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 strong results for its fiscal second quarter ended May 31, 2013.

As previously announced on June 13, 2013, the company entered into a definitive purchase and sale agreement to divest the Apama product line. The sale is expected to close in July. As a result, the Apama product line results are reported in discontinued operations for all periods presented.

Revenue from continuing operations was $81.7 million compared to $74.1 million, a year over year increase of 12% on a constant currency basis, or an increase of 10% using actual exchange rates.

Additional financial highlights included:

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

• Income from operations was $14.4 million compared to $12.8 million in the same quarter last year;
• Income from continuing operations was $8.1 million compared to $8.9 million in the same quarter last year;
• Net income was $3.9 million compared to $(1.9) million in the same quarter last year; and
• Diluted earnings per share from continuing operations was $0.15 compared to $0.14 in the same quarter last year.

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

• Income from operations was $23.7 million compared to $25.2 million in the same quarter last year;
• Operating margin was 29% compared to 34% in the same quarter last year;
• Income from continuing operations was $15.0 million compared to $17.3 million in the same quarter last year; and
• Diluted earnings per share from continuing operations was $0.27 compared to $0.27 in the same quarter last year.

Phil Pead, President and Chief Executive Officer of Progress Software, said, "Our focus this year has been on improving the operating performance of the company and building a foundation for future revenue growth. We are pleased that we remain on track to achieve efficiencies previously outlined and that revenue growth is beginning to take hold. The second fiscal quarter results reflect our efforts to energize our customer and partner base through improved product functionality and targeted marketing activities. In addition, we benefited from closing a number of opportunities sooner than expected."

Pead added, "We are now singularly focused on becoming a leader in the application platform as a service market and while our strong second quarter results demonstrate good progress, our opportunities for continued revenue growth in the future will be driven by increasing the investment in our business."

Other fiscal second quarter 2013 metrics and recent results included:

• Completion in May 2013 of the previously announced and implemented 10b5-1 plan to repurchase $250.0 million of common stock by June 30, 2013;
• Cash, cash equivalents and short-term investments were $255.8 million;
• Cash flows from operations were $13.6 million, a decrease from $15.2 million in the same quarter in fiscal year 2012; and
• DSO from continuing operations was 56 days, compared to 65 days in the fiscal first quarter of 2013.

Earlier this month, Progress launched its new Progress Pacific platform. As part of this, Progress acquired Saratoga, CA-based Rollbase, Inc., a privately held platform-as-a-service vendor which provides innovative technology that enables powerful applications to be built using point-and-click, drag-and-drop tools in a standard browser. Also in June, Progress announced OpenEdge 11.3, the latest version of its flagship application development platform. The new version brings together leading business process management (BPM) and business rules management system (BRMS) capabilities to dramatically streamline business processes and accelerate developer productivity.

Supplemental Quarterly Information

In the financial tables at the end of this release, we have provided quarterly Condensed Consolidated Statements of Income adjusted for the classification of the Apama product line to discontinued operations for the three months ended February 29, 2012, August 31, 2012, November 30, 2012 and February 28, 2013, respectively. We have also provided Reconciliations of GAAP to Non-GAAP Financial Measures for the same time periods, also adjusted for the classification of the Apama product line to discontinued operations.

Business Outlook

Progress Software provides the following guidance for the fiscal third quarter ending August 31, 2013:

• On a constant currency basis, revenue is expected to be between 2% and 4% growth compared to the fiscal third quarter of 2012; and
• Non-GAAP operating margin is expected to be in the range of 24% to 26%.

The non-GAAP operating margin guidance excludes the items we traditionally exclude from our non-GAAP reporting metrics: amortization of intangible assets of $0.8 million, stock-based compensation of $4.5 million to $5.0 million, and $0.7 million of acquisition related costs, for a GAAP operating margin in the range of 16% to 18%.

