Progress(PRGS) - 2025 Q3 - Quarterly Results

Executive Summary & Q3 2025 Highlights Progress Software delivered strong Q3 2025 results, highlighting strategic execution, ShareFile integration, and AI investments Overall Performance and Strategic Commentary Progress Software reported exceptional Q3 2025 results, driven by strong financials, successful ShareFile integration, and AI innovation - Progress CEO Yogesh Gupta described Q3 performance as "truly exceptional" with solid revenue, earnings, cash flow, and execution[3] - Net retention remains strong at 100%, and ARR continues to grow steadily[3][5] - ShareFile is meaningfully contributing to top and bottom-line results, with all major integration milestones successfully passed[3][5] - Continued investment and innovation in AI capabilities, including agentic RAG technology, embedded across the product portfolio to empower customers[3] - The company aggressively paid down debt and repurchased $15 million of shares, while increasing liquidity with a new $1.5 billion revolving credit facility[5] Key Financial Highlights (Q3 2025) Progress Software reported Q3 2025 revenue up 40% to $250M, ARR up 47% to $849M, and non-GAAP EPS up 19% to $1.50 Q3 2025 Financial Highlights (YoY Growth, in thousands, except per share amounts) | Metric | Q3 2025 (GAAP) | Q3 2024 (GAAP) | % Change (GAAP) | Q3 2025 (Non-GAAP) | Q3 2024 (Non-GAAP) | % Change (Non-GAAP) | | :-------------------------------- | :------------- | :------------- | :-------------- | :----------------- | :----------------- | :------------------ | | Revenue | $249,795 | $178,686 | 40 % | $249,795 | $178,686 | 40 % | | Income from operations | $43,874 | $40,349 | 9 % | $99,423 | $74,123 | 34 % | | Operating margin | 18 % | 23 % | (500) bps | 40 % | 41 % | (100) bps | | Net income | $19,413 | $28,464 | (32)% | $65,723 | $55,216 | 19 % | | Diluted earnings per share | $0.44 | $0.65 | (32)% | $1.50 | $1.26 | 19 % | | Cash from operations (GAAP) | $73,446 | $57,658 | 27 % | - | - | - | | Adjusted free cash flow (non-GAAP) | - | - | - | $74,428 | $57,525 | 29 % | | Unlevered free cash flow (non-GAAP) | - | - | - | $88,617 | $63,149 | 40 % | - Annualized Recurring Revenue (ARR) of $849 million increased 47% year-over-year on a constant currency basis[2][6] - Cash and cash equivalents were $99.0 million at the end of the quarter[7] - Days sales outstanding was 55 days, compared to 45 days in Q3 2024 and 53 days in Q2 2025[7] - The Board of Directors increased the share repurchase authorization by $200.0 million to $242.2 million on September 23, 2025[7] Condensed Consolidated Financial Statements (GAAP) This section presents the company's GAAP statements of operations, balance sheets, and cash flows Statements of Operations Q3 2025 total revenue rose 40% to $249.8M, but GAAP net income fell 32% to $19.4M due to higher expenses Revenue Breakdown (Three Months Ended August 31) | Revenue Category | 2025 (in thousands) | 2024 (in thousands) | % Change | | :----------------------- | :------------------ | :------------------ | :------- | | Software licenses | $63,437 | $57,850 | 10 % | | Maintenance, SaaS, and professional services | $186,358 | $120,836 | 54 % | | Total revenue | $249,795 | $178,686 | 40 % | Key P&L Items (Three Months Ended August 31) | Item | 2025 (in thousands) | 2024 (in thousands) | % Change | | :-------------------------- | :------------------ | :------------------ | :------- | | Gross profit | $202,259 | $149,622 | 35 % | | Income from operations | $43,874 | $40,349 | 9 % | | Other expense, net | $(17,668) | $(6,070) | 191 % | | Income before income taxes | $26,206 | $34,279 | (24)% | | Provision for income taxes | $6,793 | $5,815 | 17 % | | Net income | $19,413 | $28,464 | (32)% | | Diluted earnings per share | $0.44 | $0.65 | (32)% | - Total operating expenses increased by 45% YoY, driven by significant increases in amortization of acquired intangibles (91%), product development (42%), and sales and marketing (40%)[12] - Cash dividends declared per common share decreased from $0.175 in Q3 2024 to $0 in Q3 2025[12] Balance Sheets Total assets decreased to $2.42B, while liabilities increased due to convertible senior notes, despite lower long-term debt Key Balance Sheet Items (in thousands) | Item | August 31, 2025 (in thousands) | November 30, 2024 (in thousands) | | :---------------------------------- | :----------------------------- | :------------------------------- | | Cash and cash equivalents | $99,008 | $118,077 | | Total current assets | $335,545 | $368,813 | | Goodwill and intangible assets, net | $1,928,615 | $2,015,748 | | Total assets | $2,421,711 | $2,526,966 | | Convertible senior notes, current