||||||
| Diluted | 44,253 | 44,472 | — | % | 44,480 | 44,562 | — | % | |||||||||||||||||||||||||||
| Cash dividends declared per common share | $ | 0.175 | $ | 0.175 | — | % | $ | 0.350 | $ | 0.350 | — | % | |||||||||||||||||||||||
| Stock-based compensation is included in the condensed consolidated statements of operations, as follows: | |||||||||||||||||||||||||||||||||||
| Cost of revenue | $ | 472 | $ | 468 | 1 | % | $ | 883 | $ | 860 | 3 | % | |||||||||||||||||||||||
| Sales and marketing | 690 | 1,752 | (61) | % | 2,092 | 3,255 | (36) | % | |||||||||||||||||||||||||||
| Product development | 2,740 | 2,412 | 14 | % | 4,962 | 4,331 | 15 | % | |||||||||||||||||||||||||||
| General and administrative | 5,455 | 3,730 | 46 | % | 9,534 | 6,700 | 42 | % | |||||||||||||||||||||||||||
| Total | $ | 9,357 | $ | 8,362 | 12 | % | $ | 17,471 | $ | 15,146 | 15 | % | |||||||||||||||||||||||
4
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| (In thousands) | May 31, 2022 | November 30, 2021 | |||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash, cash equivalents and short-term investments | $ | 225,913 | $ | 157,373 | |||||||
| Accounts receivable, net | 64,733 | 99,815 | |||||||||
| Unbilled receivables and contract assets | 32,735 | 25,816 | |||||||||
| Other current assets | 32,488 | 39,549 | |||||||||
| Assets held for sale | — | 15,255 | |||||||||
| Total current assets | 355,869 | 337,808 | |||||||||
| Property and equipment, net | 13,649 | 14,345 | |||||||||
| Goodwill and intangible assets, net | 925,426 | 958,337 | |||||||||
| Right-of-use lease assets | 21,364 | 25,253 | |||||||||
| Long-term unbilled receivables and contract assets | 24,253 | 17,464 | |||||||||
| Other assets | 14,021 | 10,330 | |||||||||
| Total assets | $ | 1,354,582 | $ | 1,363,537 | |||||||
| Liabilities and shareholders’ equity | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable and other current liabilities | $ | 62,821 | $ | 84,215 | |||||||
| Current portion of long-term debt, net | 6,234 | 25,767 | |||||||||
| Short-term operating lease liabilities | 7,843 | 7,926 | |||||||||
| Short-term deferred revenue | 207,331 | 205,021 | |||||||||
| Total current liabilities | 284,229 | 322,929 | |||||||||
| Long-term debt, net | 262,337 | 239,992 | |||||||||
| Convertible senior notes, net | 351,567 | 294,535 | |||||||||
| Long-term operating lease liabilities | 18,965 | 23,130 | |||||||||
| Long-term deferred revenue | 51,249 | 47,359 | |||||||||
| Other long-term liabilities | 14,089 | 23,103 | |||||||||
| Shareholders’ equity: | |||||||||||
| Common stock and additional paid-in capital | 310,348 | 354,676 | |||||||||
| Retained earnings | 61,798 | 57,813 | |||||||||
| Total shareholders’ equity | 372,146 | 412,489 | |||||||||
| Total liabilities and shareholders’ equity | $ | 1,354,582 | $ | 1,363,537 | |||||||
5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| (In thousands) | May 31, 2022 | May 31, 2021 | May 31, 2022 | May 31, 2021 | |||||||||||||||||||
| Cash flows from operating activities: | |||||||||||||||||||||||
| Net income | $ | 29,110 | $ | 13,557 | $ | 49,564 | $ | 32,518 | |||||||||||||||
| Depreciation and amortization | 19,379 | 14,829 | 38,597 | 26,691 | |||||||||||||||||||
| Gain on sale of assets held for sale | (10,770) | — | (10,770) | — | |||||||||||||||||||
| Stock-based compensation | 9,357 | 8,362 | 17,471 | 15,146 | |||||||||||||||||||
| Other non-cash adjustments | 1,673 | 708 | 6,115 | 3,123 | |||||||||||||||||||
| Changes in operating assets and liabilities | 19,511 | 17,234 | 11,376 | 21,900 | |||||||||||||||||||
| Net cash flows from operating activities | 68,260 | 54,690 | 112,353 | 99,378 | |||||||||||||||||||
| Capital expenditures | (1,148) | (950) | (1,979) | (2,116) | |||||||||||||||||||
| Issuances of common stock, net of repurchases | (22,796) | (17,185) | (43,702) | (28,700) | |||||||||||||||||||
