Progress Software Reports Second Quarter Results

Progress Software Corporation (NASDAQ: PRGS), a provider of leading application infrastructure software to develop, deploy, integrate and manage business applications, today announced results for its second quarter ended May 31, 2007. Revenue for the quarter was $120 million, up 9 percent (5 percent at constant currency) from $110 million in the second quarter of fiscal 2006. Software license revenue increased 8 percent (4 percent at constant currency) to $44.6 million from $41.4 million in the same quarter last year. On a generally accepted accounting principles (GAAP) basis, operating income increased 3 percent to $11.3 million from $11.0 million in the second quarter of fiscal 2006. Net income increased 9 percent to $8.4 million from $7.7 million in the same quarter last year. Diluted earnings per share increased 6 percent to 19 cents from 18 cents in the second quarter of fiscal 2006. On a non-GAAP basis, operating income increased 20 percent to $25.3 million from $21.1 million in the same quarter last year. Non-GAAP net income increased 21 percent to $17.8 million from $14.7 million in the same quarter last year and non-GAAP diluted earnings per share increased 21 percent to 41 cents per share from 34 cents in the second quarter of fiscal 2006. The GAAP and non-GAAP results in the second quarter of fiscal 2007 include an after-tax charge of $1.6 million (4 cents per share) resulting from a write-down associated with a portion of the implementation of a new ERP system. The non-GAAP results in the second quarter of fiscal 2007 exclude after-tax charges of $6.0 million for stock-based compensation (including cash payments to compensation committee members of the board of the directors for reimbursement of cancelled stock options as more fully described in the most recent proxy statement), $2.9 million for amortization of acquired intangibles and $0.5 million for professional services fees associated with the investigation and shareholder derivative lawsuits related to the company’s historical stock option grant practices. The non-GAAP results in the second quarter of fiscal 2006 exclude after-tax charges of $4.1 million for stock-based compensation, $2.7 million for amortization of acquired intangibles and $0.2 million for certain acquisition-related expenses. The company's cash and short-term investments at the end of the quarter totaled $271 million. The company purchased 10,000 shares at a cost of $0.3 million in the second quarter of fiscal 2007. The company's existing repurchase authorization, under which approximately 9.3 million shares remain available for repurchase, expires on September 30, 2007. With respect to the ERP implementation, the company currently plans to implement the necessary functionality by extending its existing Progress® OpenEdge® based applications, together with a new OpenEdge based financial system for which the implementation is proceeding as planned. The write-off was necessitated by the conclusion that it was not advisable to proceed further with the implementation of an application which was not based on OpenEdge. "We achieved nine percent growth in revenue for the second quarter, with a 21 percent increase in non-GAAP earnings per share. All major divisions performed extremely well and the outlook for the balance of the fiscal year is solid," stated Joseph Alsop, co-founder and chief executive officer of Progress Software. "We are pleased to see continuing signs of success as we pursue our strategy of achieving growth in our OpenEdge business while looking to our newer high-growth product lines to accelerate our growth as they become a larger portion of our license revenue." Quarterly Highlights Progress Software and QAD Inc. jointly announced the expansion of their longstanding alliance to allow QAD to globally license and distribute a wider range of application infrastructure products from Progress Software, including Progress Sonic ESB® (Enterprise Service Bus), Progress Actional® for SOA management, the Progress EasyAsk® Natural Language and Query product, and other best-in-class technologies. www.progress.com/QAD Progress Software