Progress Announces First Quarter 2022 Financial Results

Revenue and Earnings Per Share Exceed Guidance Ranges 
Full Year Guidance Increased for Revenue and Earnings Per Share

BEDFORD, Mass., March 29, 2022 (GLOBE NEWSWIRE) -- Progress (Nasdaq: PRGS), the trusted provider of infrastructure software, today announced financial results for its fiscal first quarter ended February 28, 2022.

First Quarter 2022 Highlights:

• Revenue of $144.9 million increased 19% year-over-year on an actual currency basis, and 21% on a constant currency basis.
• Non-GAAP revenue of $147.5 million increased 12% on an actual currency basis, and 14% on a constant currency basis.
• Annualized Recurring Revenue (ARR) of $479 million increased 12% year-over-year on a constant currency basis.
• Operating margin was 20% and Non-GAAP operating margin was 40%.
• Diluted earnings per share was $0.46 compared to $0.42 in the same quarter last year, an increase of 10%. 
• Non-GAAP diluted earnings per share was $0.97 compared to $0.95 in the same quarter last year, an increase of 2%.

“We are extremely pleased with our strong first quarter results which built on the momentum from last year,” said Yogesh Gupta, CEO at Progress. “Customer demand and our execution remained solid, the integration of Kemp is on track and going very well, and the M&A deal pipeline remains robust. Although our financial exposure to Russia and Belarus is immaterial, we are nonetheless horrified by the geopolitical events and saddened by the humanitarian tragedy in Ukraine. Our hearts are with all of those in the region.”

Additional financial highlights included⁽¹⁾:

	Three Months Ended
	GAAP											Non-GAAP
(In thousands, except percentages and per share amounts)	February 28, 2022				February 28, 2021				% Change			February 28, 2022				February 28, 2021				% Change
Revenue	$	144,922			$	121,280			19	%		$	147,505			$	131,784			12	%
Income from operations	$	29,432			$	27,416			7	%		$	58,732			$	56,657			4	%
Operating margin		20	%			23	%		(300) bps				40	%			43	%		(300) bps
Net income	$	20,454			$	18,961			8	%		$	43,560			$	42,504			2	%
Diluted earnings per share	$	0.46			$	0.42			10	%		$	0.97			$	0.95			2	%
Cash from operations (GAAP) /Adjusted free cash flow (Non-GAAP)	$	44,093			$	44,688			(1	)%		$	44,681			$	46,515			(4	)%

⁽¹⁾See Legal Notice Regarding Non-GAAP Financial Information

Other fiscal first quarter 2022 metrics and recent results included:

• Cash, cash equivalents and short-term investments were $173.3 million at the end of the quarter.
• DSO was 52 days compared to 53 days in the fiscal first quarter of 2021 and 60 days in the fiscal fourth quarter of 2021.
• On March 23, 2022, our Board of Directors declared a quarterly dividend of $0.175 per share of common stock that will be paid on June 15, 2022 to shareholders of record as of the close of business on June 1, 2022.
  

Anthony Folger, CFO, said: “We delivered strong financial results across the board in the first quarter, a continuation of the trend that we saw for much of fiscal year 2021. The integration of Kemp is tracking to plan and Kemp’s first full quarter with Progress contributed in line with our expectations and helped sustain the momentum of our total growth strategy.”

2022 Business Outlook

Progress provides the following guidance for the fiscal year ending November 30, 2022 and the fiscal second quarter ending May 31, 2022:

	Updated FY 2022 Guidance  (March 29, 2022)					Prior FY 2022 Guidance (January 18, 2022)
(In millions, except percentages and per share amounts)	GAAP			Non-GAAP		GAAP			Non-GAAP
Revenue	$601 - $609			$609 - $617		$597 - $607			$605 - $615
Diluted earnings per share	$2.16 - $2.23			$4.01 - $4.09		$1.93 - $2.03			$3.95 - $4.05
Operating margin	23%			39% - 40%		21%			39%
Cash from operations (GAAP) / Adjusted free cash flow (Non-GAAP)	$188 - $193			$185 - $190		$188 - $193			$185 - $190
Effective tax rate	21%			20% - 21%		20% - 21%			20% - 21%

	Q2 2022 Guidance
(In millions, except per share amounts)	GAAP		Non-GAAP
Revenue	$143 - $146		$145 - $148
Diluted earnings per share	$0.62 - $0.64		$0.94 - $0.96

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 $9.2 million on GAAP and non-GAAP revenue, and approximately $0.03 on GAAP and non-GAAP diluted earnings per share. The expected negative currency translation impact on Progress' fiscal Q2 2022 business outlook compared to 2021 exchange rates on GAAP and non-GAAP revenue is approximately $2.8 million. The expected negative impact on GAAP and non-GAAP diluted Q2 2022 earnings per share is $0.01. 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 first quarter of 2022 at 5:00 p.m. ET on Tuesday, March 29, 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 800-773-2954 or +1 847-413-3731, passcode 50242106. 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.

