Press Release

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 results for its fiscal third quarter ended August 31, 2013.

Revenue from continuing operations was $77.6 million compared to $74.4 million in the same quarter last year, a year over year increase of 4% on an actual and constant currency basis.

Additional financial highlights included:

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

• Income from operations was $9.7 million compared to $11.3 million in the same quarter last year;
• Income from continuing operations was $7.2 million compared to $7.7 million in the same quarter last year;
• Net income was $24.8 million compared to $5.8 million in the same quarter last year, and includes the pre-tax gain on the divestiture of the Apama product line of $35.9 million; and
• Diluted earnings per share from continuing operations was $0.13 compared to $0.12 in the same quarter last year.

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

• Income from operations was $21.4 million compared to $17.8 million in the same quarter last year;
• Operating margin was 28% compared to 24% in the same quarter last year;
• Income from continuing operations was $14.7 million compared to $12.4 million in the same quarter last year; and
• Diluted earnings per share from continuing operations was $0.27 compared to $0.19 in the same quarter last year.

Phil Pead, President and Chief Executive Officer of Progress Software, said, "Our third quarter performance continues to demonstrate solid progress as we execute on our strategic plan to be a leading Platform as a Service company. We exceeded our operating margin objectives and the announcement of Progress Pacific is resonating with our customers and partners. Revenue growth for the quarter was also positive as customers and partners continued to upgrade their existing applications and take advantage of new functionality across all of our solutions."

Other fiscal third quarter 2013 metrics and recent results included:

• Net cash received from the divestiture of the Apama product line was $37.7 million;
• Under the previously announced and implemented 10b5-1 plan to repurchase $100.0 million of common stock by December 31, 2013, the company has repurchased 2.7 million shares for $67.9 million through August 31, 2013;
• Cash, cash equivalents and short-term investments were $242.0 million;
• Cash outflows from operations were $1.9 million, including $14.6 million in tax payments for the gain realized on the Apama product line divestiture, compared to cash inflows from operations of $22.0 million in the same quarter in fiscal year 2012; and
• DSO from continuing operations was 62 days, compared to 56 days in the fiscal second quarter of 2013.

Business Outlook

Progress Software provides the following guidance for the fiscal fourth quarter ending November 30, 2013:

• On a constant currency basis, revenue is expected to be between 4% and 6% growth compared to the fiscal fourth quarter of 2012; and
• Non-GAAP operating margin is expected to be 35%.

The non-GAAP operating margin guidance excludes the items we traditionally exclude from our non-GAAP reporting metrics: amortization of intangible assets of $0.7 million, stock-based compensation of $5.4 million, and $1.0 million of acquisition related costs, for a GAAP operating margin of 27%.

