PROGRESS SOFTWARE CORP /MA - FORM 8-K - EX-99.1 - EXHIBIT - September 25, 2014

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Exhibit 99.1


P R E S S A N N O U N C E M E N T
Investor Contact:
 
Press Contact:
Brian Flanagan
 
Jill Adams
Progress Software
 
Progress Software
+1 781 280 4817
 
+1 781 280 4474
flanagan@progress.com
 
jiadams@progress.com

Progress Software Reports 2014 Fiscal Third Quarter Results


BEDFORD, MA, September 25, 2014 (BUSINESSWIRE) — Progress Software Corporation (NASDAQ: PRGS), a global software company that simplifies and enables the development, deployment and management of business applications, today announced results for its fiscal third quarter ended August 31, 2014.

Revenue from continuing operations was $79.3 million compared to $77.6 million in the same quarter last year, a year over year increase of 2% on an actual currency basis, and flat on a constant currency basis.

Additional financial highlights included:

On a GAAP basis in the fiscal third quarter of 2014:

•
Income from operations was $19.4 million compared to $9.7 million in the same quarter last year;
•
Income from continuing operations was $11.1 million compared to $7.2 million in the same quarter last year;
•
Net income was $11.1 million compared to $24.8 million in the same quarter last year; and
•
Diluted earnings per share from continuing operations was $0.22 compared to $0.13 in the same quarter last year.

On a non-GAAP basis in the fiscal third quarter of 2014:

•
Income from operations was $29.6 million compared to $21.4 million in the same quarter last year;
•
Operating margin was 37% compared to 28% in the same quarter last year;
•
Income from continuing operations was $20.0 million compared to $14.7 million in the same quarter last year; and
•
Diluted earnings per share from continuing operations was $0.39 compared to $0.27 in the same quarter last year.

Phil Pead, Progress CEO, said, “We are pleased with our results for our third quarter. Our OpenEdge revenue growth and the continued momentum with our Pacific Platform reinforce the value that our technologies deliver to customers and partners. With another solid quarter, and the increased focus from our newly-created business units, Progress remains well positioned to achieve our goal of becoming the preferred destination for application developers.”

Other fiscal third quarter 2014 metrics and recent results included:

•
Cash, cash equivalents and short-term investments were $261.3 million;
•
Cash inflows from operations were $25.9 million compared to cash outflows from operations of $1.9 million in the same quarter in fiscal year 2013;
•
DSO was 66 days, compared to 65 days in the fiscal second quarter of 2014; and
•
Under the previously announced authorization by the Board of Directors to repurchase up to $100 million of common stock, the company has repurchased 2.3 million shares for $52.6 million as of August 31, 2014.

In addition, during the third quarter of fiscal year 2014, Progress announced that it is making strategic changes to its organization to provide greater focus and agility in the delivery of next generation application development, deployment and integration solutions. Effective September 1, 2014, Progress began operating as three distinct business units: OpenEdge, Application Development and Deployment, and Data Connectivity and Integration, each with dedicated sales, product

1

management and product marketing functions. These changes are designed to enable the business to better deliver against the fast paced requirements in the on-premise and cloud application development and data connectivity and integration markets.

Business Outlook

Progress Software provides the following guidance for the fiscal year ending November 30, 2014:

•
Revenue is expected to be between $331 million and $335 million;
•
Non-GAAP earnings per share is expected to be between $1.47 and $1.50;
•
Non-GAAP operating margin is expected to be approximately 34%;
•
Free cash flow is expected to be between $79 million and $81 million; and
•
Non-GAAP effective tax rate is expected to be between 32% and 33%.

Progress Software provides the following guidance for the fourth fiscal quarter ending November 30, 2014:

•
Revenue is expected to be between $96 million and $100 million; and
•
Non-GAAP earnings per share is expected to be between $0.44 and $0.47.

Free cash flow is equal to cash flows from operating activities less purchases of property and equipment and capitalized software development costs.