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

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

	Three Months Ended
(In thousands, except per share data)	February 28, 2022				February 28, 2021				% Change
Revenue:
Software licenses	$	42,750			$	33,317			28	%
Maintenance and services		102,172				87,963			16	%
Total revenue		144,922				121,280			19	%
Costs of revenue:
Cost of software licenses		2,609				1,151			127	%
Cost of maintenance and services		15,145				13,319			14	%
Amortization of acquired intangibles		5,458				3,521			55	%
Total costs of revenue		23,212				17,991			29	%
Gross profit		121,710				103,289			18	%
Operating expenses:
Sales and marketing		33,469				29,469			14	%
Product development		28,673				24,548			17	%
General and administrative		16,991				13,424			27	%
Amortization of acquired intangibles		11,722				6,879			70	%
Restructuring expenses		511				1,157			(56	)%
Acquisition-related expenses		912				396			130	%
Total operating expenses		92,278				75,873			22	%
Income from operations		29,432				27,416			7	%
Other expense, net		(3,480	)			(2,652	)		(31	)%
Income before income taxes		25,952				24,764			5	%
Provision for income taxes		5,498				5,803			(5	)%
Net income	$	20,454			$	18,961			8	%
Earnings per share:
Basic	$	0.47			$	0.43			9	%
Diluted	$	0.46			$	0.42			10	%
Weighted average shares outstanding:
Basic		43,981				44,108			—	%
Diluted		44,708				44,652			—	%
Cash dividends declared per common share	$	0.175			$	0.175			—	%

Stock-based compensation is included in the condensed consolidated statements of operations, as follows:
Cost of revenue	$	411		$	392		5	%
Sales and marketing		1,402			1,503		(7	)%
Product development		2,222			1,919		16	%
General and administrative		4,079			2,970		37	%
Total	$	8,114		$	6,784		20	%

CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

(In thousands)	February 28, 2022			November 30, 2021
Assets
Current assets:
Cash, cash equivalents and short-term investments	$	173,322		$	157,373
Accounts receivable, net		86,601			99,815
Unbilled receivables and contract assets		27,043			25,816
Other current assets		40,401			39,549
Assets held for sale		15,255			15,255
Total current assets		342,622			337,808
Property and equipment, net		13,933			14,345
Goodwill and intangible assets, net		944,326			958,337
Right-of-use lease assets		23,604			25,253
Long-term unbilled receivables and contract assets		16,233			17,464
Other assets		12,398			10,330
Total assets	$	1,353,116		$	1,363,537
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable and other current liabilities	$	59,650		$	84,215
Current portion of long-term debt, net		6,234			25,767
Short-term operating lease liabilities		8,075			7,926
Short-term deferred revenue		209,771			205,021
Total current liabilities		283,730			322,929
Long-term debt, net		263,896			239,992
Convertible senior notes, net		351,038			294,535
Long-term operating lease liabilities		21,230			23,130
Long-term deferred revenue		51,771			47,359
Other long-term liabilities		13,128			23,103
Shareholders’ equity:
Common stock and additional paid-in capital		303,678			354,676
Retained earnings		64,645			57,813
Total shareholders’ equity		368,323			412,489
Total liabilities and shareholders’ equity	$	1,353,116		$	1,363,537

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)  

	Three Months Ended
(In thousands)	February 28, 2022				February 28, 2021
Cash flows from operating activities:
Net income	$	20,454			$	18,961
Depreciation and amortization		19,218				11,862
Stock-based compensation		8,114				6,784
Other non-cash adjustments		4,442				2,415
Changes in operating assets and liabilities		(8,135	)			4,666
Net cash flows from operating activities		44,093				44,688
Capital expenditures		(831	)			(1,166	)
Issuances of common stock, net of repurchases		(20,906	)			(11,515	)
Dividend payments to shareholders		(7,784	)			(7,854	)
Proceeds from the issuance of debt, net of payment of issuance costs		5,517				—
Payments of principal on long-term debt		(1,719	)			(18,763	)
Other		(2,421	)			2,986
Net change in cash, cash equivalents and short-term investments		15,949				8,376
Cash, cash equivalents and short-term investments, beginning of period		157,373				105,995
Cash, cash equivalents and short-term investments, end of period	$	173,322			$	114,371

RECONCILIATIONS OF GAAP TO NON-GAAP SELECTED FINANCIAL MEASURES
(Unaudited)