and Dow Jones & Company (NYSE: DJ) announced a global agreement to provide the Dow Jones Elementized News Feed via the Progress Apama Algorithmic Trading Platform. The agreement will allow financial institutions to instantly and continuously analyze, evaluate and respond to complex market events and news within the Progress Apama platform. www.progress.com/dowjones DataDirect Technologies launched DataDirect XML Converters™, a new product which enables bi-directional programmatic access to virtually any non-xml file including EDI, flat files, and other legacy formats (www.progress.com/converters). The division also added new security features to its DataDirect Connect® line of ODBC, JDBC, ADO.NET data access products and released version 3.0 of the DataDirect XQuery® product, with full update capability. Progress Software announced the availability of the Progress Actional 7.0 SOA management platform that comprises a trio of best-in-class products addressing the diversity of management needs in service-oriented architecture (SOA) environments. www.progress.com/actional7 Progress Software announced the availability of Progress Sonic ESB 7.5, the latest version of the worldwide best-selling enterprise service bus (ESB) that enables the integration and flexible re-use of business applications within a service-oriented architecture (SOA). www.progress.com/sonicesb75 Progress Software announced that, according to research from Nielsen//NetRatings, retailers using EasyAsk achieved the highest online conversion rates among all users of commercially available e-commerce search and navigation technologies during nine of the 12 months in 2006. www.progress.com/neilson Significant New Customer and Partner Wins, New Technology Adoptions and Major Deployments Significant new partners and customers adopting technology from Progress Software, or deploying solutions using Progress technology, include: Active Health Management, Alberta Motor Association, Allied World Assurance Company, Arbonne International, Assurant Solutions, ATB Financial, Baptist Health System, BIDS Holdings, Boston Communications Group, BSN Medical, Cablecom, Canadian Institute for Health Information, Canberra, Carrier Call, Cedars Sinai Health System, Challenger Financial Service, Chevron Pipe Line Company, Consorcio Ejecutivo De Administracion, Corbin Capital Partners, Corporation Service Company, Debenhams, DI-Nikko Engineering, Diamond Management & Technology Consultants, Drivesol Global Steering, E. Hoffmann-La Roche, EDB Teamco IT Drift, Eiffel Comercio Automotivo, Eircom, Endurance Reinsurance, Famastil Ferramentas, Fiberweb, First Data Deutschland, Georgia Farm Bureau Mutual Insurance, GetConnected, Griffin Wheel Company, Hama GmbH & Co., HanseNet Telekommunikation, InterNAP Network Services, Itavox Veiculos, ITSC, Juriscoop Progreso Solidari, Kansai Electric Power, Kyowa Wellness, Law School Admission Council, Localiza Rent-A-Car, Markwest, Melco PBL Gaming, Multilog, National Interstate Insurance, Nordisk Mobiltelefon Svergie, North Pacific Bank, OnResolve, Orrick, Herrington & Sutcliff, Pandurata Alimentos, Piedmont Natural Gas Company, Plymouth & South West Cooperative, Redman Equipment, Saison Information System, Saxo Bank, SimpleTech, Sistema Unico de Autofinanciamiento, SNA Chile, Sonnox, Spectra Energy, Staveley Communications, Steag Ketek IT, Torex Retail Workforce Management Solutions, Travel Alberta Canada and Western Asset Management. Significant existing partners and customers adopting technology from different Progress Software product lines, or making substantial additional deployments of Progress technology, include: AServint, Avicola La Guasima, British Broadcasting Corporation, Chocolates Garoto, Computers Unlimited, Coasul, Daimler Chrysler Bank, Damartex UK, Deutsche Telekom, GCZ Nederland, Generali France, Hastings Entertainment, Hemopa, HP AppIQ, IBM Ascential, Ingersoll-Rand, ISA, Marketworks, Maryland Transit Administration, Matrikon, McQuay International, Measurement Canada, Micros-Fidelio, Municipio de Merida Yucatan, Norfolk Southern, Olivenca, Pacific Motors Company, Pepsi Bottling Group, QBE Management, ReedHycalog, Rocom