Conference Call

The Progress Software quarterly investor conference call to review its fiscal third quarter of 2014 will be broadcast live at 5:00 p.m. ET on Thursday, September 25, 2014 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 1-888-395-3227, pass code 2611858. The conference call will include 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 furnished to 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; 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:


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(1) Market acceptance of Progress’s strategy and product development initiatives; (2) pricing pressures and the competitive environment in the software industry and Platform-as-a-Service market; (3) Progress's ability to successfully manage transitions to new business models and markets, including an increased emphasis on a cloud and subscription strategy; (4) Progress's ability to make acquisitions and to realize the expected benefits and anticipated synergies from such acquisitions; (5) 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; (6) business and consumer use of the Internet and the continuing adoption of Cloud technologies; (7) the receipt and shipment of new orders; (8) Progress's ability to expand its relationships with channel partners and to manage the interaction of channel partners with its direct sales force; (9) the timely release of enhancements to Progress's products and customer acceptance of new products; (10) the positioning of Progress's products in its existing and new markets; (11) variations in the demand for professional services and technical support; (12) Progress's ability to penetrate international markets and manage its international operations; and (13) 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, 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.







3

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

 
Three Months Ended
 
Nine Months Ended
(In thousands, except per share data)
August 31, 2014
 
August 31, 2013
 
% Change
 
August 31, 2014
 
August 31, 2013
 
% Change
Revenue:
 
 
 
 
 
 
 
 
 
 
 
Software licenses
$
26,393

 
$
25,666

 
3
 %
 
$
76,645

 
$
84,920

 
(10
)%
Maintenance and services
52,881

 
51,912

 
2
 %
 
157,994

 
158,096

 
—
 %
Total revenue
79,274

 
77,578

 
2
 %
 
234,639

 
243,016

 
(3
)%
Costs of revenue:
 
 
 
 
 
 
 
 
 
 
 
Cost of software licenses
1,805

 
1,587

 
14
 %
 
4,951

 
5,033

 
(2
)%
Cost of maintenance and services
5,222

 
6,403

 
(18
)%
 
16,276

 
21,043

 
(23
)%
Amortization of acquired intangibles
834

 
529

 
58
 %
 
1,893

 
811

 
133
 %
Total costs of revenue
7,861

 
8,519

 
(8
)%
 
23,120

 
26,887

 
(14
)%
Gross profit
71,413

 
69,059

 
3
 %
 
211,519

 
216,129

 
(2
)%
Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
Sales and marketing
22,477

 
24,554

 
(8
)%
 
71,425

 
79,086

 
(10
)%
Product development
14,975

 
14,615

 
2
 %
 
45,568

 
42,908

 
6
 %
General and administrative
12,162

 
13,660

 
(11
)%
 
35,236

 
42,390

 
(17
)%
Amortization of acquired intangibles
116

 
211

 
(45
)%
 
428

 
549

 
(22
)%
Restructuring expenses
1,680

 
5,401

 
(69
)%
 
2,001

 
9,127

 
(78
)%
Acquisition-related expenses
572

 
957

 
(40
)%
 
3,148

 
2,229

 
41
 %
Total operating expenses
51,982

 
59,398

 
(12
)%
 
157,806

 
176,289

 
(10
)%
Income from operations
19,431

 
9,661

 
101
 %
 
53,713

 
39,840

 
35
 %
Other income (expense), net
(2,457
)
 
177

 
(1,488
)%
 
(2,581
)
 
(663
)
 
(289
)%
Income from continuing operations before income taxes
16,974

 
9,838

 
73
 %
 
51,132

 
39,177

 
31
 %
Provision for income taxes
5,879

 
2,634

 
123
 %
 
16,138

 
14,018

 
15
 %
Income from continuing operations
11,095

 
7,204

 
54
 %
 
34,994

 
25,159

 
39
 %
Income (loss) from discontinued operations, net
—

 
17,639

 
(100
)%
 
—

 
34,712

 
(100
)%
Net income
$
11,095

 
$
24,843

 
(55
)%
 
$
34,994

 
$
59,871

 
(42
)%
 
 
 
 
 
 
 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
 
 
 