	Three Months Ended														% Change
(In thousands, except per share data)	February 28, 2022							February 28, 2021							Non-GAAP
Adjusted revenue:
GAAP revenue	$	144,922						$	121,280
Acquisition-related revenue(1)		2,583							10,504
Non-GAAP revenue	$	147,505			100	%		$	131,784			100	%		12%
Adjusted income from operations:
GAAP income from operations	$	29,432			20	%		$	27,416			23	%
Amortization of acquired intangibles		17,180			12	%			10,400			8	%
Restructuring expenses and other		511			—	%			1,157			1	%
Stock-based compensation		8,114			6	%			6,784			3	%
Acquisition-related revenue(1)and expenses		3,495			2	%			10,900			8	%
Non-GAAP income from operations	$	58,732			40	%		$	56,657			43	%		4%
Adjusted net income:
GAAP net income	$	20,454			14	%		$	18,961			16	%
Amortization of acquired intangibles		17,180			12	%			10,400			8	%
Restructuring expenses and other		511			—	%			1,157			1	%
Stock-based compensation		8,114			6	%			6,784			3	%
Acquisition-related revenue(1)and expenses		3,495			2	%			10,900			8	%
Provision for income taxes		(6,194	)		(4	)%			(5,698	)		(4	)%
Non-GAAP net income	$	43,560			30	%		$	42,504			32	%		2%
Adjusted diluted earnings per share:
GAAP diluted earnings per share	$	0.46						$	0.42
Amortization of acquired intangibles		0.38							0.23
Restructuring expenses and other		0.01							0.03
Stock-based compensation		0.18							0.16
Acquisition-related revenue(1)and expenses		0.08							0.24
Provision for income taxes		(0.14	)						(0.13	)
Non-GAAP diluted earnings per share	$	0.97						$	0.95						2%
Non-GAAP weighted avg shares outstanding - diluted		44,708							44,652						—%
(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.

OTHER NON-GAAP FINANCIAL MEASURES
(Unaudited)

Adjusted Free Cash Flow
(In thousands)	Q1 2022				Q1 2021				% Change
Cash flows from operations	$	44,093			$	44,688			(1)%
Purchases of property and equipment		(831	)			(1,166	)		(29)%
Free cash flow		43,262				43,522			(1)%
Add back: restructuring payments		1,419				2,993			(53)%
Adjusted free cash flow	$	44,681			$	46,515			(4)%

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	$	137.0			$	141.2
GAAP operating margins		23	%			23	%
Acquisition-related revenue		8.5				8.5
Acquisition-related expense		1.6				1.6
Restructuring expense		0.9				0.9
Stock-based compensation		33.5				33.5
Amortization of acquired intangibles		69.3				69.3
Gain on sale of assets held for sale		(10.7	)			(10.7	)
Total adjustments(2)		103.1				103.1
Non-GAAP income from operations	$	240.1			$	244.3
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	$	96.0			$	99.3
Adjustments (from previous table)		103.1				103.1
Income tax adjustment(3)		(20.8	)			(20.3	)
Non-GAAP net income	$	178.3			$	182.1
GAAP diluted earnings per share	$	2.16			$	2.23
Non-GAAP diluted earnings per share	$	4.01			$	4.09
Diluted weighted average shares outstanding		44.5				44.5
(3)Tax adjustment is based on a non-GAAP effective tax rate of approximately 21% for Low and 20% for High, calculated as follows:
Non-GAAP income from operations	$	240.1			$	244.3
Other (expense) income		(15.5	)			(15.5	)
Non-GAAP income from continuing operations before income taxes		224.6				228.8
Non-GAAP net income		178.3				182.1
Tax provision	$	46.3			$	46.7
Non-GAAP tax rate		21	%			20	%

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

RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES FOR Q2 2022 GUIDANCE
(Unaudited)

Q2 2022 Revenue Guidance
	Three Months Ended			Three Months Ending
	May 31, 2021			May 31, 2022
(In millions)				Low			% Change			High			% Change
GAAP revenue	$	122.5		$	142.9		17	%		$	145.9		19	%
Acquisition-related adjustments - revenue(1)		6.7			2.1		(69	)%			2.1		(69	)%
Non-GAAP revenue	$	129.2		$	145.0		12	%		$	148.0		15	%
(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.

Q2 2022 Non-GAAP Earnings per Share Guidance
	Three Months Ending May 31, 2022
	Low				High
GAAP diluted earnings per share	$	0.62			$	0.64
Acquisition-related revenue		0.05				0.05
Acquisition-related expense		0.01				0.01
Stock-based compensation		0.19				0.19
Amortization of acquired intangibles		0.39				0.39
Gain on sale of assets held for sale		(0.24	)			(0.24	)
Total adjustments(2)		0.40				0.40
Income tax adjustment		(0.08	)			(0.08	)
Non-GAAP diluted earnings per share	$	0.94			$	0.96
(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.