Progress Software Reports 2009 Third Quarter Results

Progress Software Corporation (NASDAQ: PRGS), a leading software provider that enables enterprises to be operationally responsive announced today results for its third quarter ended August 31, 2009. On a generally accepted accounting principles (GAAP) basis, revenue for the quarter was $119.4 million, down 6 percent (flat at constant currency) from $126.6 million in the third quarter of fiscal 2008. On a non-GAAP basis, revenue totaled $119.7 million, down 5 percent (flat at constant currency) from the year ago period. The non-GAAP adjustment to revenue was to add back the purchase accounting adjustment for the reduction in deferred maintenance revenue related to the acquisition of IONA Technologies. Software license revenue decreased 15 percent (down 11 percent at constant currency) to $39.2 million from $46.0 million in the same quarter last year.

On a GAAP basis, operating income decreased 50 percent to $9.1 million from $18.1 million in the third quarter of fiscal 2008. Net income decreased 56 percent to $5.5 million from $12.5 million in the same quarter last year. Diluted earnings per share decreased 57 percent to 13 cents from 30 cents in the third quarter of fiscal 2008.

On a non-GAAP basis, operating income decreased 8 percent to $24.9 million from $27.2 million in the same quarter last year. Non-GAAP net income decreased 13 percent to $16.5 million from $19.0 million in the same quarter last year and non-GAAP diluted earnings per share decreased 11 percent to 40 cents per share from 45 cents in the third quarter of fiscal 2008.

Non-GAAP amounts primarily exclude the amortization of acquired intangibles, stock-based compensation, restructuring and acquisition-related costs and purchase accounting adjustments for deferred revenue.

The non-GAAP results noted above and the non-GAAP financial outlook for 2009 discussed below represent non-GAAP financial measures. A reconciliation of these measures to the appropriate GAAP measures for the three months ended August 31, 2009 and August 31, 2008, and the 2009 outlook, as well as further information regarding these measures, is included in the condensed financial information provided with this release.

Progress Software's cash and short-term investments at the end of the third quarter totaled $186.5 million. Progress Software repurchased approximately 67,000 shares at a cost of $1.4 million in the third quarter of fiscal 2009. The existing re-purchase authorization, under which approximately 9.6 million shares remain available for repurchase, expires on September 30, 2009.

Rick Reidy, president and chief executive officer of Progress Software, stated: "Our financial results reflect the difficult economic environment and unfavorable year-over-year currency rates present during this third quarter. However, we continue to be well positioned with our emerging products and have received strong validation and top ratings from independent analyst firms."

Quarterly Highlights

-- The Federal Aviation Administration (FAA) selected Progress(R) FUSE(TM) products to provide the open source integration underpinnings for their System Wide Information Management (SWIM) Program. The selection of FUSE open source products allows the SWIM program to interoperate with many other existing vendor technologies already in use by the FAA. (http://tinyurl.com/Progress-FAA)

-- UniCredit has deployed the Progress(R) Apama(R) FX Aggregation Accelerator for its FX desks. UniCredit's FX traders are now using the Progress Apama platform along with its customized dashboards to connect to a number of liquidity venues and gain an aggregated view of liquidity in the FX market. In addition to using the Apama FX Aggregator to get a single unified view of the fragmented global FX market place, UniCredit's FX traders are harnessing the power of the FX Aggregation Accelerator to publish FX prices to its eFX downstream channels. (http://tinyurl.com/unicredit-and-progress)

-- Foxwoods Resort Casino is now using Progress DataDirect Connect(R) for ODBC database drivers within its Hospitality Systems' applications to connect business analytics data on UNIX to Windows-based data sources. With secure, reliable and stable access to heterogeneous data sources, Foxwoods has gained immediate visibility into the non-gaming activity of its guests to aid with marketing efforts, special events and promotions. (http://tinyurl.com/Progress-Foxwoods)

-- BondDesk Group, a leading fixed income trading platform and one of the largest market destinations for trading odd-lot fixed income in the U.S., will use the industry-leading Progress(R) Apama(R) Complex Event Processing (CEP) platform within the BondDesk(TM) Alternative Trading System (ATS). The BondDesk ATS provides 2,000 broker-dealers with access to 35,000 live and executable offerings from 120 premier fixed income dealers. BondDesk delivers analytics and decision-support to traders' desktops more quickly and efficiently than ever before using the Apama CEP platform. (http://tinyurl.com/BondDesk-Progress)