Conference Call

The Progress Software quarterly investor conference call to review its fiscal second quarter of 2013 will be broadcast live at 5:00 p.m. ET on Wednesday, June 26, 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 1-888-438-5519, pass code 9239124. 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 and its planned product divestiture and return of capital to shareholders; 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) disruption caused by implementation of the strategic plan on relationships with employees, customers, ISVs, other channel partners, vendors and other business partners; (3) pricing pressures and the competitive environment in the software industry and Platform-as-a-Service market; (4) Progress' ability to complete the proposed divestiture of its Apama product line on a timely basis, if at all; (5) Progress's ability to make technology 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, 2012 and its Quarterly Report on Form 10-Q for the fiscal quarter ended February 28, 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															Six Months Ended
(In thousands, except per share data)				May 31, 2013					May 31, 2012					% Change					May 31, 2013					May 31, 2012					% Change
Revenue:
Software licenses				$	29,347				$	20,506				43	%				$	59,254				$	50,179				18	%
Maintenance and services				52,358					53,622					(2	)%				106,184					106,420					—	%
Total revenue				81,705					74,128					10	%				165,438					156,599					6	%
Costs of revenue:
Cost of software licenses				1,356					1,357					—	%				3,446					2,743					26	%
Cost of maintenance and services				6,990					7,114					(2	)%				14,640					14,039					4	%
Amortization of acquired intangibles				143					139					3	%				282					383					(26	)%
Total costs of revenue				8,489					8,610					(1	)%				18,368					17,165					7	%
Gross profit				73,216					65,518					12	%				147,070					139,434					5	%
Operating expenses:
Sales and marketing				25,890					19,373					34	%				54,532					42,115					29	%
Product development				14,671					10,387					41	%				28,293					20,699					37	%
General and administrative				14,064					18,014					(22	)%				28,730					33,414					(14	)%
Amortization of acquired intangibles				167					208					(20	)%				338					415					(19	)%
Restructuring expenses				2,766					4,736					(42	)%				3,726					4,736					(21	)%
Acquisition-related expenses				1,272					—					100	%				1,272					215					492	%
Total operating expenses				58,830					52,718					12	%				116,891					101,594					15	%
Income from operations				14,386					12,800					12	%				30,179					37,840					(20	)%
Other (expense) income, net				(292		)			249					(217	)%				(840		)			519					(262	)%
Income from continuing operations before income taxes				14,094					13,049					8	%				29,339					38,359					(24	)%
Provision for income taxes				5,952					4,194					42	%				11,384					13,644					(17	)%
Income from continuing operations				8,142					8,855					(8	)%				17,955					24,715					(27	)%
Income (loss) from discontinued operations, net				(4,232		)			(10,763		)			61	%				17,073					(19,134		)			189	%
Net income				$	3,910				$	(1,908	)			305	%				$	35,028				$	5,581				528	%
Earnings per share:
Basic:
Continuing operations				$	0.15				$	0.14				7	%				$	0.32				$	0.39				(18	)%
Discontinued operations				(0.08		)			(0.17		)			53	%				0.30					(0.31		)			197	%
Net income per share				$	0.07				$	(0.03	)			333	%				0.62					$	0.09				589	%
Diluted:
Continuing operations				$	0.15				$	0.14				7	%				$	0.31				$	0.39				(21	)%
Discontinued operations				(0.08		)			(0.17		)			53	%				0.30					(0.30		)			200	%
Net income per share				$	0.07				$	(0.03	)			333	%				$	0.61				$	0.09				578	%
Weighted average shares outstanding:
Basic				54,919					63,051					(13	)%				56,410					62,598					(10	)%
Diluted				55,736					63,051					(12	)%				57,244					63,641					(10	)%

CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)				May 31, 2013					November 30, 2012
Assets
Current assets:
Cash, cash equivalents and short-term investments				$	255,804				$	355,217
Accounts receivable, net				50,772					70,793
Other current assets				40,036					32,779
Assets held for sale				11,236					68,029
Total current assets				357,848					526,818
Property and equipment, net				59,352					63,071
Goodwill and intangible assets, net				235,870					231,229
Other assets				58,023					63,859
Total assets				$	711,093				$	884,977
Liabilities and shareholders' equity
Current liabilities:
Accounts payable and other current liabilities				$	59,281				$	110,944
Short-term deferred revenue				102,094					103,925
Liabilities held for sale				4,012					25,285
Total current liabilities				165,387					240,154
Long-term deferred revenue				1,293					2,817
Other long-term liabilities				2,175					3,607
Shareholders' equity:
Common stock and additional paid-in capital				232,838					300,333
Retained earnings				309,400					338,066
Total shareholders' equity				542,238					638,399
Total liabilities and shareholders' equity				$	711,093				$	884,977

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
				Three Months Ended											Six Months Ended
(In thousands)				May 31, 2013					May 31, 2012						May 31, 2013					May 31, 2012
Cash flows from operating activities:
Net income				$	3,910				$	(1,908	)				$	35,028				$	5,581
Depreciation and amortization				4,076					8,417						7,477					16,979
Stock-based compensation				5,881					6,669						10,787					13,760
Net gains on sales of dispositions				—					—						(35,106		)			—
Other non-cash adjustments				726					644						(2,201		)			1,003
Changes in operating assets and liabilities				(952		)			1,338						(27,403		)			16,366
Net cash flows from operating activities				13,641					15,160						(11,418		)			53,689
Capital expenditures				(1,488		)			(2,199		)				(2,386		)			(6,141		)
Redemptions and sales of auction-rate-securities				—					—						25					225
Issuances of common stock, net of repurchases				(64,025		)			6,514						(144,094		)			20,487
Payments for acquisitions, net of cash acquired				(9,450		)			—						(9,450		)			—
Proceeds from divestitures, net				—					—						73,381					—
Other				(4,249		)			(6,391		)				(5,471		)			(1,428		)
Net change in cash, cash equivalents and short-term investments				(65,571		)			13,084						(99,413		)			66,832
Cash, cash equivalents and short-term investments, beginning of period				321,375					315,164						355,217					261,416
Cash, cash equivalents and short-term investments, end of period				$	255,804				$	328,248					$	255,804				$	328,248