portion, net | $358,619 | — | | Total current liabilities | $769,809 | $455,145 | | Long-term debt, net | $620,000 | $730,000 | | Convertible senior notes, non-current portion, net | $440,713 | $796,267 | | Total liabilities and stockholders' equity | $2,421,711 | $2,526,966 | - Total stockholders' equity increased to $477.7 million from $438.8 million[13] Statements of Cash Flows Q3 2025 operating cash flow rose 27% to $73.4M, but nine-month operating cash flow decreased 10% to $172.4M Net Cash Flows from Operating Activities | Period | August 31, 2025 (in thousands) | August 31, 2024 (in thousands) | % Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :------- | | Three Months Ended | $73,446 | $57,658 | 27 % | | Nine Months Ended | $172,389 | $191,843 | (10)% | - Key cash flow activities for the three months ended August 31, 2025, included repurchases of common stock ($11.7 million), payments for acquisitions ($19.5 million), and repayment of revolving line of credit and term loan ($40.0 million)[14] - Net change in cash and cash equivalents for Q3 2025 was a decrease of $3.0 million, compared to an increase of $42.3 million in Q3 2024[14] Non-GAAP Financial Measures (Q3 2025) This section details the company's Q3 2025 non-GAAP financial measures, including adjusted income, EPS, and free cash flow Adjusted Income from Operations Non-GAAP income from operations for Q3 2025 increased 34% to $99.4M, with a 40% operating margin Adjusted Income from Operations (Three Months Ended August 31) | Item | 2025 (in thousands) | 2024 (in thousands) | % Change | | :------------------------------------------ | :------------------ | :------------------ | :------- | | GAAP income from operations | $43,874 | $40,349 | 9 % | | Amortization of acquired intangibles | $37,199 | $20,117 | 85 % | | Stock-based compensation | $15,970 | $10,558 | 51 % | | Restructuring expenses | $907 | $308 | 194 % | | Acquisition-related expenses | $814 | $1,864 | (56)% | | Cyber vulnerability response expenses, net | $659 | $927 | (29)% | | Non-GAAP income from operations | $99,423 | $74,123 | 34 % | - Non-GAAP operating margin was 40% in Q3 2025, compared to 41% in Q3 2024[4] Adjusted Net Income and Diluted EPS Non-GAAP net income grew 19% to $65.7M, and diluted EPS increased 19% to $1.50, after tax adjustments Adjusted Net Income (Three Months Ended August 31) | Item | 2025 (in thousands) | 2024 (in thousands) | % Change | | :------------------------------------------ | :------------------ | :------------------ | :------- | | GAAP net income | $19,413 | $28,464 | (32)% | | Amortization of acquired intangibles | $37,199 | $20,117 | 85 % | | Stock-based compensation | $15,970 | $10,558 | 51 % | | Restructuring expenses | $907 | $308 | 194 % | | Acquisition-related expenses | $814 | $1,864 | (56)% | | Cyber vulnerability response expenses, net | $659 | $927 | (29)% | | Provision for income taxes | $(9,239) | $(7,022) | 32 % | | Non-GAAP net income | $65,723 | $55,216 | 19 % | Adjusted Diluted Earnings per Share (Three Months Ended August 31) | Item | 2025 (per share) | 2024 (per share) | % Change | | :------------------------------------------ | :--------------- | :--------------- | :------- | | GAAP diluted earnings per share | $0.44 | $0.65 | (32)% | | Non-GAAP diluted earnings per share | $1.50 | $1.26 | 19 % | Adjusted and Unlevered Free Cash Flow Adjusted free cash flow rose 29% to $74.4M, and unlevered free cash flow increased 40% to $88.6M in Q3 2025 Adjusted Free Cash Flow (Three Months Ended August 31) | Item | 2025 (in thousands) | 2024 (in thousands) | % Change | | :------------------------------------------ | :------------------ | :------------------ | :------- | | Cash flows from operations | $73,446 | $57,658 | 27 % | | Purchases of property and equipment | $(1,055) | $(1,064) | (1)% | | Free cash flow | $72,391 | $56,594 | 28 % | | Add back: restructuring payments | $2,037 | $931 | 119 % | | Adjusted free cash flow | $74,428 | $57,525 | 29 % | Unlevered Free Cash Flow (Three Months Ended August 31) | Item | 2025 (in thousands) | 2024 (in thousands) | % Change | | :------------------------------------------ | :------------------ | :------------------ | :------- | | Adjusted free cash flow | $74,428 | $57,525 | 29 % | | Add back: tax-effected interest expense | $14,189 | $5,624 | 152 % | | Unlevered free cash flow | $88,617 | $63,149 | 40 % | Fiscal Year 2025 Business Outlook and Guidance This section outlines the company's updated full-year and Q4 2025 financial guidance, including non-GAAP reconciliations Updated Full Year 2025 Guidance Progress Software raised FY 2025 guidance, projecting revenue of $975M-$981M and non-GAAP diluted EPS of $5.50-$5.56 