Progress Software Reports 2014 Fiscal Fourth Quarter and Year End Results

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 fourth quarter and fiscal year ended November 30, 2014.

Revenue from continuing operations was $97.9 million in the fourth quarter compared to $91.0 million in the same quarter last year, a year over year increase of 8% on an actual currency basis and 10% on a constant currency basis.

Additional financial highlights included:

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

• Income from operations was $27.0 million compared to $23.9 million in the same quarter last year;
• Income from continuing operations was $14.5 million compared to $14.6 million in the same quarter last year;
• Net income was $14.5 million compared to $15.0 million in the same quarter last year; and
• Diluted earnings per share from continuing operations was $0.28, unchanged from the same quarter last year.

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

• Income from operations was $38.0 million compared to $33.5 million in the same quarter last year;
• Operating margin was 39% compared to 37% in the same quarter last year;
• Income from continuing operations was $24.1 million compared to $22.5 million in the same quarter last year; and
• Diluted earnings per share from continuing operations was $0.47 compared to $0.43 in the same quarter last year.

“Our positive momentum continued in 2014, resulting in significant growth in operating income and cash flow over the previous year,” said Phil Pead, President and CEO of Progress Software. “Entering 2015, we are now able to offer application developers an unrivaled choice. With Progress, developers have seamless access to the broadest range of data sources, tools to create the most engaging user experiences and a leading platform to build mobile apps. They also benefit from the choice to build and deploy apps from scratch or take advantage of our productivity platform. Further, the recent addition of Telerik Sitefinity to our portfolio provides developers with an intuitive end-to-end web content management, digital marketing and customer analytics solution. These choices underscore our commitment to becoming the preferred destination for application developers.”

Other fiscal fourth quarter 2014 metrics and recent results included:

• Cash, cash equivalents and short-term investments were $283.3 million;
• Cash from operations was $39.2 million compared to $17.9 million in the same quarter in fiscal year 2013; and
• DSO from continuing operations was 63 days, compared to 66 days in the fiscal third quarter of 2014.

In addition, as previously announced, during the fourth quarter, Progress began operating as three distinct business units: OpenEdge, Application Development and Deployment, and Data Connectivity and Integration, each with dedicated sales, product management and product marketing functions. Progress adopted segment reporting for its three business units in the fourth quarter, and this press release includes quarterly results of operations by segment for fiscal 2013 and fiscal 2014.

Also during the fourth quarter of fiscal year 2014, Progress acquired 100% of the capital stock of BravePoint, Inc. (BravePoint) from Chesapeake Utilities Corporation in exchange for an aggregate sum of $12.0 million in cash. BravePoint is based in Norcross, Georgia and is a leading provider of consulting, training and application development services designed to increase customers' profitability and competitiveness through the use of technology.

Furthermore, shortly after the fourth quarter ended, Progress completed the acquisition of privately held Telerik AD, a leading provider of application development tools, for $262.5 million. Telerik enables its 1.4 million strong developer community to create compelling user experiences across cloud, web, mobile and desktop applications. Through this acquisition, Progress now provides comprehensive cloud and on-premise platform offerings that enable developers to rapidly create beautiful applications, driven by data for any web, desktop or mobile platform. Progress funded the purchase price from a combination of existing cash resources and a $150 million term loan, which is part of a new $300 million term and revolving credit facility with JPMorgan Chase Bank, N.A. and a syndicate of other lenders. This new credit facility replaced Progress’ prior $150 million revolving credit facility.

Full Year Results

On a GAAP basis in the fiscal year 2014:

• Revenue from continuing operations was $332.5 million compared to $334.0 million in fiscal year 2013;
• Income from operations was $80.7 million compared to $63.7 million in the prior fiscal year;
• Income from continuing operations was $49.5 million compared to $39.8 million in the prior fiscal year;
• Net income was $49.5 million compared to $74.9 million in the prior fiscal year;
• Diluted earnings per share from continuing operations was $0.96 compared to $0.72 in the prior fiscal year; and
• Cash from operations was $107.7 million compared to $4.6 million in the prior fiscal year.

On a non-GAAP basis in the fiscal year 2014:

• Income from operations was $117.4 million compared to $100.1 million in fiscal year 2013;
• Operating margin was 35% compared to 30% in the prior fiscal year;
• Income from continuing operations was $77.9 million compared to $66.0 million in the prior fiscal year; and
• Diluted earnings per share from continuing operations was $1.51 compared to $1.19 in the prior fiscal year.

2015 Business Outlook

Progress Software provides the following guidance for the fiscal year ending November 30, 2015:

• Non-GAAP revenue is expected to be between $425 million and $435 million;
• Non-GAAP earnings per share is expected to be between $1.37 and $1.47;
• Non-GAAP operating margin is expected to be approximately 27%;
• Free cash flow is expected to be between $90 million and $93 million; and
• Non-GAAP effective tax rate is expected to be between 33% and 34%.

Progress Software provides the following guidance for the first fiscal quarter ending February 28, 2015:

• Non-GAAP revenue is expected to be between $93 million and $96 million; and
• Non-GAAP earnings per share is expected to be between $0.22 and $0.24.

Our fiscal 2015 business outlook reflects the following:

• Full year impact of the Modulus, BravePoint, and Telerik acquisitions and related financing; and
• Our financial guidance includes the impact of the recent significant strengthening of the US dollar and is based on current exchange rates. With approximately 55% of our revenue stream outside of North America, this has a negative impact on our 2015 business outlook of $17-$18 million on non-GAAP revenue and $0.10-$0.11 cents on our non-GAAP earnings per share, when compared to 2014 actual exchange rates. To the extent that there are further changes in exchange rates versus the current environment, this may have an additional impact on our business outlook.

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 fourth quarter of 2014 will be broadcast live at 5:00 p.m. ET on Tuesday, January 13, 2015 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 1-888-539-3612, pass code 7867622. 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 plans; 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 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) uncertainties relating to Progress’ acquisition of Telerik, including whether Progress will be able to realize expected benefits and anticipated synergies of the acquisition and whether Telerik’s business will be successfully integrated with Progress Software's business; (5) Progress's ability to make 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, 2013 and its Quarterly Reports on Form 10-Q for the fiscal quarters ended February 28, 2014, May 31, 2014 and August 31, 2014. 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.comor 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.

(1) The following expenses are not allocated to our segments as we manage and report our business in these functional areas on a consolidated basis only: product development, corporate marketing, and general and administration.
(2) The following expenses are included in the GAAP adjustment: amortization of acquired intangibles, stock-based compensation, restructuring, acquisition related, and transition expenses.

SUPPLEMENTAL INFORMATION

(1) Acquisition-related revenue constitutes revenue reflected as pre-acquisition deferred revenue by Telerik that would otherwise have been recognized but for the purchase accounting treatment of the acquisition of Telerik. Since GAAP accounting requires the elimination of this revenue, GAAP results alone do not fully capture all of our economic activities.

(1) Acquisition-related revenue constitutes revenue reflected as pre-acquisition deferred revenue by Telerik that would otherwise have been recognized but for the purchase accounting treatment of the acquisition of Telerik. Since GAAP accounting requires the elimination of this revenue, GAAP results alone do not fully capture all of our economic activities.