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Press release from Business Wire

Progress Software Reports Strong 2013 Fiscal Second Quarter Results

Wednesday, June 26, 2013

Progress Software Reports Strong 2013 Fiscal Second Quarter Results

16:15 EDT Wednesday, June 26, 2013

BEDFORD, Mass. (Business Wire) -- Progress Software Corporation (NASDAQ: PRGS), a global software company that simplifies and enables the development, deployment and management of business applications, today announced strong results for its fiscal second quarter ended May 31, 2013.

As previously announced on June 13, 2013, the company entered into a definitive purchase and sale agreement to divest the Apama product line. The sale is expected to close in July. As a result, the Apama product line results are reported in discontinued operations for all periods presented.

Revenue from continuing operations was $81.7 million compared to $74.1 million, a year over year increase of 12% on a constant currency basis, or an increase of 10% using actual exchange rates.

Additional financial highlights included:

On a GAAP basis in the fiscal second quarter of 2013:

  • Income from operations was $14.4 million compared to $12.8 million in the same quarter last year;
  • Income from continuing operations was $8.1 million compared to $8.9 million in the same quarter last year;
  • Net income was $3.9 million compared to $(1.9) million in the same quarter last year; and
  • Diluted earnings per share from continuing operations was $0.15 compared to $0.14 in the same quarter last year.

On a non-GAAP basis in the fiscal second quarter of 2013:

  • Income from operations was $23.7 million compared to $25.2 million in the same quarter last year;
  • Operating margin was 29% compared to 34% in the same quarter last year;
  • Income from continuing operations was $15.0 million compared to $17.3 million in the same quarter last year; and
  • Diluted earnings per share from continuing operations was $0.27 compared to $0.27 in the same quarter last year.

Phil Pead, President and Chief Executive Officer of Progress Software, said, “Our focus this year has been on improving the operating performance of the company and building a foundation for future revenue growth. We are pleased that we remain on track to achieve efficiencies previously outlined and that revenue growth is beginning to take hold. The second fiscal quarter results reflect our efforts to energize our customer and partner base through improved product functionality and targeted marketing activities. In addition, we benefited from closing a number of opportunities sooner than expected.”

Pead added, “We are now singularly focused on becoming a leader in the application platform as a service market and while our strong second quarter results demonstrate good progress, our opportunities for continued revenue growth in the future will be driven by increasing the investment in our business."

Other fiscal second quarter 2013 metrics and recent results included:

  • Completion in May 2013 of the previously announced and implemented 10b5-1 plan to repurchase $250.0 million of common stock by June 30, 2013;
  • Cash, cash equivalents and short-term investments were $255.8 million;
  • Cash flows from operations were $13.6 million, a decrease from $15.2 million in the same quarter in fiscal year 2012; and
  • DSO from continuing operations was 56 days, compared to 65 days in the fiscal first quarter of 2013.

Earlier this month, Progress launched its new Progress Pacific platform. As part of this, Progress acquired Saratoga, CA-based Rollbase, Inc., a privately held platform-as-a-service vendor which provides innovative technology that enables powerful applications to be built using point-and-click, drag-and-drop tools in a standard browser. Also in June, Progress announced OpenEdge 11.3, the latest version of its flagship application development platform. The new version brings together leading business process management (BPM) and business rules management system (BRMS) capabilities to dramatically streamline business processes and accelerate developer productivity.

Supplemental Quarterly Information

In the financial tables at the end of this release, we have provided quarterly Condensed Consolidated Statements of Income adjusted for the classification of the Apama product line to discontinued operations for the three months ended February 29, 2012, August 31, 2012, November 30, 2012 and February 28, 2013, respectively. We have also provided Reconciliations of GAAP to Non-GAAP Financial Measures for the same time periods, also adjusted for the classification of the Apama product line to discontinued operations.

Business Outlook

Progress Software provides the following guidance for the fiscal third quarter ending August 31, 2013:

  • On a constant currency basis, revenue is expected to be between 2% and 4% growth compared to the fiscal third quarter of 2012; and
  • Non-GAAP operating margin is expected to be in the range of 24% to 26%.

The non-GAAP operating margin guidance excludes the items we traditionally exclude from our non-GAAP reporting metrics: amortization of intangible assets of $0.8 million, stock-based compensation of $4.5 million to $5.0 million, and $0.7 million of acquisition related costs, for a GAAP operating margin in the range of 16% to 18%.

Conference Call

The Progress Software quarterly investor conference call to review its fiscal second quarter of 2013 will be broadcast live at 5:00 p.m. ET on Wednesday, June 26, 2013 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 1-888-438-5519, pass code 9239124. The conference call will include only brief comments followed by questions and answers. An archived version of the conference call and supporting materials will be available on the Progress Software website within the investor relations section after the live conference call.