Updated FY 2025 Guidance (vs. Prior Guidance, in millions, except per share amounts) | Metric | Updated FY 2025 Guidance (GAAP) | Prior FY 2025 Guidance (GAAP) | Updated FY 2025 Guidance (Non-GAAP) | Prior FY 2025 Guidance (Non-GAAP) | | :------------------------------------------ | :----------------------------- | :----------------------------- | :--------------------------------- | :--------------------------------- | | Revenue (in millions) | $975 - $981 | $962 - $974 | $975 - $981 | $962 - $974 | | Diluted earnings per share | $1.38 - $1.45 | $1.27 - $1.43 | $5.50 - $5.56 | $5.28 - $5.40 | | Operating margin | 15% | 15% | 38% - 39% | 38% - 39% | | Cash from operations (GAAP) | $221 - $231 | $218 - $230 | - | - | | Adjusted free cash flow (non-GAAP) | - | - | $232 - $242 | $228 - $240 | | Unlevered free cash flow (non-GAAP) | - | - | $289 - $299 | $285 - $296 | | Effective tax rate | 19 % | 17 % | 20 % | 20 % | - The expected positive currency translation impact on FY 2025 revenue is approximately $4.0 million and on GAAP and non-GAAP diluted EPS is approximately $0.03[11] Fourth Quarter 2025 Guidance Q4 2025 guidance projects revenue between $250M-$256M, with GAAP diluted EPS of $0.31-$0.37 and non-GAAP EPS of $1.29-$1.35 Q4 2025 Guidance (in millions, except per share amounts) | Metric | GAAP | Non-GAAP | | :-------------------------- | :----------- | :----------- | | Revenue | $250 - $256 | $250 - $256 | | Diluted earnings per share | $0.31 - $0.37 | $1.29 - $1.35 | - The expected positive currency translation impact on Q4 2025 revenue is approximately $2.5 million and on GAAP and non-GAAP diluted EPS is approximately $0.01[11] Non-GAAP Guidance Reconciliations (FY 2025) This section provides detailed reconciliations for the company's non-GAAP financial guidance for fiscal year 2025 Non-GAAP Operating Margin Guidance The company projects a non-GAAP operating margin of 38%-39% for FY 2025, consistent with prior guidance after adjustments FY 2025 Non-GAAP Operating Margin Guidance (in millions) | Item | Low (in millions) | High (in millions) | | :------------------------------------------ | :---------------- | :---------------- | | GAAP income from operations | $146.9 | $151.2 | | GAAP operating margins | 15 % | 15 % | | Total adjustments | $228.4 | $228.4 | | Non-GAAP income from operations | $375.3 | $379.6 | | Non-GAAP operating margin | 38 % | 39 % | Non-GAAP Earnings per Share and Effective Tax Rate Guidance FY 2025 non-GAAP diluted EPS is guided between $5.50-$5.56, based on a 20% non-GAAP effective tax rate FY 2025 Non-GAAP Diluted EPS Guidance (in millions, except per share data) | Item | Low | High | | :------------------------------------------ | :---- | :---- | | GAAP net income | $60.8 | $64.3 | | Adjustments (from previous table) | $228.4 | $228.4 | | Income tax adjustment | $(46.5) | $(46.5) | | Non-GAAP net income | $242.7 | $246.2 | | GAAP diluted earnings per share | $1.38 | $1.45 | | Non-GAAP diluted earnings per share | $5.50 | $5.56 | - The non-GAAP effective tax rate for FY 2025 is approximately 20%[20] Adjusted and Unlevered Free Cash Flow Guidance FY 2025 adjusted free cash flow is expected to be $232M-$242M, and unlevered free cash flow $289M-$299M FY 2025 Adjusted and Unlevered Free Cash Flow Guidance (in millions) | Item | Low (in millions) | High (in millions) | | :------------------------------------------ | :---------------- | :---------------- | | Cash flows from operations (GAAP) | $221 | $231 | | Purchases of property and equipment | $(6) | $(6) | | Add back: restructuring payments | $17 | $17 | | Adjusted free cash flow (non-GAAP) | $232 | $242 | | Add back: tax-effected interest expense | $57 | $57 | | Unlevered free cash flow (non-GAAP) | $289 | $299 | Non-GAAP Guidance Reconciliations (Q4 2025) This section provides detailed reconciliations for the company's non-GAAP financial guidance for Q4 2025 Non-GAAP Earnings per Share Guidance Q4 2025 non-GAAP diluted EPS is projected at $1.29-$1.35, after accounting for various non-GAAP adjustments Q4 2025 Non-GAAP Diluted EPS Guidance | Item | Low (per share) | High (per share) | | :------------------------------------------ | :-------------- | :-------------- | | GAAP diluted earnings per share | $0.31 | $0.37 | | Total adjustments | $1.25 | $1.25 | | Income tax adjustment | $(0.27) | $(0.27) | | Non-GAAP diluted earnings per share | $1.29 | $1.35 | Supplemental Information This section provides additional context, including company information, conference call details, and explanations of key metrics About Progress Software Progress Software provides AI-powered digital experience and infrastructure software, serving over 4 million developers