| Dividend payments to shareholders | (7,789) | (7,763) | (15,573) | (15,617) | |||||||||||||||||||
| Proceeds from the issuance of debt, net of payment of issuance costs | — | — | 5,517 | — | |||||||||||||||||||
| Proceeds from sale of long-lived assets, net | — | — | — | — | |||||||||||||||||||
| Payments of principal on long-term debt | (1,716) | (87,262) | (3,435) | (106,025) | |||||||||||||||||||
| Proceeds from issuance of Notes, net of issuance costs | — | 349,196 | — | 349,196 | |||||||||||||||||||
| Purchase of capped calls | — | (43,056) | — | (43,056) | |||||||||||||||||||
| Other | 17,780 | 619 | 15,359 | 3,605 | |||||||||||||||||||
| Net change in cash, cash equivalents and short-term investments | 52,591 | 248,289 | 68,540 | 256,665 | |||||||||||||||||||
| Cash, cash equivalents and short-term investments, beginning of period | 173,322 | 114,371 | 157,373 | 105,995 | |||||||||||||||||||
| Cash, cash equivalents and short-term investments, end of period | $ | 225,913 | $ | 362,660 | $ | 225,913 | $ | 362,660 | |||||||||||||||
6
RECONCILIATIONS OF GAAP TO NON-GAAP SELECTED FINANCIAL MEASURES - SECOND QUARTER
(Unaudited)
| Three Months Ended | % Change | ||||||||||||||||||||||||||||
| (In thousands, except per share data) | May 31, 2022 | May 31, 2021 | Non-GAAP | ||||||||||||||||||||||||||
| Adjusted revenue: | |||||||||||||||||||||||||||||
| GAAP revenue | $ | 148,747 | $ | 122,488 | |||||||||||||||||||||||||
Acquisition-related revenue(1) | 2,132 | 6,710 | |||||||||||||||||||||||||||
| Non-GAAP revenue | $ | 150,879 | 100 | % | $ | 129,198 | 100 | % | 17 | % | |||||||||||||||||||
| Adjusted income from operations: | |||||||||||||||||||||||||||||
| GAAP income from operations | $ | 40,235 | 27 | % | $ | 22,282 | 18 | % | |||||||||||||||||||||
| Amortization of acquired intangibles | 17,465 | 12 | % | 11,578 | 9 | % | |||||||||||||||||||||||
| Restructuring expenses and other | 143 | — | % | (64) | — | % | |||||||||||||||||||||||
| Stock-based compensation | 9,357 | 6 | % | 8,362 | 5 | % | |||||||||||||||||||||||
Acquisition-related revenue(1) and expenses | 4,868 | 3 | % | 7,554 | 6 | % | |||||||||||||||||||||||
| Gain on sale of assets held for sale | (10,770) | (7) | % | — | — | % | |||||||||||||||||||||||
| Non-GAAP income from operations | $ | 61,298 | 41 | % | $ | 49,712 | 38 | % | 23 | % | |||||||||||||||||||
| Adjusted net income: | |||||||||||||||||||||||||||||
| GAAP net income | $ | 29,110 | 20 | % | $ | 13,557 | 11 | % | |||||||||||||||||||||
| Amortization of acquired intangibles | 17,465 | 12 | % | 11,578 | 9 | % | |||||||||||||||||||||||
| Restructuring expenses and other | 143 | — | % | (64) | — | % | |||||||||||||||||||||||
| Stock-based compensation | 9,357 | 5 | % | 8,362 | 6 | % | |||||||||||||||||||||||
Acquisition-related revenue(1) and expenses | 4,868 | 3 | % | 7,554 | 6 | % | |||||||||||||||||||||||
| Gain on sale of assets held for sale | (10,770) | (7) | % | — | — | % | |||||||||||||||||||||||
| Amortization of discount on notes | — | — | % | 1,480 | 1 | % | |||||||||||||||||||||||
| Provision for income taxes | (4,287) | (3) | % | (5,954) | (5) | % | |||||||||||||||||||||||
| Non-GAAP net income | $ | 45,886 | 30 | % | $ | 36,513 | 28 | % | 26 | % | |||||||||||||||||||
| Adjusted diluted earnings per share: | |||||||||||||||||||||||||||||
| GAAP diluted earnings per share | $ | 0.66 | $ | 0.30 | |||||||||||||||||||||||||
| Amortization of acquired intangibles | 0.39 | 0.26 | |||||||||||||||||||||||||||
| Stock-based compensation | 0.22 | 0.19 | |||||||||||||||||||||||||||
Acquisition-related revenue(1) and expenses | 0.11 | 0.17 | |||||||||||||||||||||||||||
| Gain on sale of assets held for sale | (0.24) | — | |||||||||||||||||||||||||||
| Amortization of discount on notes | — | 0.03 | |||||||||||||||||||||||||||
| Provision for income taxes | (0.10) | (0.13) | |||||||||||||||||||||||||||