-- Progress Software announced the appointment of Christopher Larsen as the company's Senior Vice President, Global Field Operations. His appointment in this new executive role is part of Progress' goal to provide a single integrated and customer focused enterprise level sales, services, and support organization globally. Reporting to Rick Reidy, president and chief executive officer, Larsen will be responsible for all company-wide sales, pre-sales, alliance, technical support and consulting services. (http://tinyurl.com/Christopher-Larsen)

-- The company announced the general availability of version 3.3 of its Progress(R) DataDirect Connect(R) for ADO.NET data providers featuring Entity Framework support for Oracle. (http://tinyurl.com/Progress-Oracle-Connectivity)

-- Progress released the latest version of its popular Apama Market Surveillance and Monitoring Accelerator. This release adds new abuse pattern detection capabilities and enhances current real-time monitoring and alerting features with new market operational controls. In addition, the Apama Market Surveillance and Monitoring Accelerator includes enhanced dashboards and a more sophisticated underlying data infrastructure that reduces time to market for a broad range of surveillance use cases. (http://tinyurl.com/Apama-market-surveillance)

Forrester Research, Inc. named the Progress(R) Apama(R) complex event processing (CEP) platform as a standout leader in "The Forrester Wave(TM): Complex Event Processing Platforms, Q3 2009"(August 2009) Report. In this detailed review of products, the Progress(R) Apama(R) platform received the top score in current offering and market presence. According to the report: "Progress Apama earned high marks for its event processing features, its development tools, and its business end-user tools, propelling it into its position as a leader." (http://tinyurl.com/Forrester-Progress)

Additional highlights can be found at: http://web.progress.com/inthenews/pressreleases.html.

Business Outlook

Progress Software is providing the following guidance for the fiscal year ending November 30, 2009:

-- GAAP revenue is expected to be in the range of $487 million to $490 million.

-- On a non-GAAP basis, revenue is expected to be in the range of $490 million to $493 million.

-- GAAP diluted earnings per share are expected to be in the range of 69 cents to 71 cents.

-- On a non-GAAP basis, diluted earnings per share are expected to be in the range of $1.72 to $1.74.

Progress Software is providing the following guidance for the fourth fiscal quarter ending November 30, 2009:

-- On both a GAAP and non-GAAP basis, revenue is expected to be in the range of $130 million to $133 million.

-- GAAP diluted earnings per share are expected to be in the range of 33 cents to 35 cents.

-- On a non-GAAP basis, diluted earnings per share are expected to be in the range of 54 cents to 56 cents.

The outlook for the non-GAAP amounts excludes the amortization of acquired intangibles, stock-based compensation, purchase accounting adjustments for deferred revenue, restructuring expenses and acquisition-related expenses.

Legal Notice Regarding Non-GAAP Financial Information

Progress Software provides non-GAAP revenue, operating income, net income and earnings per share as additional information for investors. These measures are not in accordance with, or an alternative to, generally accepted accounting principles in the United States (GAAP). Such measures are intended to supplement GAAP and may be different from non-GAAP measures used by other companies. 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.

Conference Call

The Progress Software conference call to discuss its fiscal third quarter 2009 results and business outlook will be Webcast live today at 9:00 a.m. Eastern Daylight Time on the company's Web site, located at www.progress.com/investors. The call will also be Webcast live via Yahoo (www.yahoo.com), Motley Fool (www.fool.com), Streetevents (www.streetevents.com), TD Waterhouse (www.tdwaterhouse.com) and Fidelity.com (www.fidelity.com). An archived version of the conference call will be available for replay on the Progress website (www.progress.com), together with the slide presentation for the call, under the investor relations page.

Progress Software Corporation

Progress Software Corporation (NASDAQ: PRGS) is a global software company that enables enterprises to be operationally responsive to changing conditions and customer interactions as they occur -- to capitalize on new opportunities, drive greater efficiencies and reduce risk. The company offers a comprehensive portfolio of best-in-class infrastructure software spanning event-driven visibility and real-time response, open integration, data access and integration, and application development and deployment -- all supporting on-premises and SaaS/Cloud deployments. Progress maximizes the benefits of operational responsiveness while minimizing IT complexity and total cost of ownership. Progress can be reached at www.progress.com or +1-781-280-4000.

