Summary
Progress Software reported first quarter fiscal 2021 results for the period ended February 28, 2021. Revenue rose 10.6% to $121.3 million. Gross profit increased 9.0% to $103.3 million, but gross margin slipped to 85.2%, down 1.3 percentage points. Operating income fell 10.7% to $27.4 million. Operating margin was 22.6%, down 5.4 percentage points. Net income decreased 10.2% to $19.0 million. Diluted earnings per share was $0.42, down $0.04. The GAAP bottom line faced pressure from higher costs tied to the Chef acquisition, including amortization and personnel expenses. On a non-GAAP basis, revenue was $131.8 million, up 16%, and non-GAAP diluted earnings per share was $0.95 versus $0.76 in the prior-year quarter, an increase of 25%. Non-GAAP operating margin was 43%.
The company's recurring revenue metrics continued to expand. Annualized recurring revenue was $432 million, up 22% year over year on a constant currency basis, with growth primarily driven by Chef Software. Net dollar retention rate was 98.8% for the trailing twelve months ended February 28, 2021. Management said Chef's first full quarter with Progress contributed to revenue growth and an increasing mix of recurring revenue. The company plans to move to a single reporting segment starting in the second quarter of fiscal 2021, a change from its current three-segment structure. OpenEdge and Chef drove top-line growth, while the Data Connectivity and Integration segment declined because of the timing of term license renewals by certain OEM partners.
Cash generation was strong. Operating cash flow was $44.7 million, up 35.4%. Capital expenditures were $1.2 million, up 1.6%. Adjusted free cash flow, a non-GAAP measure, was $46.5 million, up 40%. Deferred revenue was $209.0 million, up 15.6%, and remaining performance obligations were $223.3 million, up 17.5%. Days sales outstanding was 53 days, compared with 49 days in the prior-year quarter. The company repurchased 0.4 million shares during the quarter and had $175.0 million remaining under its share repurchase authorization. It also declared a quarterly dividend of $0.175 per share, payable on June 15, 2021 to shareholders of record on June 1, 2021. Management said the integration of Chef is tracking ahead of plan.
For guidance, Progress updated its full-year fiscal 2021 non-GAAP outlook. It now expects non-GAAP revenue of $519 million to $527 million, non-GAAP diluted earnings per share of $3.38 to $3.42, non-GAAP operating margin of 38%, and adjusted free cash flow of $155 million to $160 million. For the fiscal second quarter ending May 31, 2021, the company guided to non-GAAP revenue of $119 million to $123 million and non-GAAP diluted earnings per share of $0.72 to $0.74. The guidance includes the expected positive impact from currency translation. The guidance follows a quarter in which Chef was a major contributor to ARR growth.
The quarter had clear operational momentum, but several risks remain. Progress depends on customer renewals and a large partner channel, and failure to renew contracts or a decline in renewal rates could hurt future results. The company also faces risks from economic and geopolitical conditions, foreign currency fluctuations, and the ongoing COVID-19 pandemic. Its transition to a more cloud and subscription-based model could disrupt existing revenue streams. The Chef acquisition must continue to deliver expected synergies and benefits, and integration delays or higher costs could affect future results. Other named risks include cybersecurity breaches, product development missteps, and the challenge of selling new licenses or subscriptions if products do not meet market demand. With operating income and net income down year over year on a GAAP basis, the company's ability to manage costs while growing recurring revenue will be a key focus in coming quarters.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q1 FY2021 | Q4 FY2020 | QoQ | Q1 FY2020 | YoY |
|---|---|---|---|---|---|
| Revenue | $121.3M | $122.4M | -0.9% | $109.7M | +10.6% |
| Gross profit | $103.3M | $104.2M | -0.8% | $94.8M | +9.0% |
| Gross margin | 85.2% | 85.1% | +0.1 pp | 86.4% | -1.3 pp |
| Sales & marketing | $29.5M | $32.0M | -7.9% | $24.2M | +21.8% |
| General & administrative | $13.4M | $15.3M | -12.3% | $12.7M | +5.3% |
| Total operating expenses | $75.9M | $85.6M | -11.4% | $64.1M | +18.4% |
| Operating income (loss) | $27.4M | $18.5M | +48.1% | $30.7M | -10.7% |
| Operating margin | 22.6% | 15.1% | +7.5 pp | 28.0% | -5.4 pp |
| Net income (loss) | $19.0M | $17.7M | +7.4% | $21.1M | -10.2% |
| Net margin | 15.6% | 14.4% | +1.2 pp | 19.3% | -3.6 pp |
Risks
The ongoing COVID-19 pandemic is marked as a new or changed risk and could materially affect operations, including sales cycle delays, customer renewal failures, payment term deferrals, and pricing or bundling concessions. Although the company said such events did not have a material adverse impact on the fiscal first quarter ended February 28, 2021 or fiscal year ended November 30, 2020, it cannot predict future impact.