| Non-GAAP diluted earnings per share | $ | 1.04 | $ | 0.82 | 27 | % | |||||||||||||||||||||||
| Non-GAAP weighted avg shares outstanding - diluted | 44,253 | 44,472 | — | % | |||||||||||||||||||||||||
| (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. | |||||||||||||||||||||||||||||
7
RECONCILIATIONS OF GAAP TO NON-GAAP SELECTED FINANCIAL MEASURES - YEAR TO DATE
(Unaudited)
| Six Months Ended | % Change | ||||||||||||||||||||||||||||
| (In thousands, except per share data) | May 31, 2022 | May 31, 2021 | Non-GAAP | ||||||||||||||||||||||||||
| Adjusted revenue: | |||||||||||||||||||||||||||||
| GAAP revenue | $ | 293,669 | $ | 243,768 | |||||||||||||||||||||||||
Acquisition-related revenue(1) | 4,715 | 17,214 | |||||||||||||||||||||||||||
| Non-GAAP revenue | $ | 298,384 | 100 | % | $ | 260,982 | 100 | % | 14 | % | |||||||||||||||||||
| Adjusted income from operations: | |||||||||||||||||||||||||||||
| GAAP income from operations | $ | 69,667 | 24 | % | $ | 49,698 | 20 | % | |||||||||||||||||||||
| Amortization of acquired intangibles | 34,645 | 12 | % | 21,978 | 8 | % | |||||||||||||||||||||||
| Restructuring expenses and other | 654 | — | % | 1,093 | — | % | |||||||||||||||||||||||
| Stock-based compensation | 17,471 | 5 | % | 15,146 | 6 | % | |||||||||||||||||||||||
Acquisition-related revenue(1) and expenses | 8,363 | 3 | % | 18,454 | 7 | % | |||||||||||||||||||||||
| Gain of sale of assets held for sale | (10,770) | (4) | % | — | — | % | |||||||||||||||||||||||
| Non-GAAP income from operations | $ | 120,030 | 40 | % | $ | 106,369 | 41 | % | 13 | % | |||||||||||||||||||
| Adjusted net income: | |||||||||||||||||||||||||||||
| GAAP net income | $ | 49,564 | 17 | % | $ | 32,518 | 13 | % | |||||||||||||||||||||
| Amortization of acquired intangibles | 34,645 | 12 | % | 21,978 | 8 | % | |||||||||||||||||||||||
| Restructuring expenses and other | 654 | — | % | 1,093 | — | % | |||||||||||||||||||||||
| Stock-based compensation | 17,471 | 6 | % | 15,146 | 6 | % | |||||||||||||||||||||||
Acquisition-related revenue(1) and expenses | 8,363 | 3 | % | 18,454 | 7 | % | |||||||||||||||||||||||
| Gain of sale of assets held for sale | (10,770) | (4) | % | — | — | % | |||||||||||||||||||||||
| Amortization of discount on notes | — | — | % | 1,480 | — | % | |||||||||||||||||||||||
| Provision for income taxes | (10,481) | (4) | % | (11,652) | (4) | % | |||||||||||||||||||||||
| Non-GAAP net income | $ | 89,446 | 30 | % | $ | 79,017 | 30 | % | 13 | % | |||||||||||||||||||
| Adjusted diluted earnings per share: | |||||||||||||||||||||||||||||
| GAAP diluted earnings per share | $ | 1.11 | $ | 0.73 | |||||||||||||||||||||||||
| Amortization of acquired intangibles | 0.78 | 0.49 | |||||||||||||||||||||||||||
| Restructuring expenses and other | 0.01 | 0.02 | |||||||||||||||||||||||||||
| Stock-based compensation | 0.40 | 0.35 | |||||||||||||||||||||||||||
Acquisition-related revenue(1) and expenses | 0.19 | 0.41 | |||||||||||||||||||||||||||
| Gain of sale of assets held for sale | (0.24) | — | |||||||||||||||||||||||||||
| Amortization of discount on notes | — | 0.03 | |||||||||||||||||||||||||||
| Provision for income taxes | (0.24) | (0.26) | |||||||||||||||||||||||||||
| Non-GAAP diluted earnings per share | $ | 2.01 | $ | 1.77 | 14 | % | |||||||||||||||||||||||
| Non-GAAP weighted avg shares outstanding - diluted | 44,480 | 44,562 | — | % | |||||||||||||||||||||||||
| (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. | |||||||||||||||||||||||||||||
8
OTHER NON-GAAP FINANCIAL MEASURES
(Unaudited)
| Quarter to Date Adjusted Free Cash Flow | |||||||||||||||||
| (In thousands) | Q2 2022 | Q2 2021 | % Change | ||||||||||||||
| Cash flows from operations | $ | 68,260 | $ | 54,690 | 25 | % | |||||||||||
| Purchases of property and equipment | (1,148) | (950) | 21 | % | |||||||||||||
| Free cash flow | 67,112 | 53,740 | 25 | % | |||||||||||||