Conference Call

The Progress Software quarterly investor conference call to review its fiscal third quarter of 2013 will be broadcast live at 5:00 p.m. ET on Wednesday, September 25, 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 1-888-428-9480, pass code 9841658. 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; 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) pricing pressures and the competitive environment in the software industry and Platform-as-a-Service market; (3) Progress' ability to successfully manage transitions to new business models and markets, including our increased emphasis on a cloud and subscription strategy; (4) Progress's ability to make technology 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, 2012 and its Quarterly Reports on Form 10-Q for the fiscal quarters ended February 28, 2013 and May 31, 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												Nine Months Ended
(In thousands, except per share data)					August 31, 2013				August 31, 2012				% Change				August 31, 2013				August 31, 2012				% Change
Revenue:
Software licenses					$	25,666			$	22,637			13	%			$	84,920			$	72,816			17	%
Maintenance and services					51,912				51,734				—	%			158,096				158,154				—	%
Total revenue					77,578				74,371				4	%			243,016				230,970				5	%
Costs of revenue:
Cost of software licenses					1,587				1,375				15	%			5,033				4,117				22	%
Cost of maintenance and services					6,403				7,974				(20	)%			21,043				22,013				(4	)%
Amortization of acquired intangibles					529				139				281	%			811				522				55	%
Total costs of revenue					8,519				9,488				(10	)%			26,887				26,652				1	%
Gross profit					69,059				64,883				6	%			216,129				204,318				6	%
Operating expenses:
Sales and marketing					24,554				24,970				(2	)%			79,086				67,085				18	%
Product development					14,615				12,631				16	%			42,908				33,330				29	%
General and administrative					13,660				14,375				(5	)%			42,390				47,789				(11	)%
Amortization of acquired intangibles					211				207				2	%			549				622				(12	)%
Restructuring expenses					5,401				1,411				283	%			9,127				6,147				48	%
Acquisition-related expenses					957				—				100	%			2,229				215				937	%
Total operating expenses					59,398				53,594				11	%			176,289				155,188				14	%
Income from operations					9,661				11,289				(14	)%			39,840				49,130				(19	)%
Other (expense) income, net					177				357				(50	)%			(663		)		876				(176	)%
Income from continuing operations before income taxes					9,838				11,646				(16	)%			39,177				50,006				(22	)%
Provision for income taxes					2,634				3,902				(32	)%			14,018				17,546				(20	)%
Income from continuing operations					7,204				7,744				(7	)%			25,159				32,460				(22	)%
Income (loss) from discontinued operations, net					17,639				(1,906		)		1,025	%			34,712				(21,041		)		265	%
Net income					$	24,843			$	5,838			326	%			$	59,871			$	11,419			424	%
Earnings per share:
Basic:
Continuing operations					$	0.13			$	0.12			8	%			$	0.45			$	0.52			(13	)%
Discontinued operations					0.33				(0.03		)		1,200	%			0.63				(0.33		)		291	%
Net income per share					$	0.46			$	0.09			411	%			1.08				$	0.18			500	%
Diluted:
Continuing operations					$	0.13			$	0.12			8	%			$	0.45			$	0.51			(12	)%
Discontinued operations					0.32				(0.03		)		1,167	%			0.62				(0.33		)		288	%
Net income per share					$	0.46			$	0.09			411	%			$	1.06			$	0.18			489	%
Weighted average shares outstanding:
Basic					53,532				63,469				(16	)%			55,451				62,888				(12	)%
Diluted					54,389				64,105				(15	)%			56,292				63,795				(12	)%

CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)					August 31, 2013					November 30, 2012
Assets
Current assets:
Cash, cash equivalents and short-term investments					$	241,982				$	355,217
Accounts receivable, net					53,620					70,793
Other current assets					40,035					32,779
Assets held for sale					—					68,029
Total current assets					335,637					526,818
Property and equipment, net					56,889					63,071
Goodwill and intangible assets, net					234,980					231,229
Other assets					59,084					63,859
Total assets					$	686,590				$	884,977
Liabilities and shareholders' equity
Current liabilities:
Accounts payable and other current liabilities					$	67,236				$	110,944
Short-term deferred revenue					96,534					103,925
Liabilities held for sale					—					25,285
Total current liabilities					163,770					240,154
Long-term deferred revenue					1,044					2,817
Other long-term liabilities					2,421					3,607
Shareholders' equity:
Common stock and additional paid-in capital					214,915					300,333
Retained earnings					304,440					338,066
Total shareholders' equity					519,355					638,399
Total liabilities and shareholders' equity					$	686,590				$	884,977

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
					Three Months Ended									Nine Months Ended
(In thousands)					August 31, 2013				August 31, 2012					August 31, 2013				August 31, 2012
Cash flows from operating activities:
Net income					$	24,843			$	5,838				$	59,871			$	11,419
Depreciation and amortization					3,897				8,390					11,374				25,369
Stock-based compensation					5,573				7,744					16,360				21,504
Net gains on sales of dispositions					(35,885		)		—					(70,991		)		—
Other non-cash adjustments					2,648				759					447				1,762
Changes in operating assets and liabilities					(2,937		)		(706		)			(30,340		)		15,660
Net cash flows from operating activities					(1,861		)		22,025					(13,279		)		75,714
Capital expenditures					(603		)		(465		)			(2,989		)		(6,606		)
Redemptions and sales of auction-rate-securities					—				2,700					25				2,925
Issuances of common stock, net of repurchases					(47,981		)		3,797					(192,075		)		24,284
Payments for acquisitions, net of cash acquired					—				—					(9,450		)		—
Proceeds from divestitures, net					37,739				—					111,120				—
Other					(1,116		)		(4,098		)			(6,587		)		(5,526		)
Net change in cash, cash equivalents and short-term investments					(13,822		)		23,959					(113,235		)		90,791
Cash, cash equivalents and short-term investments, beginning of period					255,804				328,248					355,217				261,416
Cash, cash equivalents and short-term investments, end of period					$	241,982			$	352,207				$	241,982			$	352,207