 
Continuing operations
$
0.22

 
$
0.13

 
69
 %
 
$
0.69

 
$
0.45

 
53
 %
Discontinued operations
—

 
0.33

 
(100
)%
 
—

 
0.63

 
(100
)%
Net income per share
$
0.22

 
$
0.46

 
(52
)%
 
$
0.69

 
$
1.08

 
(36
)%
Diluted:
 
 
 
 


 
 
 
 
 
 
Continuing operations
$
0.22

 
$
0.13

 
69
 %
 
$
0.68

 
$
0.45

 
51
 %
Discontinued operations
—

 
0.32

 
(100
)%
 
—

 
0.62

 
(100
)%
Net income per share
$
0.22

 
$
0.46

 
(52
)%
 
$
0.68

 
$
1.06

 
(36
)%
Weighted average shares outstanding:
 
 
 
 
 
 
 
 
 
 
 
Basic
50,383

 
53,532

 
(6
)%
 
50,975

 
55,451

 
(8
)%
Diluted
50,931

 
54,389

 
(6
)%
 
51,590

 
56,292

 
(8
)%

4


CONDENSED CONSOLIDATED BALANCE SHEETS
 
(In thousands)
August 31,
2014
 
November 30, 2013
Assets
 
 
 
Current assets:
 
 
 
Cash, cash equivalents and short-term investments
$
261,292

 
$
231,440

Accounts receivable, net
57,840

 
66,784

Other current assets
33,550

 
39,587

Total current assets
352,682

 
337,811

Property and equipment, net
59,176

 
57,030

Goodwill and intangible assets, net
245,816

 
234,236

Other assets
18,970

 
53,110

Total assets
$
676,644

 
$
682,187

Liabilities and shareholders’ equity
 
 
 
Current liabilities:
 
 
 
Accounts payable and other current liabilities
$
55,090

 
$
68,186

Short-term deferred revenue
93,086

 
96,393

Total current liabilities
148,176

 
164,579

Long-term deferred revenue
2,193

 
1,144

Other long-term liabilities
1,998

 
2,810

Shareholders’ equity:
 
 
 
Common stock and additional paid-in capital
200,681

 
205,307

Retained earnings
323,596

 
308,347

Total shareholders’ equity
524,277

 
513,654

Total liabilities and shareholders’ equity
$
676,644

 
$
682,187




5

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  
 
Three Months Ended
 
Nine Months Ended
(In thousands)
August 31,
2014
 
August 31,
2013
 
August 31,
2014
 
August 31,
2013
Cash flows from operating activities:
 
 
 
 
 
 
 
Net income
$
11,095

 
$
24,843

 
$
34,994

 
$
59,871

Depreciation and amortization
3,938

 
3,897

 
10,985

 
11,374

Stock-based compensation
6,940

 
5,573

 
18,194

 
16,360

Net gains on sales of dispositions
—

 
(35,885
)
 
—

 
(70,991
)
Other non-cash adjustments
1,856

 
2,648

 
2,232

 
447

Changes in operating assets and liabilities
2,099

 
(2,937
)
 
2,064

 
(30,340
)
Net cash flows from operating activities
25,928

 
(1,861
)
 
68,469

 
(13,279
)
Capital expenditures
(2,154
)
 
(603
)
 
(10,191
)
 
(2,989
)
Redemptions and sales of auction-rate-securities
26,196

 
—

 
26,196

 
25

Issuances of common stock, net of repurchases
(13,795
)
 
(47,981
)
 
(41,890
)
 
(192,075
)
Payments of acquisitions, net of cash acquired
—

 
—

 
(12,493
)
 
(9,450
)
Proceeds from divestitures, net
—

 
37,739

 
3,300

 
111,120

Other
(1,459
)
 
(1,116
)
 
(3,539
)
 
(6,587
)
Net change in cash, cash equivalents and short-term investments
34,716

 
(13,822
)
 
29,852

 
(113,235
)
Cash, cash equivalents and short-term investments, beginning of period
226,576

 
255,804

 
231,440

 
355,217

Cash, cash equivalents and short-term investments, end of period
$
261,292

 
$
241,982

 
$
261,292

 
$
241,982



SUPPLEMENTAL INFORMATION

Revenue from continuing operations by Type
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
Q3 2013
 