| Add back: restructuring payments | 926 | 1,671 | (45) | % | |||||||||||||
| Adjusted free cash flow | $ | 68,038 | $ | 55,411 | 23 | % | |||||||||||
| Year to Date Adjusted Free Cash Flow | |||||||||||||||||
| (In thousands) | Q2 2022 | Q2 2021 | % Change | ||||||||||||||
| Cash flows from operations | $ | 112,353 | $ | 99,378 | 13 | % | |||||||||||
| Purchases of property and equipment | (1,979) | (2,116) | (6) | % | |||||||||||||
| Free cash flow | 110,374 | 97,262 | 13 | % | |||||||||||||
| Add back: restructuring payments | 2,345 | 4,664 | (50) | % | |||||||||||||
| Adjusted free cash flow | $ | 112,719 | $ | 101,926 | 11 | % | |||||||||||
9
RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES FOR FISCAL YEAR 2022 GUIDANCE
(Unaudited)
| Fiscal Year 2022 Updated Revenue Guidance | |||||||||||||||||||||||||||||
| Fiscal Year Ended | Fiscal Year Ending | ||||||||||||||||||||||||||||
| November 30, 2021 | November 30, 2022 | ||||||||||||||||||||||||||||
| (In millions) | Low | % Change | High | % Change | |||||||||||||||||||||||||
| GAAP revenue | $ | 531.3 | $ | 600.5 | 13 | % | $ | 608.5 | 15 | % | |||||||||||||||||||
Acquisition-related adjustments - revenue(1) | 26.0 | 8.5 | (67) | % | 8.5 | (67) | % | ||||||||||||||||||||||
| Non-GAAP revenue | $ | 557.3 | $ | 609.0 | 9 | % | $ | 617.0 | 11 | % | |||||||||||||||||||
(1)Acquisition-related revenue constitutes revenue reflected as pre-acquisition deferred revenue that would otherwise have been recognized but for the purchase accounting treatment of acquisitions. Since GAAP accounting requires the elimination of this revenue, GAAP results alone do not fully capture all of our economic activities. Acquisition-related revenue adjustments relate to Ipswitch and Chef. | |||||||||||||||||||||||||||||
| Fiscal Year 2022 Updated Non-GAAP Operating Margin Guidance | |||||||||||
| Fiscal Year Ending November 30, 2022 | |||||||||||
| (In millions) | Low | High | |||||||||
| GAAP income from operations | $ | 133.5 | $ | 139.8 | |||||||
| GAAP operating margins | 22 | % | 23 | % | |||||||
| Acquisition-related revenue | 8.5 | 8.5 | |||||||||
| Acquisition-related expense | 4.9 | 4.9 | |||||||||
| Restructuring expense | 0.9 | 0.9 | |||||||||
| Stock-based compensation | 34.4 | 34.4 | |||||||||
| Amortization of acquired intangibles | 69.1 | 69.1 | |||||||||
| Gain on sale of assets held for sale | (10.8) | (10.8) | |||||||||
Total adjustments(2) | 107.0 | 107.0 | |||||||||
| Non-GAAP income from operations | $ | 240.5 | $ | 246.8 | |||||||
| Non-GAAP operating margin | 39 | % | 40 | % | |||||||
(2)Total adjustments include preliminary estimates relating to the valuation of intangible assets acquired from Kemp and restructuring expenses. The final amounts will not be available until the Company’s internal procedures and reviews are completed. | |||||||||||
| Fiscal Year 2022 Updated Non-GAAP Earnings per Share and Effective Tax Rate Guidance | |||||||||||
| Fiscal Year Ending November 30, 2022 | |||||||||||
| (In millions, except per share data) | Low | High | |||||||||
| GAAP net income | $ | 93.7 | $ | 98.2 | |||||||
| Adjustments (from previous table) | 107.0 | 107.0 | |||||||||
Income tax adjustment(3) | (20.7) | (22.5) | |||||||||
| Non-GAAP net income | $ | 180.0 | $ | 182.7 | |||||||
| GAAP diluted earnings per share | $ | 2.11 | $ | 2.21 | |||||||
| Non-GAAP diluted earnings per share | $ | 4.05 | $ | 4.11 | |||||||
| Diluted weighted average shares outstanding | 44.5 | 44.5 | |||||||||
(3)Tax 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 | $ | 240.5 | $ | 246.8 | |||||||
| Other (expense) income | (15.5) | (15.5) | |||||||||
| Non-GAAP income from continuing operations before income taxes | 225.0 | 231.3 | |||||||||
| Non-GAAP net income | 180.0 | 182.7 | |||||||||
| Tax provision | $ | 45.0 | $ | 48.6 | |||||||
| Non-GAAP tax rate | 20 | % | 21 | % | |||||||
10
RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES FOR FISCAL YEAR 2022 GUIDANCE
(Unaudited)
| Fiscal Year 2022 Adjusted Free Cash Flow Guidance | |||||||||||
| Fiscal Year Ending November 30, 2022 | |||||||||||
| (In millions) | Low | High | |||||||||
| Cash flows from operations (GAAP) | $ | 188 | $ | 193 | |||||||
| Purchases of property and equipment | (6) | (6) | |||||||||
| Add back: restructuring payments | 3 | 3 | |||||||||
| Adjusted free cash flow (non-GAAP) | $ | 185 | $ | 190 | |||||||
11
RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES FOR Q3 2022 GUIDANCE
(Unaudited)
| Q3 2022 Revenue Guidance | |||||||||||||||||||||||||||||
| Three Months Ended | Three Months Ending | ||||||||||||||||||||||||||||
| August 31, 2021 | August 31, 2022 | ||||||||||||||||||||||||||||
| (In millions) | Low | % Change | High | % Change | |||||||||||||||||||||||||
| GAAP revenue | $ | 147.4 | $ | 145.2 | (1) | % | $ | 148.2 | 1 | % | |||||||||||||||||||
Acquisition-related adjustments - revenue(1) | 5.2 | 1.8 | (65) | % | 1.8 | (65) | % | ||||||||||||||||||||||
| Non-GAAP revenue | $ | 152.6 | $ | 147.0 | (4) | % | $ | 150.0 | (2) | % | |||||||||||||||||||
(1)Acquisition-related revenue constitutes revenue reflected as pre-acquisition deferred revenue that would otherwise have been recognized but for the purchase accounting treatment of acquisitions. Since GAAP accounting requires the elimination of this revenue, GAAP results alone do not fully capture all of our economic activities. Acquisition-related revenue adjustments relate to Ipswitch and Chef. | |||||||||||||||||||||||||||||
| Q3 2022 Non-GAAP Earnings per Share Guidance | |||||||||||
| Three Months Ending August 31, 2022 | |||||||||||
| Low | High | ||||||||||
| GAAP diluted earnings per share | $ | 0.46 | $ | 0.48 | |||||||
| Acquisition-related revenue | 0.04 | 0.04 | |||||||||
| Acquisition-related expense | 0.01 | 0.01 | |||||||||
| Stock-based compensation | 0.19 | 0.19 | |||||||||
| Amortization of acquired intangibles | 0.39 | 0.39 | |||||||||
Total adjustments(2) | 0.63 | 0.63 | |||||||||
| Income tax adjustment | (0.13) | (0.13) | |||||||||
| Non-GAAP diluted earnings per share | $ | 0.96 | $ | 0.98 | |||||||
(2)Total adjustments include preliminary estimates relating to the valuation of intangible assets acquired from Kemp. The final amounts will not be available until the Company’s internal procedures and reviews are completed. | |||||||||||
12
June 28, 2022 Progress Financial Results Q2 FY22 Supplemental Data
2© 2022 Progress Software Corporation and/or its subsidiaries or affiliates. All rights reserved. Safe Harbor This presentation 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 presentation include, but are not limited to, statements regarding Progress’s strategy; acquisitions; future revenue growth, operating margin and cost savings; strategic partnering and marketing initiatives; and other statements regarding the future operation, direction, prospects and success of Progress’s business. There are many factors that could cause actual results or future events to differ materially from those anticipated by the forward-looking statements, including, without limitation: • 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. • 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. • 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. • 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. • We depend upon our extensive partner channel, and we may not be successful in retaining or expanding our relationships with channel partners. • 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. • 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. • 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. • The continuing impact of the coronavirus disease (COVID-19) outbreak on our employees, customers, partners, and the global financial markets could adversely affect our business, results