SUPPLEMENTAL INFORMATION
		Revenue from continuing operations by Type
		(In thousands)	Q3 2012				Q4 2012				Q1 2013				Q2 2013				Q3 2013				YTD 2013				YTD 2012
		License	$	22,637			$	33,810			$	29,907			$	29,347			$	25,666			$	84,920			$	72,816
		Maintenance	50,285				50,891				51,456				50,419				49,752				151,627				151,800
		Professional services	1,449				1,941				2,370				1,939				2,160				6,469				6,354
		Total revenue	$	74,371			$	86,642			$	83,733			$	81,705			$	77,578			$	243,016			$	230,970
		Revenue from continuing operations by Region
		(In thousands)	Q3 2012				Q4 2012				Q1 2013				Q2 2013				Q3 2013				YTD 2013				YTD 2012
		North America	$	34,548			$	39,179			$	39,309			$	37,540			$	34,596			$	111,445			$	103,480
		EMEA	28,155				33,214				32,548				33,481				32,315				98,344				92,352
		Latin America	6,905				7,384				6,822				6,526				5,496				18,844				20,951
		Asia Pacific	4,763				6,865				5,054				4,158				5,171				14,383				14,187
		Total revenue	$	74,371			$	86,642			$	83,733			$	81,705			$	77,578			$	243,016			$	230,970

RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES
					Three Months Ended								Nine Months Ended
(In thousands, except per share data)					August 31, 2013				August 31, 2012				August 31, 2013				August 31, 2012
GAAP income from operations					$	9,661			$	11,289			$	39,840			$	49,130
GAAP operating margin					12		%		15		%		16		%		21		%
Amortization of acquired intangibles					740				346				1,360				1,144
Stock-based compensation (1)					4,600				4,759				14,070				14,058
Restructuring expenses					5,401				1,411				9,127				6,147
Acquisition-related expenses					957				—				2,229				215
Litigation settlement					—				—				—				900
Proxy contest-related costs					—				21				—				3,259
Total operating adjustments					11,698				6,537				26,786				25,723
Non-GAAP income from operations					$	21,359			$	17,826			$	66,626			$	74,853
Non-GAAP operating margin					28		%		24		%		27		%		32		%
GAAP income from continuing operations					$	7,204			$	7,744			$	25,159			$	32,460
Operating adjustments (from above)					11,698				6,537				26,786				25,723
Income tax adjustment					(4,230		)		(1,916		)		(8,399		)		(6,686		)
Total income from continuing operations adjustments					7,468				4,621				18,387				19,037
Non-GAAP income from continuing operations					$	14,672			$	12,365			$	43,546			$	51,497
GAAP diluted earnings per share from continuing operations					$	0.13			$	0.12			$	0.45			$	0.51
Income from continuing operations adjustments (from above)					0.14				0.07				0.33				0.30
Non-GAAP diluted earnings per share from continuing operations					$	0.27			$	0.19			$	0.77			$	0.81
Diluted weighted average shares outstanding					54,389				64,105				56,292				63,795
(1) Stock-based compensation is included in the GAAP statements of income, as follows:
Cost of revenue					$	133			$	157			$	500			$	589
Sales and marketing					748				701				2,668				2,848
Product development					999				861				3,687				2,375
General and administrative					2,720				3,040				7,215				8,246
Stock-based compensation from continuing operations					$	4,600			$	4,759			$	14,070			$	14,058

					Three Months Ended								Nine Months Ended
(In thousands, except per share data)					August 31, 2013				August 31, 2012				August 31, 2013				August 31, 2012
GAAP costs of revenue					$	8,519			$	9,488			$	26,887			$	26,652
GAAP operating expenses					59,398				53,594				176,289				155,188
GAAP expenses					67,917				63,082				203,176				181,840
Operating adjustments (from above)					11,698				6,537				26,786				25,723
Non-GAAP expenses					$	56,219			$	56,545			$	176,390			$	156,117

Investor Contact:
Progress Software
Brian Flanagan, +1-781-280-4817
flanagan@progress.com
or
Press Contact:
Progress Software
Rick Lacroix, +1-781-280-4604
rlacroix@progress.com

Source: Progress Software Corporation

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