SUPPLEMENTAL INFORMATION
Revenue from continuing operations by Type
(In thousands)				Q1 2012					Q2 2012					Q3 2012					Q4 2012					Q1 2013					Q2 2013					YTD 2013					YTD 2012
License				$	29,673				$	20,506				$	22,637				$	33,810				$	29,907				$	29,347				$	59,254				$	50,179
Maintenance				50,165					51,350					50,285					50,891					51,456					50,419					101,875					101,515
Professional services				2,633					2,272					1,449					1,941					2,370					1,939					4,309					4,905
Total revenue				$	82,471				$	74,128				$	74,371				$	86,642				$	83,733				$	81,705				$	165,438				$	156,599
Revenue from continuing operations by Region
(In thousands)				Q1 2012					Q2 2012					Q3 2012					Q4 2012					Q1 2013					Q2 2013					YTD 2013					YTD 2012
North America				$	36,742				$	32,190				$	34,548				$	39,179				$	39,309				$	37,540				$	76,849				$	68,932
EMEA				33,508					30,689					28,155					33,214					32,548					33,481					66,029					64,197
Latin America				7,386					6,660					6,905					7,384					6,822					6,526					13,348					14,046
Asia Pacific				4,835					4,589					4,763					6,865					5,054					4,158					9,212					9,424
Total revenue				$	82,471				$	74,128				$	74,371				$	86,642				$	83,733				$	81,705				$	165,438				$	156,599

RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES
				Three Months Ended											Six Months Ended
(In thousands, except per share data)				May 31, 2013					May 31, 2012						May 31, 2013					May 31, 2012
GAAP income from operations				$	14,386				$	12,800					$	30,179				$	37,840
GAAP operating margin				18		%			17		%				18		%			24		%
Amortization of acquired intangibles				310					347						620					798
Stock-based compensation (1)				4,981					4,581						9,470					9,299
Restructuring expenses				2,766					4,736						3,726					4,736
Acquisition-related expenses				1,272					—						1,272					215
Litigation settlement				—					—						—					900
Proxy contest-related costs				—					2,766						—					3,238
Total operating adjustments				9,329					12,430						15,088					19,186
Non-GAAP income from operations				$	23,715				$	25,230					$	45,267				$	57,026
Non-GAAP operating margin				29		%			34		%				27		%			36		%
GAAP income from continuing operations				$	8,142				$	8,855					$	17,955				$	24,715
Operating adjustments (from above)				9,329					12,430						15,088					19,186
Income tax adjustment				(2,464		)			(3,959		)				(4,169		)			(4,770		)
Total income from continuing operations adjustments				6,865					8,471						10,919					14,416
Non-GAAP income from continuing operations				$	15,007				$	17,326					$	28,874				$	39,131
GAAP diluted earnings per share from continuing operations				$	0.15				$	0.14					$	0.31				$	0.39
Income from continuing operations adjustments (from above)				0.12					0.13						0.19					0.23
Non-GAAP diluted earnings per share from continuing operations				$	0.27				$	0.27					$	0.50				$	0.61
Diluted weighted average shares outstanding				55,736					63,051						57,244					63,641
(1) Stock-based compensation is included in the GAAP statements of income, as follows:
Cost of revenue				$	158				$	204					$	367				$	432
Sales and marketing				881					892						1,920					2,147
Product development				1,225					703						2,688					1,514
General and administrative				2,717					2,782						4,495					5,206
Stock-based compensation from continuing operations				$	4,981				$	4,581					$	9,470				$	9,299

				Three Months Ended										Six Months Ended
(In thousands, except per share data)				May 31, 2013					May 31, 2012					May 31, 2013					May 31, 2012
GAAP costs of revenue				$	8,489				$	8,610				$	18,368				$	17,165
GAAP operating expenses				58,830					52,718					116,891					101,594
GAAP expenses				67,319					61,328					135,259					118,759
Operating adjustments (from above)				9,329					12,430					15,088					19,186
Non-GAAP expenses				$	57,990				$	48,898				$	120,171				$	99,573