Q4 2013
 
Q1 2014
 
Q2 2014
 
Q3 2014
 
YTD 2014
 
YTD 2013
License
$
25,666

 
$
37,392

 
$
22,264

 
$
27,988

 
$
26,393

 
$
76,645

 
$
84,920

Maintenance
49,752

 
51,230

 
50,181

 
50,305

 
50,746

 
151,232

 
151,627

Professional services
2,160

 
2,358

 
2,093

 
2,534

 
2,135

 
6,762

 
6,469

Total revenue
$
77,578

 
$
90,980

 
$
74,538

 
$
80,827

 
$
79,274

 
$
234,639

 
$
243,016

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue from continuing operations by Region
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
Q3 2013
 
Q4 2013
 
Q1 2014
 
Q2 2014
 
Q3 2014
 
YTD 2014
 
YTD 2013
North America
$
34,596

 
$
42,833

 
$
34,586

 
$
36,827

 
$
35,654

 
$
107,067

 
$
111,445

EMEA
32,315

 
35,256

 
29,315

 
33,698

 
32,995

 
96,008

 
98,344

Latin America
5,496

 
6,526

 
5,108

 
5,703

 
5,695

 
16,506

 
18,844

Asia Pacific
5,171

 
6,365

 
5,529

 
4,599

 
4,930

 
15,058

 
14,383

Total revenue
$
77,578

 
$
90,980

 
$
74,538

 
$
80,827

 
$
79,274

 
$
234,639

 
$
243,016







6

RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES

 
Three Months Ended
 
Nine Months Ended
(In thousands, except per share data)
August 31,
2014
 
August 31,
2013
 
August 31,
2014
 
August 31,
2013
GAAP income from operations
$
19,431

 
$
9,661

 
$
53,713

 
$
39,840

GAAP operating margin
25
%
 
12
%
 
23
%
 
16
%
Amortization of acquired intangibles
950

 
740

 
2,321

 
1,360

Stock-based compensation (1)
6,940

 
4,600

 
18,194

 
14,070

Restructuring expenses
1,680

 
5,401

 
2,001

 
9,127

Acquisition-related expenses
572

 
957

 
3,148

 
2,229

Total operating adjustments
10,142

 
11,698

 
25,664

 
26,786

Non-GAAP income from operations
$
29,573

 
$
21,359

 
$
79,377

 
$
66,626

Non-GAAP operating margin
37
%
 
28
%
 
34
%
 
27
%
 
 
 
 
 
 
 
 
GAAP income from continuing operations
$
11,095

 
$
7,204

 
$
34,994

 
$
25,159

Operating adjustments (from above)
10,142

 
11,698

 
25,664

 
26,786

Realized loss on sales of auction-rate-securities
2,554

 
—

 
2,554

 
—

Income tax adjustment
(3,748
)
 
(4,230
)
 
(9,387
)
 
(8,399
)
Total income from continuing operations adjustments
8,948

 
7,468

 
18,831

 
18,387

Non-GAAP income from continuing operations
$
20,043

 
$
14,672

 
$
53,825

 
$
43,546

 
 
 
 
 
 
 
 
GAAP diluted earnings per share from continuing operations
$
0.22

 
$
0.13

 
$
0.68

 
$
0.45

Income from continuing operations adjustments (from above)
0.18

 
0.14

 
0.37

 
0.33

Non-GAAP diluted earnings per share from continuing operations
$
0.39

 
$
0.27

 
$
1.04

 
$
0.77

 
 
 
 
 
 
 
 
Diluted weighted average shares outstanding
50,931

 
54,389

 
51,590

 
56,292

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) Stock-based compensation is included in the GAAP statements of income, as follows:
 
 
 
 
 
 
 
 
 
 
 