Legal Notice Regarding Non-GAAP Financial Information

Progress Software 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 Software 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. Management uses these non-GAAP results to compare the company's performance to that of prior periods for analysis of trends and for budget and planning purposes. A reconciliation of non-GAAP adjustments to the company's GAAP financial results is included in the tables below. Additional information regarding the company's non-GAAP financial information is contained in the company's Current Report on Form 8-K filed with the Securities and Exchange Commission in connection with this press release, which is available on the Progress website at www.progress.com within the investor relations section.

Note Regarding Forward-Looking Statements

This press release contains statements that are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Progress has identified some of these forward-looking statements with words like “believe,” “may,” “could,” “would,” “might,” “should,” “expect,” “intend,” “plan,” “target,” “anticipate” and “continue,” the negative of these words, other terms of similar meaning or the use of future dates. Forward-looking statements in this press release include, but are not limited to, statements regarding Progress's strategic plan and its planned product divestiture and return of capital to shareholders; acquisitions; future revenue growth, operating margin and cost savings; product development, strategic partnering and marketing initiatives; the growth rates of certain markets; and other statements regarding the future operation, direction and success of Progress's business. 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) Market acceptance of Progress's strategic plan and product development initiatives; (2) disruption caused by implementation of the strategic plan on relationships with employees, customers, ISVs, other channel partners, vendors and other business partners; (3) pricing pressures and the competitive environment in the software industry and Platform-as-a-Service market; (4) Progress' ability to complete the proposed divestiture of its Apama product line on a timely basis, if at all; (5) Progress's ability to make technology acquisitions and to realize the expected benefits and anticipated synergies from such acquisitions; (6) the continuing uncertainty in the U.S. and international economies, which could result in fewer sales of Progress's products and may otherwise harm Progress's business; (7) business and consumer use of the Internet and the continuing adoption of Cloud technologies; (8) the receipt and shipment of new orders; (9) Progress's ability to expand its relationships with channel partners and to manage the interaction of channel partners with its direct sales force; (10) the timely release of enhancements to Progress's products and customer acceptance of new products; (11) the positioning of Progress's products in its existing and new markets; (12) variations in the demand for professional services and technical support; (13) Progress's ability to penetrate international markets and manage its international operations; and (14) changes in exchange rates. For further information regarding risks and uncertainties associated with Progress's business, please refer to Progress's filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the fiscal year ended November 30, 2012 and its Quarterly Report on Form 10-Q for the fiscal quarter ended February 28, 2013. Progress undertakes no obligation to update any forward-looking statements, which speak only as of the date of this press release.

Progress Software Corporation

Progress Software Corporation (NASDAQ: PRGS) is a global software company that simplifies the development, deployment and management of business applications on-premise or in the cloud, on any platform or device, to any data source, with enhanced performance, minimal IT complexity and low total cost of ownership. Progress Software can be reached at www.progress.com or 1-781-280-4000.

Progress is a trademark or registered trademarks of Progress Software Corporation or one of its subsidiaries or affiliates in the U.S. and other countries. Any other trademarks contained herein are the property of their respective owners.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

 
      Three Months Ended       Six Months Ended
(In thousands, except per share data)

May 31,
2013

   

May 31,
2012

    % Change

May 31,
2013

   

May 31,
2012

    % Change
Revenue:
Software licenses $ 29,347 $ 20,506 43 % $ 59,254 $ 50,179 18 %
Maintenance and services 52,358   53,622   (2 )% 106,184   106,420   %
Total revenue 81,705   74,128   10 % 165,438   156,599   6 %
Costs of revenue:
Cost of software licenses 1,356 1,357 % 3,446 2,743 26 %
Cost of maintenance and services 6,990 7,114 (2 )% 14,640 14,039 4 %
Amortization of acquired intangibles 143   139   3 % 282   383   (26 )%
Total costs of revenue 8,489   8,610   (1 )% 18,368   17,165   7 %
Gross profit 73,216   65,518   12 % 147,070   139,434   5 %
Operating expenses:
Sales and marketing 25,890 19,373 34 % 54,532 42,115 29 %
Product development 14,671 10,387 41 % 28,293 20,699 37 %
General and administrative 14,064 18,014 (22 )% 28,730 33,414 (14 )%
Amortization of acquired intangibles 167 208 (20 )% 338 415 (19 )%
Restructuring expenses 2,766 4,736 (42 )% 3,726 4,736 (21 )%
Acquisition-related expenses 1,272     100 % 1,272   215   492 %
Total operating expenses 58,830   52,718   12 % 116,891   101,594   15 %
Income from operations 14,386   12,800   12 % 30,179   37,840   (20 )%
Other (expense) income, net (292 ) 249   (217 )% (840 ) 519   (262 )%
Income from continuing operations before income taxes 14,094   13,049   8 % 29,339   38,359   (24 )%
Provision for income taxes 5,952   4,194   42 % 11,384   13,644   (17 )%
Income from continuing operations 8,142   8,855   (8 )% 17,955   24,715   (27 )%
Income (loss) from discontinued operations, net (4,232 ) (10,763 ) 61 % 17,073   (19,134 ) 189 %
Net income $ 3,910   $ (1,908 ) 305 % $ 35,028   $ 5,581   528 %
 