SUPPLEMENTAL QUARTERLY INFORMATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME( (2))
				Three Months Ended
(In thousands, except per share data)				February 29, 2012					August 31, 2012					November 30, 2012					February 28, 2013
Revenue:
Software licenses				$	29,673				$	22,637				$	33,810				$	29,907
Maintenance and services				52,798					51,734					52,832					53,826
Total revenue				82,471					74,371					86,642					83,733
Costs of revenue:
Cost of software licenses				1,385					1,375					1,659					2,090
Cost of maintenance and services				6,925					7,974					7,865					7,650
Amortization of acquired intangibles				244					139					138					139
Total costs of revenue				8,554					9,488					9,662					9,879
Gross profit				73,917					64,883					76,980					73,854
Operating expenses:
Sales and marketing				22,742					24,970					31,753					28,642
Product development				10,312					12,631					11,113					13,622
General and administrative				15,400					14,375					14,200					14,666
Amortization of acquired intangibles				207					207					198					171
Restructuring expenses				—					1,411					1,057					960
Acquisition-related expenses				215					—					—					—
Total operating expenses				48,876					53,594					58,321					58,061
Income from operations				25,041					11,289					18,659					15,793
Other (expense) income, net				270					357					(680		)			(548		)
Income from continuing operations before income taxes				25,311					11,646					17,979					15,245
Provision for income taxes				9,450					3,902					5,485					5,432
Income from continuing operations				15,861					7,744					12,494					9,813
Income (loss) from discontinued operations, net				(8,372		)			(1,906		)			23,531					21,305
Net income				$	7,489				$	5,838				$	36,025				$	31,118
Earnings per share:
Basic:
Continuing operations				$	0.26				$	0.12				$	0.20				$	0.17
Discontinued operations				(0.13		)			(0.03		)			0.37					0.37
Net income per share				$	0.12				$	0.09				0.57					$	0.54
Diluted:
Continuing operations				$	0.25				$	0.12				$	0.20				$	0.17
Discontinued operations				(0.13		)			(0.03		)			0.37					0.36
Net income per share				$	0.12				$	0.09				$	0.57				$	0.53
Weighted average shares outstanding:
Basic				62,145					63,469					62,859					57,901
Diluted				63,130					64,105					63,576					58,752
(2) As adjusted to reflect the classification of the Apama product line as discontinued operations.

SUPPLEMENTAL QUARTERLY INFORMATION
RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES( (2))
				Three Months Ended
(In thousands, except per share data)				February 29, 2012					August 31, 2012					November 30, 2012					February 28, 2013
GAAP income from operations				$	25,041				$	11,289				$	18,659				$	15,793
GAAP operating margin				30		%			15		%			22		%			19		%
Amortization of acquired intangibles				451					346					336					310
Stock-based compensation (3)				4,718					4,759					4,103					4,489
Restructuring expenses				—					1,411					1,057					960
Acquisition-related expenses				215					—					—					—
Litigation settlement				900					—					—					—
Proxy contest-related costs				472					21					—					—
Total operating adjustments				6,756					6,537					5,496					5,759
Non-GAAP income from operations				$	31,797				$	17,826				$	24,155				$	21,552
Non-GAAP operating margin				39		%			24		%			28		%			26		%
GAAP income from continuing operations				$	15,861				$	7,744				$	12,494				$	9,813
Operating adjustments (from above)				6,756					6,537					5,496					5,759
Income tax adjustment				(811		)			(1,916		)			(2,027		)			(1,705		)
Total income from continuing operations adjustments				5,945					4,621					3,469					4,054
Non-GAAP income from continuing operations				$	21,806				$	12,365				$	15,963				$	13,867
GAAP diluted earnings per share from continuing operations				$	0.25				$	0.12				$	0.20				$	0.17
Income from continuing operations adjustments (from above)				0.09					0.07					0.05					0.07
Non-GAAP diluted earnings per share from continuing operations				$	0.35				$	0.19				$	0.25				$	0.24
Diluted weighted average shares outstanding				63,130					64,105					63,576					58,752
(3) Stock-based compensation is included in the GAAP statements of income, as follows:
Cost of revenue				$	228				$	157				$	145				$	209
Sales and marketing				1,255					701					426					1,039
Product development				811					861					795					1,463
General and administrative				2,424					3,040					2,737					1,778
Stock-based compensation from continuing operations				$	4,718				$	4,759				$	4,103				$	4,489

				Three Months Ended
(In thousands, except per share data)				February 29, 2012					August 31, 2012					November 30, 2012					February 28, 2013
GAAP costs of revenue				$	8,554				$	9,488				$	9,662				$	9,879
GAAP operating expenses				48,876					53,594					58,321					58,061
GAAP expenses				57,430					63,082					67,983					67,940
Operating adjustments (from above)				6,756					6,537					5,496					5,759
Non-GAAP expenses				$	50,674				$	56,545				$	62,487				$	62,181
(2) As adjusted to reflect the classification of the Apama product line as discontinued operations.

Progress Software
Investor Contact:
Tom Barth, +1 781-280-4135
tobarth@progress.com
or
Press Contact:
Rick Lacroix, +1-781-280-4604
rlacroix@progress.com

Source: Progress Software Corporation

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