and technologists - Progress Software empowers organizations to achieve transformational success by enabling them to develop, deploy, and manage responsible AI-powered applications and digital experiences[10] - Over 4 million developers and technologists at hundreds of thousands of enterprises depend on Progress[10] Conference Call Information Progress Software will host a conference call on September 29, 2025, at 5:00 p.m. ET to discuss Q3 2025 results - A conference call to review fiscal third quarter 2025 financial results will be held at 5:00 p.m. ET on Monday, September 29, 2025[9] - Participants must register for the conference call via the provided link: https://register-conf.media-server.com/register/BI3c81d17f962244a88dfaf9ee6925ed85[9] - The webcast can be accessed at: https://edge.media-server.com/mmc/p/axecrzfw/[9] Important Information Regarding Non-GAAP Financial Measures, Liquidity Measures and Select Performance Metrics This section explains non-GAAP financial measures, liquidity measures, and performance metrics used by management for evaluation and investor understanding - Non-GAAP financial measures are used by management to evaluate period-over-period operating performance, illustrate underlying business trends, and provide a more comparable measure of continuing business[24] - These non-GAAP measures are not in accordance with, or an alternative to, GAAP and should be considered in conjunction with GAAP results, as excluded items may materially impact financial results[24] Non-GAAP Adjustments Explained Progress Software adjusts GAAP results for items like amortization, stock-based compensation, and restructuring to provide a clearer view of core performance - Amortization of acquired intangibles is excluded because these expenses are unrelated to core operating performance and vary significantly based on acquisition timing and magnitude[25] - Stock-based compensation is excluded to align with management and financial community evaluation, as it is generally not controllable short-term and varies significantly[25] - Restructuring expenses, acquisition-related expenses, and cyber vulnerability response expenses (net) are excluded as they distort trends, are unpredictable, or are not part of normal business operations[25] - The provision for income taxes is adjusted by excluding the tax impact of the other non-GAAP adjustments[25] - Revenue growth rates are presented on a constant currency basis to mitigate fluctuations from foreign currency exchange rates and improve period-to-period comparisons[25][26] Liquidity Measures Explained AFCF is cash from operations less capital expenditures plus restructuring payments; Unlevered FCF adds tax-effected interest expense - Adjusted Free Cash Flow (AFCF) is defined as cash flows from operating activities less purchases of property and equipment, plus restructuring payments[27] - Unlevered Free Cash Flow (Unlevered FCF) is AFCF plus tax-effected interest expense on outstanding debt[27] Select Performance Metrics Explained (ARR, NRR) Progress Software uses ARR (annualized recurring revenue from contracts) and NRR (revenue growth from existing customers) as key performance metrics - Annualized Recurring Revenue (ARR) is the annualized revenue of all active and contractually binding term-based contracts from all customers at a point in time, used to understand customer trends and business health[27] - ARR includes revenue from maintenance, software upgrade rights, public cloud, and on-premises subscription-based transactions and managed services, calculated at constant currency[27][30] - Net Retention Rate (NRR) is calculated by comparing the ARR from a cohort of customers 12 months prior to their ARR at the current period end, including expansion and net of contraction/attrition, but excluding new customers[31] Note Regarding Forward-Looking Statements Forward-looking statements are subject to risks including economic conditions, international operations, cybersecurity, and acquisition integration challenges - Statements regarding Progress' business outlook and financial guidance are considered "forward-looking statements" subject to various risks and uncertainties[32] - Key risk factors include adverse economic, geopolitical, and market conditions; international sales and operations risks (e.g., foreign currency gains and losses); and potential failure to achieve financial forecasts due to various factors[32] - Other risks include cybersecurity compromises (such as the MOVEit Vulnerability), unsuccessful future acquisitions or unanticipated integration costs, and the possibility that expected synergies and benefits from the ShareFile acquisition may not be realized[32]