Safe Harbor Statement

Except for the historical information and discussions contained herein, statements contained in this release may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements, which include statements regarding Progress Software's business outlook and competitive position, involve a number of risks, uncertainties and other factors that could cause actual results to differ materially, including but not limited to the following: the receipt and shipment of new orders; the timely release of enhancements to our products; the growth rates of certain market segments; the positioning of our products in those market segments; variations in the demand for professional services and technical support; pricing pressures and the competitive environment in the software industry; the continuing weakness in the U.S. and international economies, which could result in fewer sales of our products and may otherwise harm our business; business and consumer use of the Internet; the company's ability to complete and integrate acquisitions; the company's ability to realize the expected benefits and anticipated synergies from acquired businesses; the company's ability to penetrate international markets and manage its international operations; and changes in exchange rates. The company undertakes no obligation to update information contained in this release. For further information regarding risks and uncertainties associated with the company's business, please refer to the company's filings with the Securities and Exchange Commission.

Actional, Apama, DataDirect, DataDirect Connect, DataXtend, FUSE, OpenEdge, Progress, Sonic, and Sonic ESB are trademarks 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.

Progress Software Corporation
GAAP Condensed Consolidated Statements of Income
                                            Three Months Ended
                                            August 31,         August 31,     Percent
(In thousands except per share data)             2009                2008     Change
Revenue:
Software licenses                           $    39,173        $     45,998   (15  )    %
Maintenance and services                         80,260              80,622   0         %
Total revenue                                    119,433             126,620  (6   )    %
Costs of revenue:
Cost of software licenses                        1,758               3,219    (45  )    %
Cost of maintenance and services                 15,957              16,558   (4   )    %
Amortization of purchased technology             4,811               2,958    63        %
Total costs of revenue                           22,526              22,735   (1   )    %
Gross profit                                     96,907              103,885  (7   )    %
Operating expenses:
Sales and marketing                              45,511              48,367   (6   )    %
Product development                              22,378              21,076   6         %
General and administrative                       17,717              14,966   18        %
Amortization of other acquired intangibles       2,310               1,369    69        %
Acquisition-related expenses                     110                 -
Restructuring expense                            (211    )           -
Total operating expenses                         87,815              85,778   2         %
Income from operations                           9,092               18,107   (50  )    %
Other income (expense), net                      (187    )           2,640    (107 )    %
Income before provision for income taxes         8,905               20,747   (57  )    %
Provision for income taxes                       3,384               8,210    (59  )    %
Net income                                  $    5,521         $     12,537   (56  )    %
Earnings per share:
Basic                                       $    0.14          $     0.31     (55  )    %
Diluted                                     $    0.13          $     0.30     (57  )    %
Weighted average shares outstanding:
Basic                                            40,117              40,528   (1   )    %
Diluted                                          41,261              42,156   (2   )    %
                                            Nine Months Ended
                                            August 31,         August 31,     Percent
                                                 2009                2008     Change
Revenue:
Software licenses                           $    123,538       $     136,115  (9   )    %
Maintenance and services                         233,802             240,014  (3   )    %
Total revenue                                    357,340             376,129  (5   )    %
Costs of revenue:
Cost of software licenses                        5,602               7,679    (27  )    %
Cost of maintenance and services                 49,287              51,914   (5   )    %
Amortization of purchased technology             14,609              8,448    73        %
Total costs of revenue                           69,498              68,041   2         %
Gross profit                                     287,842             308,088  (7   )    %
Operating expenses:
Sales and marketing                              133,331             142,366  (6   )    %
Product development                              70,320              62,299   13        %
General and administrative                       46,123              43,472   6         %
Amortization of other acquired intangibles       7,149               4,092    75        %
Acquisition-related expenses                     330                 -
Restructuring expense                       5,237       -
Total operating expenses                    262,490     252,229  4     %
Income from operations                      25,352      55,859   (55 ) %
Other income, net                           582         7,892    (93 ) %
Income before provision for income taxes    25,934      63,751   (59 ) %
Provision for income taxes                  9,855       23,907   (59 ) %
Net income                                $ 16,079    $ 39,844   (60 ) %
Earnings per share:
Basic                                     $ 0.40      $ 0.96     (58 ) %
Diluted                                   $ 0.39      $ 0.92     (58 ) %
Weighted average shares outstanding:
Basic                                       40,018      41,416   (3  ) %
Diluted                                     40,826      43,189   (5  ) %