of operations and financial condition For further information regarding risks and uncertainties associated with our business, please refer to our filings with the Securities and Exchange Commission. Progress undertakes no obligation to update any forward-looking statements, which speak only as of the date of this presentation, except for statements relating to Progress' projected results for the quarter ended August 31, 2022, and fiscal year ended November 30, 2022, which speak only as of June 28, 2022. Finally, in this presentation we will be referring to non-GAAP financial measures such as non- GAAP revenue, non-GAAP income from operations and operating margin, adjusted free cash flow and non-GAAP diluted earnings per share. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. A reconciliation between non- GAAP and the most directly comparable GAAP financial measures appears in our earnings press release for the fiscal quarter ended May 31, 2022 and is available in the Investor Relations section of our Web site.
3© 2022 Progress Software Corporation and/or its subsidiaries or affiliates. All rights reserved. What: Progress Q2 2022 Financial Results Conference Call When: Tuesday, June 28, 2022 Time: 5:00 p.m. ET Live Call: 866-374-5140 404-400-0571 Conf ID: 18683835# Live / Recorded Webcast: https://edge.media-server.com/mmc/p/ko3zzo69 Conference Call Details Please note: Webcast is listen-only.
4© 2022 Progress Software Corporation and/or its subsidiaries or affiliates. All rights reserved. Strong Revenue & EPS, ARR up 3.5%, NDRR +100%, Kemp Integration on Course, Strong Balance Sheet Summary Highlights Q2 FY22 ▪ Continued execution with reliable and predictable revenues, earnings, and cash flow. ▪ ARR increased to $486M – up 12.5% year-over-year and 3.5% pro-forma, both on a constant currency basis. ▪ Net retention rates of >100% reflect ongoing customer reliance on Progress products. ▪ Balance sheet improved on $68M in adjusted FCF (up 23% yoy), finishing Q2 with $226M cash & equivalents, DSO at 39 days. ▪ Kemp integration continues on plan.
© 2022 Progress Software Corporation and/or its subsidiaries or affiliates. All rights reserved. --- FY22E --- Revenue: $613M EPS : $4.08 Adjusted FCF: $188M Operating margin: 39.5% Effective Tax Rate: 20.5% --- Q3 FY22E --- Q3E Revenue: $149M Q3E EPS: $0.97 # Guidance provided/updated June 28, 2022, non-GAAP; midpoint of guidance shown. Results OverviewUpdated Guidance# Recurring Revenue Revenue ARR Operating Margin YoY Revenue Growth Adjusted FCF $150.9М 17% * $486М ~80% 41%$68.0M All results shown are for Q2 FY22, non-GAAP, as reported June 28, 2022 $1.04 Q2 FY22 Earnings Per Share *Revenues grew 19% in constant currency
6© 2022 Progress Software Corporation and/or its subsidiaries or affiliates. All rights reserved. Annualized Recurring Revenue Trend (“pro-forma”) All periods reported in constant currency, using current year budgeted exchange rates Kemp ARR ~$40M ARR growth = 3.5% year-over-year + Net Retention Rate between 98%-101% = Predictable and durable top line performance
7© 2022 Progress Software Corporation and/or its subsidiaries or affiliates. All rights reserved. “As Reported” Kemp adds ~$40M of ARR ARR growth = 12.5% year-over-year Net Retention Rate has ranged between 100%-102% Note: ARR is a Non-GAAP operating metric and does not have a standardized definition. It 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. Annualized Recurring Revenue (amounts reported in constant currency) All periods reported in constant currency, using current year budgeted exchange rates “Pro Forma” Kemp ARR included in both periods presented ARR growth = 3.5% year-over-year Net Retention Rate has ranged between 100%-101%