Networks, Sanofi-aventis DK, SG Automatisering, Smurfit Kappa South West, Sodexho, SoftBank, Stadtverwaltung Basel Stadt, State Street Bank & Trust Company, Stryker Trauma, Sveriges Televison, T-Systems Enterprise Services and Taiyo Yuden-Vista. Business Outlook The company is providing the following guidance for the fiscal year ending November 30, 2007: Revenue is expected to be in the range of $475 million to $485 million. GAAP diluted earnings per share are expected to be in the range of $1.06 to $1.09. On a non-GAAP basis, diluted earnings per share are expected to be in the range of $1.72 to $1.75. The non-GAAP projections exclude after-tax charges of approximately $16 million (36 cents per share) for stock-based compensation, approximately $11 million (24 cents per share) for amortization of acquired intangibles and an estimate of approximately $4 million (6 cents per share) for professional services fees associated with the investigation and shareholder derivative lawsuits related to the company’s historical stock option grant practices. The company is providing the following guidance for the third fiscal quarter ending August 31, 2007: Revenue is expected to be in the range of $118 million to $120 million. GAAP diluted earnings per share are expected to be in the range of 27 cents to 29 cents. On a non-GAAP basis, diluted earnings per share are expected to be in the range of 42 cents to 44 cents. The non-GAAP projections exclude after-tax charges of approximately $3.2 million (7 cents per share) for stock-based compensation, approximately $3 million (7 cents per share) for amortization of acquired intangibles and approximately $0.3 million (1 cent per share) for professional services fees associated with the stock option accounting investigation and shareholder derivative lawsuits related to the company’s historical stock option grant practices. Legal Notice Regarding Non-GAAP Financial Information The company provides non-GAAP 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. The company 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 of the company 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. Compensation of the company’s management and its employees is based in part on the performance of the business based on these non-GAAP measures. A reconciliation of non-GAAP adjustments to the company's GAAP financial results is included in the tables below. Conference Call Progress Software's conference call to discuss its second quarter results 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. About Progress Software Corporation Progress Software Corporation (NASDAQ: PRGS) provides application infrastructure software for the development, deployment, integration and management of business applications. Our goal is to maximize the benefits of information technology while minimizing its 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 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 the company's products, the growth rates of certain market segments, the positioning of the company's products in those market segments, variations in the demand for customer service and technical support, pricing pressures and the competitive environment in the software industry, business and consumer use of the Internet, and the company's ability to penetrate international markets and manage its international operations; unanticipated consequences of the recent restatement of the company's financial statements; the risk that the Nasdaq Stock Market will de-list the company's common stock; risks associated with the SEC's formal investigation of the company's option-grant practices; the risk that the company will face additional claims and proceedings in connection with those stock option grant practices, including additional shareholder litigation and additional proceedings by the other governmental agencies; and the financial impact of the foregoing, including potentially significant litigation defense costs and claims for indemnification and advancement of expenses by directors, officers and others. 