Progress Software Corporation
Reconciliation of GAAP to Non-GAAP Financial Measures
                                                                                 Three Months Ended August 31, 2009                Three Months Ended August 31, 2008
                                                                                 As                                                As                                             Percent
(In thousands except per share data)                                             Reported         Adjustments     Non-GAAP         Reported         Adjustments  Non-GAAP         Change
Total revenue                                                                    $   119,433      $   286         $   119,719      $   126,620      $   -        $   126,620      (5   )%
                       Purchase accounting adjustments for deferred revenue (1)      (286    )        286                              -                -
Income from operations                                                           $   9,092        $   15,834      $   24,926       $   18,107       $   9,129    $   27,236       (8   )%
                       Purchase accounting adjustments for deferred revenue (1)      (286    )        286                              -                -
                       Amortization of acquired intangibles                          (7,121  )        7,121           -                (4,327  )        4,327        -
                       Acquisition-related expenses                                  (110    )        110                              -                -
                       Restructuring expense                                         211              (211   )                         -                -
                       Stock option investigation (2)                                321              (321   )        -                (1,270  )        1,270        -
                       Stock-based compensation (3)                                  (8,849  )        8,849           -                (3,532  )        3,532        -
Operating margin percentage                                                          7.6     %                        20.8    %        14.3    %                     21.5    %
Other income (expense), net                                                      $   (187    )    $   -           $   (187    )    $   2,640        $   -        $   2,640        (107 )%
Provision for income taxes (4)                                                   $   3,384        $   4,903       $   8,287        $   8,210        $   2,695    $   10,905       (24  )%
Net income                                                                       $   5,521        $   10,931      $   16,452       $   12,537       $   6,434    $   18,971       (13  )%
Earnings per share - diluted                                                     $   0.13                         $   0.40         $   0.30                      $   0.45         (11  )%
Weighted average shares outstanding - diluted                                        41,261                           41,261           42,156                        42,156       (2   )%
                                                                                 Nine Months Ended August 31, 2009                 Nine Months Ended August 31, 2008
                                                                                 As                                                As                                             Percent
                                                                                 Reported         Adjustments     Non-GAAP         Reported         Adjustments  Non-GAAP         Change
Total revenue                                                                    $   357,340      $   2,529       $   359,869      $   376,129          -        $   376,129      (4   )%
                       Purchase accounting adjustments for deferred revenue (1)      (2,529  )        2,529                            -                -
Income from operations                                                           $   25,352       $   46,648      $   72,000       $   55,859       $   26,018   $   81,877       (12  )%
                       Purchase accounting adjustments for deferred revenue (1)      (2,529  )        2,529                            -                -
                       Amortization of acquired intangibles                          (21,758 )        21,758          -                (12,540 )        12,540       -
                       Acquisition-related expenses                                  (330    )        330                              -                -
                       Restructuring expense                                         (5,237  )        5,237                            -                -
                       Stock option investigation (2)                                120              (120   )        -                (1,866  )        1,866        -
                       Stock-based compensation (3)                                  (16,914 )        16,914          -                (11,612 )        11,612       -
Operating margin percentage                                                          7.1     %                        20.0    %        14.9    %                     21.8    %    (8   )%
Other income, net                                                                $   582          $   -           $   582          $   7,892        $   -        $   7,892        (93  )%
Provision for income taxes (4)                                                   $   9,855        $   14,459      $   24,314       $   23,907       $   7,961    $   31,868       (24  )%
Net income                                                                       $   16,079       $   32,189      $   48,268       $   39,844       $   18,057   $   57,901       (17  )%
Earnings per share - diluted                                                     $   0.39                         $   1.18         $   0.92                      $   1.34         (12  )%
Weighted average shares outstanding - diluted                                        40,826                           40,826           43,189                        43,189       (5   )%
(1)                    The purchase accounting adjustment for deferred revenue is included
                       within maintenance and services revenue and represents the
                       write-down to fair value of the deferred maintenance revenue of Iona
                       Technologies at the date of the acquisition.
(2) Stock option investigation expenses are included within general and
    administrative expenses and primarily represent professional
    services fees associated with the SEC's investigation and
    shareholder derivative lawsuits related to the company's historical
    stock option grant practices. The credit amount in the third quarter
    of fiscal 2009 relates to insurance reimbursements in excess of
    previously estimated amounts.
(3) Stock-based compensation expense, representing the fair value of
    equity awards under SFAS 123R, is included in the following GAAP
    operating expenses:
                                      Three Months Ended August 31, 2009      Three Months Ended August 31, 2008
                                      GAAP         Adjustments      Non-GAAP  GAAP         Adjustments      Non-GAAP
    Cost of software licenses         $   8        $   (8      )    $   -     $   12       $   (12     )    $   -
    Cost of maintenance and services      238          (238    )        -         212          (212    )        -
    Sales and marketing                   1,445        (1,445  )        -         1,335        (1,335  )        -
    Product development                   1,037        (1,037  )        -         881          (881    )        -
    General and administrative            6,121        (6,121  )        -         1,092        (1,092  )        -
                                      $   8,849    $   (8,849  )    $   -     $   3,532    $   (3,532  )    $   -
                                      Nine Months Ended August 31, 2009       Nine Months Ended August 31, 2008
                                      GAAP         Adjustments      Non-GAAP  GAAP         Adjustments      Non-GAAP
    Cost of software licenses         $   28       $   (28     )    $   -     $   48       $   (48     )    $   -
    Cost of maintenance and services      706          (706    )        -         705          (705    )        -
    Sales and marketing                   4,331        (4,331  )        -         4,184        (4,184  )        -
    Product development                   2,984        (2,984  )        -         2,737        (2,737  )        -
    General and administrative            8,865        (8,865  )        -         3,938        (3,938  )        -
                                      $   16,914   $   (16,914 )    $   -     $   11,612   $   (11,612 )    $   -
(4) The non-GAAP provision for income taxes was calculated reflecting an
    effective rate of 33.5% for the three months and nine months ended
    August 31, 2009, and 36.5% and 35.5% for the three and nine months
    ended August 31, 2008, respectively. The difference between the
    effective tax rate under GAAP and the effective tax rate utilized in
    the preparation of non-GAAP financial measures primarily relates to
    the tax effects of stock-based compensation expense and amortization
    of acquired intangibles, which are excluded from the determination
    of non-GAAP net income.