 
Cost of revenue
$
141

 
$
133

 
$
439

 
$
500

Sales and marketing
1,546

 
748

 
3,736

 
2,668

Product development
1,407

 
999

 
4,186

 
3,687

General and administrative
3,846

 
2,720

 
9,833

 
7,215

Stock-based compensation from continuing operations
$
6,940

 
$
4,600

 
$
18,194

 
$
14,070



 
Three Months Ended
 
Nine Months Ended
(In thousands, except per share data)
August 31, 2014
 
August 31, 2013
 
August 31, 2014
 
August 31, 2013
GAAP costs of revenue
$
7,861

 
$
8,519

 
$
23,120

 
$
26,887

GAAP operating expenses
51,982

 
59,398

 
157,806

 
176,289

GAAP expenses
59,843

 
67,917

 
180,926

 
203,176

Operating adjustments (from above) 
10,142

 
11,698

 
25,664

 
26,786

Non-GAAP expenses
$
49,701

 
$
56,219

 
$
155,262

 
$
176,390

 
 
 
 
 
 
 
 

7

RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES FOR FISCAL YEAR 2014 GUIDANCE
(Unaudited)

Fiscal Year 2014 Revenue Growth Guidance
 
Fiscal Year Ended
 
Fiscal Year Ending
 
November 30, 2013
 
November 30, 2014
(In millions)
 
 
Low
 
% Change
 
High
 
% Change
Total revenue
$334
 
$331
 
(1)%
 
$335
 
—%
 
 
 
 
 
 
 
 
 
 


Fiscal Year 2014 Non-GAAP Operating Margin Guidance
 
Fiscal Year Ending November 30, 2014
(In millions)
Low
 
High
GAAP income from operations
$
77.4

 
$
78.8

GAAP operating margins
23
%
 
24
%
Restructuring expense
2.5

 
2.5

Stock-based compensation
23.3

 
23.3

Acquisition related expense
3.5

 
3.5

Amortization of intangibles
3.2

 
3.2

Realized loss on sale of auction rate securities
2.6

 
2.6

Total operating adjustments
35.1

 
35.1

Non-GAAP income from operations
$
112.5

 
$
113.9

Non-GAAP operating margin
34
%
 
34
%


Fiscal Year 2014 Non-GAAP Earnings per Share and Effective Tax Rate Guidance
 
Fiscal Year Ending November 30, 2014
(In millions, except per share data)
Low
 
High
GAAP net income
$
51.2

 
$
51.3

Operating adjustments (from above)
35.1

 
35.1

Income tax adjustment (2)
(9.8
)
 
(10.1
)
Non-GAAP net income
$
76.5

 
$
76.3

 


 


GAAP diluted earnings per share
$
0.98

 
$
1.01

Non-GAAP diluted earnings per share
$
1.47

 
$
1.50

 
 
 
 
Diluted weighted average shares outstanding
52.0

 
51.0

 
 
 
 
(2) Tax adjustment is based on a non-GAAP effective tax rate of 32% for Low and 33% for High, calculated as follows:
 
 
 
 
Non-GAAP income from operations
$
112.5

 
$
113.9

Non-GAAP net income
76.5

 
76.3

Tax provision
36.0

 
37.6

Non-GAAP tax rate
32
%
 
33
%





8

RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES FOR Q4 2014 GUIDANCE
(Unaudited)

Q4 2014 Revenue Growth Guidance
 
Three Months Ended
 
Three Months Ending
 
November 30, 2013
 
November 30, 2014
(In millions)
 
 
Low
 
% Change
 
High
 
% Change
Total revenue
$91
 
$96
 
6%
 
$100
 
10%
 
 
 
 
 
 
 
 
 
 


Q4 2014 Non-GAAP Earnings per Share Guidance
 
Three Months Ending November 30, 2014
 
Low
 
High
GAAP diluted earnings per share
$
0.31

 
$
0.34

Restructuring expense
0.01

 
0.01

Stock-based compensation
0.10

 
0.10

Acquisition related expense
0.01

 
0.01

Amortization of intangibles
0.02

 
0.02

Total operating adjustments
0.14

 
0.14

Income tax adjustment
$
(0.01
)
 
$
(0.01
)
Non-GAAP diluted earnings per share
$
0.44

 
$
0.47



9

PROGRESS SOFTWARE CORP /MA Reports