Earnings per share:
Basic:
Continuing operations $ 0.15 $ 0.14 7 % $ 0.32 $ 0.39 (18 )%
Discontinued operations (0.08 ) (0.17 ) 53 % 0.30   (0.31 ) 197 %
Net income per share $ 0.07   $ (0.03 ) 333 % 0.62   $ 0.09   589 %
Diluted:
Continuing operations $ 0.15 $ 0.14 7 % $ 0.31 $ 0.39 (21 )%
Discontinued operations (0.08 ) (0.17 ) 53 % 0.30   (0.30 ) 200 %
Net income per share $ 0.07   $ (0.03 ) 333 % $ 0.61   $ 0.09   578 %
Weighted average shares outstanding:
Basic 54,919 63,051 (13 )% 56,410 62,598 (10 )%
Diluted 55,736 63,051 (12 )% 57,244 63,641 (10 )%
 
 

CONDENSED CONSOLIDATED BALANCE SHEETS

 
(In thousands)      

May 31,
2013

   

November 30,
2012

Assets
Current assets:
Cash, cash equivalents and short-term investments $ 255,804 $ 355,217
Accounts receivable, net 50,772 70,793
Other current assets 40,036 32,779
Assets held for sale 11,236   68,029
Total current assets 357,848   526,818
Property and equipment, net 59,352 63,071
Goodwill and intangible assets, net 235,870 231,229
Other assets 58,023   63,859
Total assets $ 711,093   $ 884,977
Liabilities and shareholders' equity
Current liabilities:
Accounts payable and other current liabilities $ 59,281 $ 110,944
Short-term deferred revenue 102,094 103,925
Liabilities held for sale 4,012   25,285
Total current liabilities 165,387   240,154
Long-term deferred revenue 1,293 2,817
Other long-term liabilities 2,175 3,607
Shareholders' equity:
Common stock and additional paid-in capital 232,838 300,333
Retained earnings 309,400   338,066
Total shareholders' equity 542,238   638,399
Total liabilities and shareholders' equity $ 711,093   $ 884,977
 
 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 
      Three Months Ended       Six Months Ended
(In thousands) May 31,
2013
    May 31,
2012
May 31,
2013
    May 31,
2012
Cash flows from operating activities:
Net income $ 3,910 $ (1,908 ) $ 35,028 $ 5,581
Depreciation and amortization 4,076 8,417 7,477 16,979
Stock-based compensation 5,881 6,669 10,787 13,760
Net gains on sales of dispositions (35,106 )
Other non-cash adjustments 726 644 (2,201 ) 1,003
Changes in operating assets and liabilities (952 ) 1,338   (27,403 ) 16,366  
Net cash flows from operating activities 13,641   15,160   (11,418 ) 53,689  
Capital expenditures (1,488 ) (2,199 ) (2,386 ) (6,141 )
Redemptions and sales of auction-rate-securities 25 225
Issuances of common stock, net of repurchases (64,025 ) 6,514 (144,094 ) 20,487
Payments for acquisitions, net of cash acquired (9,450 ) (9,450 )
Proceeds from divestitures, net 73,381
Other (4,249 ) (6,391 ) (5,471 ) (1,428 )
Net change in cash, cash equivalents and short-term investments (65,571 ) 13,084   (99,413 ) 66,832  
Cash, cash equivalents and short-term investments, beginning of period 321,375   315,164   355,217   261,416  
Cash, cash equivalents and short-term investments, end of period $ 255,804   $ 328,248   $ 255,804   $ 328,248  
 
 