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. Progress, Apama, DataDirect Connect, DataDirect XML Converters, DataDirect XQuery, EasyAsk, OpenEdge, Sonic ESB, and Progress OpenEdge 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 or service marks contained herein are the property of their respective owners. Progress Software Corporation GAAP Condensed Consolidated Statements of Income   Three Months Ended May 31, May 31, Percent (In thousands except per share data) 2007    2006    Change   Revenue: Software licenses $ 44,555  $ 41,357  8% Maintenance and services 75,087    68,229  10% Total revenue 119,642    109,586  9% Costs of revenue: Cost of software licenses 1,880  1,817  3% Cost of maintenance and services 16,871  15,125  12% Amortization of purchased technology 2,493    1,993  25% Total costs of revenue 21,244    18,935  12% Gross profit 98,398    90,651  9% Operating expenses: Sales and marketing 45,745  44,983  2% Product development 20,389  19,346  5% General and administrative 19,029  13,034  46% Amortization of other acquired intangibles 1,946  1,984  (2)% Acquisition-related expenses -    297  (100)% Total operating expenses 87,109    79,644  9% Income from operations 11,289  11,007  3% Other income, net 1,621    518  213% Income before provision for income taxes 12,910  11,525  12% Provision for income taxes 4,519    3,807  19% Net income $ 8,391    $ 7,718  9% Earnings per share: Basic $0.20  $0.19  5% Diluted $0.19    $0.18  6% Weighted average shares outstanding: Basic 41,178  41,062  0% Diluted 43,636    43,473  0%     Six Months Ended May 31, May 31, Percent 2007    2006    Change   Revenue: Software licenses $ 89,284  $ 84,137  6% Maintenance and services 145,587    129,370  13% Total revenue 234,871    213,507  10% Costs of revenue: Cost of software licenses 3,552  4,027  (12)% Cost of maintenance and services 33,133  29,356  13% Amortization of purchased technology 4,984    3,517  42% Total costs of revenue 41,669    36,900  13% Gross profit 193,202    176,607  9% Operating expenses: Sales and marketing 90,390  87,627  3% Product development 41,184  38,273  8% General and administrative 34,060  26,232  30% Amortization of other acquired intangibles 3,926  3,367  17% Acquisition-related expenses -    1,831  (100)% Total operating expenses 169,560    157,330  8% Income from operations 23,642  19,277  23% Other income, net 2,711    1,215  123% Income before provision for income taxes 26,353  20,492  29% Provision for income taxes 9,224    6,865  34% Net income $ 17,129    $ 13,627  26% Earnings per share: Basic $0.42  $0.33  27% Diluted $0.39    $0.31  26% Weighted average shares outstanding: Basic 41,123  40,781  1% Diluted 43,537    43,265  1% Progress Software Corporation Reconciliation of GAAP to Non-GAAP Financial Measures   Three Months Ended May 31, 2007 Three Months Ended May 31, 2006 As As Percent (In thousands except per share data) Reported Adjustments Non-GAAP   Reported Adjustments Non-GAAP Change   Total revenue $ 119,642  -  $ 119,642  $ 109,586  -  $ 109,586  9%   Income from operations $ 11,289  $ 14,008  $ 25,297  $ 11,007  $ 10,098  $ 21,105  20% Amortization of acquired intangibles (4,439) 4,439  -  (3,977) 3,977  -  Acquisition-related expenses -  -  -  (297) 297  -  Stock option investigation (1) (755) 755  -  -  -  -  Stock-based compensation (2) (8,814) 8,814  -  (5,824) 5,824  -    Operating margin percentage 9.4% 21.1% 10.0% 19.3% 10%   Effect on provision for income taxes from above adjustments (3) $ 4,519  $ 4,633  $ 9,152  $ 3,807  $ 3,105  $ 6,912  32%   Net income $ 8,391  $ 9,375  $ 17,766  $ 7,718  $ 6,993  $ 14,711  21%   Earnings per share - diluted $0.19  $0.41  $0.18  $0.34  21%   Weighted average shares outstanding - diluted 43,636  43,636  43,473  43,473  0% Six Months Ended May 31, 2007 Six Months Ended May 31, 2006 As As Percent Reported Adjustments Non-GAAP Reported Adjustments Non-GAAP Change   Total revenue $ 234,871  -  $ 234,871  $ 213,507  -  $ 213,507  10%   Income from operations $ 23,642  $ 25,176  $ 48,818  $ 19,277  $ 20,481  $ 39,758  23% Amortization of acquired intangibles (8,910) 8,910  -  (6,884) 6,884  -  Acquisition-related expenses -  -  -  (1,831) 1,831  -  Stock option investigation (1) (2,437) 2,437  -  -  -  -  Stock-based compensation (2) (13,829) 