Progress Software Corporation
Condensed Consolidated Balance Sheets
                                                August 31,     November 30,
(In thousands)                                        2009            2008
Assets
Cash and short-term investments                 $     186,517  $      118,529
Accounts receivable, net                              83,819          94,795
Other current assets                                  38,434          32,928
Total current assets                                  308,770         246,252
Property and equipment, net                           61,166          63,147
Goodwill and intangible assets, net                   312,698         342,254
Investments in auction-rate securities                40,459          65,214
Other assets                                          40,957          35,503
Total                                           $     764,050  $      752,370
Liabilities and shareholders' equity
Accounts payable and other current liabilities  $     81,978   $      105,599
Short-term deferred revenue                           138,277         135,786
Total current liabilities                             220,255         241,385
Long-term deferred revenue                            5,289           7,957
Other liabilities                                     13,881          21,576
Shareholders' equity:
Common stock and additional paid-in capital           235,285         216,261
Retained earnings                                     289,340         265,191
Total shareholders' equity                            524,625         481,452
Total                                           $     764,050  $      752,370

Condensed Consolidated Statements of Cash Flows
                                                      Nine Months Ended
                                                      August 31,       August 31,
(In thousands)                                              2009             2008
Cash flows from operations:
Net income                                            $     16,079     $     39,844
Depreciation, amortization and other noncash items          47,465           31,997
Other changes in operating assets and liabilities           (27,822 )        (11,404  )
Net cash flows from operations                              35,722           60,437
Capital expenditures                                        (6,061  )        (6,024   )
Investments in auction-rate securities                      24,925           (54,400  )
Acquisitions, net of cash acquired                          -                (11,758  )
Share issuances (repurchases), net                          2,262            (86,605  )
Other                                                       11,140           (9,712   )
Net change in cash and short-term investments               67,988           (108,062 )
Cash and short-term investments, beginning of period        118,529          339,525
Cash and short-term investments, end of period        $     186,517    $     231,463

Progress Software Corporation
Reconciliation of Forward-Looking Guidance
Diluted Earnings Per Share Range
                                                             Three Months Ended November 30, 2009
GAAP expectation                                             $     0.33   -  $ 0.35
Adjustment to exclude stock-based compensation               $     0.09   -  $ 0.09
Adjustment to exclude amortization of acquired intangibles   $     0.12   -  $ 0.12
Adjustment to exclude purchase accounting adjustments
                              for deferred revenue           $     0.00   -  $ 0.00
Adjustment to exclude acquisition-related expenses           $     0.00   -  $ 0.00
Non-GAAP expectation                                         $     0.54   -  $ 0.56
                                                             Twelve Months Ended November 30, 2009
GAAP expectation                                             $     0.69   -  $ 0.71
Adjustment to exclude stock-based compensation               $     0.43   -  $ 0.43
Adjustment to exclude amortization of acquired intangibles   $     0.47   -  $ 0.47
Adjustment to exclude purchase accounting adjustments
                              for deferred revenue           $     0.04   -  $ 0.04
Adjustment to exclude restructuring expenses                 $     0.08      $ 0.08
Adjustment to exclude acquisition-related expenses           $     0.01   -  $ 0.01
Non-GAAP expectation                                         $     1.72   -  $ 1.74

SOURCE: Progress Software Corporation