SUPPLEMENTAL INFORMATION

 
Revenue from continuing operations by Type
                                 
(In thousands) Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 YTD 2013 YTD 2012
License $ 29,673 $ 20,506 $ 22,637 $ 33,810 $ 29,907 $ 29,347 $ 59,254 $ 50,179
Maintenance 50,165 51,350 50,285 50,891 51,456 50,419 101,875 101,515
Professional services 2,633   2,272   1,449   1,941   2,370   1,939   4,309   4,905
Total revenue $ 82,471   $ 74,128   $ 74,371   $ 86,642   $ 83,733   $ 81,705   $ 165,438   $ 156,599
 
Revenue from continuing operations by Region
 
(In thousands) Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 YTD 2013 YTD 2012
North America $ 36,742 $ 32,190 $ 34,548 $ 39,179 $ 39,309 $ 37,540 $ 76,849 $ 68,932
EMEA 33,508 30,689 28,155 33,214 32,548 33,481 66,029 64,197
Latin America 7,386 6,660 6,905 7,384 6,822 6,526 13,348 14,046
Asia Pacific 4,835   4,589   4,763   6,865   5,054   4,158   9,212   9,424
Total revenue $ 82,471   $ 74,128   $ 74,371   $ 86,642   $ 83,733   $ 81,705   $ 165,438   $ 156,599
 
 

RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES

           
Three Months Ended Six Months Ended
(In thousands, except per share data) May 31,
2013
    May 31,
2012
May 31,
2013
    May 31,
2012
GAAP income from operations $ 14,386 $ 12,800 $ 30,179 $ 37,840
GAAP operating margin 18 % 17 % 18 % 24 %
Amortization of acquired intangibles 310 347 620 798
Stock-based compensation (1) 4,981 4,581 9,470 9,299
Restructuring expenses 2,766 4,736 3,726 4,736
Acquisition-related expenses 1,272 1,272 215
Litigation settlement 900
Proxy contest-related costs   2,766     3,238  
Total operating adjustments 9,329   12,430   15,088   19,186  
Non-GAAP income from operations $ 23,715   $ 25,230   $ 45,267   $ 57,026  
Non-GAAP operating margin 29 % 34 % 27 % 36 %
 
GAAP income from continuing operations $ 8,142 $ 8,855 $ 17,955 $ 24,715
Operating adjustments (from above) 9,329 12,430 15,088 19,186
Income tax adjustment (2,464 ) (3,959 ) (4,169 ) (4,770 )
Total income from continuing operations adjustments 6,865   8,471   10,919   14,416  
Non-GAAP income from continuing operations $ 15,007   $ 17,326   $ 28,874   $ 39,131  
 
GAAP diluted earnings per share from continuing operations $ 0.15 $ 0.14 $ 0.31 $ 0.39
Income from continuing operations adjustments (from above) 0.12   0.13   0.19   0.23  
Non-GAAP diluted earnings per share from continuing operations $ 0.27   $ 0.27   $ 0.50   $ 0.61  
 
Diluted weighted average shares outstanding 55,736 63,051 57,244 63,641
 
 
(1) Stock-based compensation is included in the GAAP statements of income, as follows:
 
Cost of revenue $ 158 $ 204 $ 367 $ 432
Sales and marketing 881 892 1,920 2,147
Product development 1,225 703 2,688 1,514
General and administrative 2,717   2,782   4,495   5,206  
Stock-based compensation from continuing operations $ 4,981   $ 4,581   $ 9,470   $ 9,299  
 
 
      Three Months Ended     Six Months Ended
(In thousands, except per share data)

May 31,
2013

   

May 31,
2012

May 31,
2013

   

May 31,
2012

GAAP costs of revenue $ 8,489 $ 8,610 $ 18,368 $ 17,165
GAAP operating expenses 58,830   52,718   116,891   101,594
GAAP expenses 67,319   61,328   135,259   118,759
Operating adjustments (from above) 9,329   12,430   15,088   19,186
Non-GAAP expenses $ 57,990   $ 48,898   $ 120,171   $ 99,573
 
 
SUPPLEMENTAL QUARTERLY INFORMATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME( (2))
     
Three Months Ended
(In thousands, except per share data)

February 29,
2012

   

August 31,
2012

   

November 30,
2012

   