13,829  -  (11,766) 11,766  -    Operating margin percentage 10.1% 20.8% 9.0% 18.6% 12%   Effect on provision for income taxes from above adjustments (3) $ 9,224  $ 8,296  $ 17,520  $ 6,865  $ 6,452  $ 13,317  32%   Net income $ 17,129  $ 16,880  $ 34,009  $ 13,627  $ 14,029  $ 27,656  23%   Earnings per share - diluted $0.39  $0.78  $0.31  $0.64  22%   Weighted average shares outstanding - diluted 43,537  43,537  43,265  43,265  1% (1) Stock option investigation expenses are included within general and administrative expenses and primarily represent professional services fees associated with the Company's the investigation and shareholder derivative lawsuits related to its historical stock option grant practices.   (2) Stock-based compensation expense is included in the following GAAP operating expenses: Three Months Ended May 31, 2007 Three Months Ended May 31, 2006 GAAP Adjustments Non-GAAP   GAAP Adjustments Non-GAAP Cost of software licenses $ 43  $ (43) $ -  37  $ (37) $ -  Cost of maintenance and services 511  (511) -  427  (427) -  Sales and marketing 2,678  (2,678) -  2,160  (2,160) -  Product development 1,715  (1,715) -  1,335  (1,335) -  General and administrative 3,867  (3,867) -    1,865  (1,865) -  $ 8,814  $ (8,814) $ -    $ 5,824  $ (5,824) $ -    Six Months Ended May 31, 2007 Six Months Ended May 31, 2006 GAAP Adjustments Non-GAAP   GAAP Adjustments Non-GAAP Cost of software licenses $ 74  $ (74) $ -  $ 77  $ (77) $ -  Cost of maintenance and services 868  (868) -  877  (877) -  Sales and marketing 4,525  (4,525) -  4,384  (4,384) -  Product development 2,867  (2,867) -  2,689  (2,689) -  General and administrative 5,496  (5,496) -    3,739  (3,739) -  $ 13,830  $ (13,830) $ -    $ 11,766  $ (11,766) $ -    Amounts represent the fair value of equity awards under SFAS 123R. Stock-base compensation expense in the three and six months ended May 31, 2007 also includes the cash settlement of equity awards to former employees for options that were cancelled or expired during the suspension of the issuance of shares under the company’s option plans, reimbursements for excise taxes resulting from the exercise of below market options in fiscal 2007 and make-whole cash payments to members of the Compensation Committee for options that were cancelled.   (3) The provision for taxes was calculated reflecting an effective rate of 34% for the three and six months ended May 31, 2007 and an effective rate of 33% and 34% for the three and six months ended May 31, 2006, respectively. Progress Software Corporation Condensed Consolidated Balance Sheets   May 31, November 30, (In thousands) 2007    2006    Assets Cash and short-term investments $ 270,777  $ 241,315  Accounts receivable, net 84,415  82,762  Other current assets 39,887    36,062  Total current assets 395,079    360,139  Property and equipment, net 60,239  57,585  Goodwill and intangible assets, net 223,862  232,927  Other assets 18,565    19,588  Total $ 697,745    $ 670,239    Liabilities and shareholders' equity Accounts payable and other current liabilities $ 79,597  $ 93,195  Short-term deferred revenue 133,237    120,974  Total current liabilities 212,834    214,169  Long-term deferred revenue 8,565  6,355  Other liabilities 5,222  5,151  Shareholders' equity: Common stock and additional paid-in capital 213,631  197,748  Retained earnings 257,493    246,816  Total shareholders' equity 471,124    444,564  Total $ 697,745    $ 670,239      Condensed Consolidated Statements of Cash Flows   Six Months Ended May 31, (In thousands except per share data) 2007    2006    Cash flows from operations: Net income $ 17,129  $ 13,627  Depreciation, amortization and other noncash items 28,128  23,951  Other changes in operating assets and liabilities (5,919)   (4,992) Net cash flows from operations 39,338  32,586  Capital expenditures (9,622) (9,161) Acquisitions, net of cash acquired -  (66,438) Share issuances (repurchases), net (2,170) (2,520) Other 1,916    5,777  Net change in cash and short-term investments 29,462  (39,756) Cash and short-term investments, beginning of period 241,315    266,420  Cash and short-term investments, end of period $ 270,777    $ 226,664