The October 2020 Chef acquisition poses integration risks, including disruption in maintaining relationships with employees, customers, and partners, actual or contingent liabilities, diversion of management, and uncertainty over realizing anticipated synergies. MD&A notes Chef revenue was $12.0 million in Q1 FY2021 and ARR growth of 21.7% year-over-year was primarily driven by Chef.
Chef-related cost increases in maintenance and services, sales and marketing, product development, general and administrative, and amortization contributed to operating income decreasing 10.7% and operating margin decreasing to 22.6% from 28.0% in Q1 FY2021. Gross margin also decreased to 85.2% from 86.4%.
The company has acquired goodwill and amortizable intangible assets, including from Ipswitch and Chef, and may need to record significant impairment charges if its stock price or market capitalization declines, future cash flow estimates are reduced, or growth slows in its industry segments.
The software industry segments are intensely competitive, with competitors that may have greater financial, marketing, or technical resources. Open source software adoption may cause downward pricing pressure, and new competitors could emerge from open source or hybrid offerings and reduce demand for company products, including Chef.
The company has a $301.0 million secured term loan and $100.0 million revolving credit facility maturing April 2024, with $282.2 million term loan and $83.5 million revolver outstanding as of February 28, 2021. Failure to comply with financial and operating covenants or make scheduled payments could cause amounts to become immediately due and payable.
A substantial portion of revenue comes through third-party channels, including ISVs, distributors/resellers, and OEMs, and adverse developments in these relationships could harm revenue. MD&A reported Data Connectivity and Integration segment revenue decreased 60% in Q1 FY2021 due to timing of term license renewals by certain OEM partners.
The company is substantially dependent on OpenEdge products for software license and maintenance revenue, and future results depend on continued market acceptance of OpenEdge. MD&A reported OpenEdge segment revenue increased 10% in Q1 FY2021, but a decline in demand or superior new technologies could materially adversely affect results.
Approximately 41% of total revenue is generated outside North America, exposing the company to longer payment cycles, credit risk, regulatory and trade compliance, Brexit volatility, and other international risks. About one-third of revenue is denominated in foreign currencies, so exchange rate fluctuations have impacted and may continue to impact revenue results.
Expanding privacy and data protection laws, including GDPR, CCPA, and Brazil's LGPD, increase compliance costs and enforcement risk, with GDPR non-compliance potentially resulting in fines up to 4% of worldwide revenue. The invalidation of the EU-U.S. Privacy Shield may cause European customers to refuse or hesitate to use company products.
Revenue forecasting is uncertain, particularly for new software license revenue, and the pipeline conversion rate is difficult to estimate. A high percentage of revenue is generated in the third month of each fiscal quarter, so failure to complete or process orders at quarter-end could cause the company to fall short of revenue targets.
SaaS KPIs
All quarters →Non-GAAP Operating Margin
Adjusted Free Cash Flow
Annualized Recurring Revenue (ARR)
Free Cash Flow
Summary, forecast, risks and KPIs are extracted from PROGRESS SOFTWARE CORP /MA's SEC filings for Q1 FY2021 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 2, 2026.