8© 2022 Progress Software Corporation and/or its subsidiaries or affiliates. All rights reserved. $134 $162 $183 $229 $244 2018 2019 2020 2021 2022(F)* Operating Income (non GAAP) Growing Profitability * Represents the mid-point of our FY’22 guidance range updated June 28, 2022 Consistent Growth in operating income FY’18 – FY’22(F)* Best-in-class operating margins consistently above 35%
9© 2022 Progress Software Corporation and/or its subsidiaries or affiliates. All rights reserved. Total Growth Strategy Continues to Produce Results Pillars of our Total Growth Strategy Strengthen Profitable Core Business Deploy Capital To Produce Highest Shareholder Return Operational Excellence and Execution • Disciplined, accretive acquisitions • Opportunistic share repurchases • Ample financing at favorable rates • Invest in products to improve retention • Optimize integrations to existing infrastructure • Maximize cash flows • Rapid Integration • Best in class Op Margins • Strong balance sheet
10© 2022 Progress Software Corporation and/or its subsidiaries or affiliates. All rights reserved. Infrastructure Software Tighter alignment increases synergy potential End Market Alignment Acquire 10-20% of our revenue Can be financed and integrated efficiently Sizing Durable Top Line High mix of recurring revenue Strong customer retention rates Business Model M&A Approach Venture Backed, Founder Led and PE Sponsor-Owned Targets Large Market Opportunity Experienced Corporate Development Team ROIC > WACC Business Case with attainable synergies – target +40% operating margins Knowledge of end markets, GTM model and/or technology
11© 2022 Progress Software Corporation and/or its subsidiaries or affiliates. All rights reserved. Continue to prioritize accretive M&A opportunities that meet our disciplined criteria Capital Allocation Strategy Continue returning capital to shareholders in the form of dividends, only to the extent that doing so does not constrain our M&A capabilities Repurchase shares to offset dilution from our equity programs only to the extent that doing so does not constrain our M&A capabilities • Existing authorization $250M; $104M remaining • In 2Q FY22, we repurchased 567,193 shares, or $26.5M. • Flexibility to increase, reduce or suspend repurchases, depending on market conditions and size and timing of M&A PRIMARY FOCUS
12© 2022 Progress Software Corporation and/or its subsidiaries or affiliates. All rights reserved. Q2 2022 Results Prior Q2 2022 Outlook (provided on March 29, 2022) GAAP Revenue $148.7M $143M - $146M Non-GAAP Revenue $150.9M $145M - $148M GAAP earnings per share (Diluted) $0.66 $0.62 - $0.64 Non-GAAP earnings per share (Diluted) $1.04 $0.94 - $0.96 GAAP Operating Margin 27% Not guided Non-GAAP Operating Margin 41% Not guided Adjusted Free Cash Flow $68.0 M Not guided Summary Q2 2022 Financial Results
13© 2022 Progress Software Corporation and/or its subsidiaries or affiliates. All rights reserved. Q3 2022 Current Outlook (As of June 28, 2022) FY 2022 Prior Outlook (Provided on March 29, 2022) FY 2022 Current Outlook (As of June 28, 2022) Non-GAAP Revenue $147M - 150M $609M - $617M $609M - $617M Non-GAAP EPS $0.96 - $0.98 $4.01 - $4.09 $4.05 - $4.11 Non-GAAP Operating Margin Not guided 39% - 40% 39% - 40% Non-GAAP Adjusted Free Cash Flow Not guided $185M - $190M $185M - $190M Non-GAAP Effective Tax Rate Not guided 20% - 21% 20% - 21% Business Outlook (as of June 28, 2022)
14© 2022 Progress Software Corporation and/or its subsidiaries or affiliates. All rights reserved. Supplemental Financial Information * * The following supplemental financial information is presented on a GAAP basis. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP numbers can be found in the financial results press release that we issued today.
15© 2021 Progress Software Corporation and/or its subsidiaries or affiliates. All rights reserved. Supplemental Revenue Information (Unaudited)
16© 2021 Progress Software Corporation and/or its subsidiaries or affiliates. All rights reserved. Supplemental Revenue Information (Unaudited)