February 28,
2013

Revenue:
Software licenses $ 29,673 $ 22,637 $ 33,810 $ 29,907
Maintenance and services 52,798   51,734   52,832   53,826  
Total revenue 82,471   74,371   86,642   83,733  
Costs of revenue:
Cost of software licenses 1,385 1,375 1,659 2,090
Cost of maintenance and services 6,925 7,974 7,865 7,650
Amortization of acquired intangibles 244   139   138   139  
Total costs of revenue 8,554   9,488   9,662   9,879  
Gross profit 73,917   64,883   76,980   73,854  
Operating expenses:
Sales and marketing 22,742 24,970 31,753 28,642
Product development 10,312 12,631 11,113 13,622
General and administrative 15,400 14,375 14,200 14,666
Amortization of acquired intangibles 207 207 198 171
Restructuring expenses 1,411 1,057 960
Acquisition-related expenses 215        
Total operating expenses 48,876   53,594   58,321   58,061  
Income from operations 25,041   11,289   18,659   15,793  
Other (expense) income, net 270   357   (680 ) (548 )
Income from continuing operations before income taxes 25,311   11,646   17,979   15,245  
Provision for income taxes 9,450   3,902   5,485   5,432  
Income from continuing operations 15,861   7,744   12,494   9,813  
Income (loss) from discontinued operations, net (8,372 ) (1,906 ) 23,531   21,305  
Net income $ 7,489   $ 5,838   $ 36,025   $ 31,118  
 
Earnings per share:
Basic:
Continuing operations $ 0.26 $ 0.12 $ 0.20 $ 0.17
Discontinued operations (0.13 ) (0.03 ) 0.37   0.37  
Net income per share $ 0.12   $ 0.09   0.57   $ 0.54  
Diluted:
Continuing operations $ 0.25 $ 0.12 $ 0.20 $ 0.17
Discontinued operations (0.13 ) (0.03 ) 0.37   0.36  
Net income per share $ 0.12   $ 0.09   $ 0.57   $ 0.53  
Weighted average shares outstanding:
Basic 62,145 63,469 62,859 57,901
Diluted 63,130 64,105 63,576 58,752
 
(2) As adjusted to reflect the classification of the Apama product line as discontinued operations.
 
 
SUPPLEMENTAL QUARTERLY INFORMATION
RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES( (2))
     
Three Months Ended
(In thousands, except per share data)

February 29,
2012

   

August 31,
2012

    November 30,
2012
    February 28,
2013
GAAP income from operations $ 25,041 $ 11,289 $ 18,659 $ 15,793
GAAP operating margin 30 % 15 % 22 % 19 %
Amortization of acquired intangibles 451 346 336 310
Stock-based compensation (3) 4,718 4,759 4,103 4,489
Restructuring expenses 1,411 1,057 960
Acquisition-related expenses 215
Litigation settlement 900
Proxy contest-related costs 472   21      
Total operating adjustments 6,756   6,537   5,496   5,759  
Non-GAAP income from operations $ 31,797   $ 17,826   $ 24,155   $ 21,552  
Non-GAAP operating margin 39 % 24 % 28 % 26 %
 
GAAP income from continuing operations $ 15,861 $ 7,744 $ 12,494 $ 9,813
Operating adjustments (from above) 6,756 6,537 5,496 5,759
Income tax adjustment (811 ) (1,916 ) (2,027 ) (1,705 )
Total income from continuing operations adjustments 5,945   4,621   3,469   4,054  
Non-GAAP income from continuing operations $ 21,806   $ 12,365   $ 15,963   $ 13,867  
 
GAAP diluted earnings per share from continuing operations $ 0.25 $ 0.12 $ 0.20 $ 0.17
Income from continuing operations adjustments (from above) 0.09   0.07   0.05   0.07  
Non-GAAP diluted earnings per share from continuing operations $ 0.35   $ 0.19   $ 0.25   $ 0.24  
 
Diluted weighted average shares outstanding 63,130 64,105 63,576 58,752
 
 
(3) Stock-based compensation is included in the GAAP statements of income, as follows:
 
Cost of revenue $ 228 $ 157 $ 145 $ 209
Sales and marketing 1,255 701 426 1,039
Product development 811 861 795 1,463
General and administrative 2,424   3,040   2,737   1,778  
Stock-based compensation from continuing operations $ 4,718   $ 4,759   $ 4,103   $ 4,489  
      Three Months Ended
(In thousands, except per share data) February 29, 2012     August 31, 2012     November 30, 2012     February 28, 2013
GAAP costs of revenue $ 8,554 $ 9,488 $ 9,662 $ 9,879
GAAP operating expenses 48,876   53,594   58,321   58,061
GAAP expenses 57,430   63,082   67,983   67,940
Operating adjustments (from above) 6,756   6,537   5,496   5,759
Non-GAAP expenses $ 50,674   $ 56,545   $ 62,487   $ 62,181
 
(2) As adjusted to reflect the classification of the Apama product line as discontinued operations.

Progress Software
Investor Contact:
Tom Barth, +1 781-280-4135
tobarth@progress.com
or
Press Contact:
Rick Lacroix, +1-781-280-4604
rlacroix@progress.com

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