Summary
Progress Software reported fiscal second-quarter 2023 results for the period ended May 31, 2023. GAAP revenue was $178.3 million, up 19.8% year over year. Non-GAAP revenue was $179.2 million, up 19% year over year on both an actual and a constant currency basis. Annualized recurring revenue, or ARR, was $569.0 million, up 19% year over year in constant currency and up 3% on a pro forma basis. Net retention rate was 101%, which the company described as steadily above 100%. The February 2023 MarkLogic acquisition added about $80 million of ARR and drove much of the top-line growth, with additional contributions from OpenEdge, Chef, and Kemp, partly offset by a decline in DataDirect.
GAAP profitability declined sharply. Gross profit was $144.5 million, up 15.8% year over year, but gross margin fell 2.8 percentage points to 81.1%. Operating income was $23.0 million, down 42.8% year over year, and operating margin dropped 14.1 percentage points to 12.9%. Net income was $12.1 million, down 58.5% year over year. Diluted earnings per share was $0.27, down 59% year over year. The decline reflects higher costs of revenue and operating expenses, including amortization of acquired intangibles, stock-based compensation, restructuring expenses, acquisition-related costs, and cyber incident and vulnerability response expenses. On a non-GAAP basis, operating margin was 38%, down 300 basis points from 41%, and non-GAAP diluted earnings per share was $1.06, up 2% from $1.04.
Cash generation weakened. Operating cash flow was $48.0 million, down 29.8% year over year. Adjusted free cash flow, a non-GAAP measure, was $48.0 million, down 29% from $68.0 million. Capital expenditures were $1.6 million, up 38% year over year. Deferred revenue was $283.6 million, up 9.7% year over year, and remaining performance obligations were $288.0 million, up 8.7%. Days sales outstanding was 44 days, compared with 39 days in the fiscal second quarter of 2022 and 42 days in the fiscal first quarter of 2023. Progress declared a quarterly dividend of $0.175 per share and had $198.0 million remaining under its share repurchase authorization.
Guidance moved higher for the full fiscal year. For the fiscal year ending November 30, 2023, Progress raised its non-GAAP revenue guidance to $690 million to $698 million from $680 million to $688 million. Non-GAAP diluted earnings per share guidance is now $4.16 to $4.24, up from $4.09 to $4.17. Non-GAAP operating margin guidance is 38% to 39%, unchanged. Adjusted free cash flow guidance is $175 million to $185 million, unchanged. For the fiscal third quarter ending August 31, 2023, non-GAAP revenue guidance is $172 million to $176 million and non-GAAP diluted earnings per share guidance is $0.98 to $1.02.
The MOVEit vulnerability is the central near-term risk. Discovered on May 30, 2023, the zero-day flaw affected MOVEit Transfer and MOVEit Cloud, which together represented approximately 4% of revenue for the six months ended May 31, 2023. Progress has received four customer indemnification claims and faces eleven class action lawsuits, along with a formal investigation from regulators. Insurance coverage is up to $15.0 million, and $3.0 million in recoveries had been recorded as of May 31, 2023, related to the November 2022 cyber incident. Future investigation, legal, and professional services costs are expected. The MarkLogic integration remains a key execution item; the company said the integration is on course and it expects to achieve all synergies in fiscal 2023. Macroeconomic conditions, foreign exchange swings, and customer confidence after the MOVEit event remain risks to future sales.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2023 | Q1 FY2023 | QoQ | Q2 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $178.3M | $164.2M | +8.5% | $148.7M | +19.8% |
| Gross profit | $144.5M | $138.0M | +4.7% | $124.8M | +15.8% |
| Gross margin | 81.0% | 84.0% | -3.0 pp | 83.9% | -2.8 pp |
| Sales & marketing | $40.1M | $33.8M | +18.9% | $32.7M | +22.8% |
| General & administrative | $21.5M | $18.8M | +14.3% | $19.2M | +11.8% |
| Total operating expenses | $121.4M | $102.4M | +18.6% | $84.6M | +43.6% |
| Operating income (loss) | $23.0M | $35.6M | -35.3% | $40.2M | -42.8% |
| Operating margin | 12.9% | 21.7% | -8.8 pp | 27.1% | -14.1 pp |
| Net income (loss) | $12.1M | $23.7M | -48.9% | $29.1M | -58.5% |
| Net margin | 6.8% | 14.4% | -7.6 pp | 19.6% | -12.8 pp |
| Diluted EPS | $0.27 | $0.53 | -$0.26 | $0.66 | -$0.39 |
| Net retention rate | 101.0% | 101.0% | ±0.0 pp | 100.0% | +1.0 pp |
Risks
On May 30, 2023, the company discovered a zero-day MOVEit Vulnerability in MOVEit Transfer and MOVEit Cloud; certain customers reported that malicious threat actors exploited it to access their environments and sensitive customer data. The incident has led to government inquiries, a formal law enforcement investigation, and private litigation, and MOVEit Transfer and MOVEit Cloud represented approximately 4% of revenue for the six months ended May 31, 2023.
As of the filing, four customers intend to seek indemnification and eleven class action lawsuits have been filed related to the MOVEit Vulnerability; the company is cooperating with domestic and foreign law enforcement and data privacy regulators, including one formal law enforcement investigation. The company cannot estimate a range of possible losses at this time.
MOVEit customers and partners may seek refunds, delay implementation timelines or payments, fail to pay, or terminate use of products. Four customers have indicated intent to seek indemnification, and other MOVEit customers have already sought refunds or delayed implementation, with risk that additional customers may withhold payments or cease using the MOVEit product line entirely.
The company maintains cybersecurity insurance coverage for up to $15.0 million in losses, but the filing states insurance coverage may not be adequate to cover all costs related to cybersecurity incidents or exploitation of vulnerabilities. As of May 31, 2023, approximately $3.0 million in insurance recoveries were recorded, all related to the November 2022 cyber incident.
The company relies on outside vendors and contractors for cybersecurity infrastructure and product testing, which may expose it to security risks outside its direct control if those parties fail to adequately secure the platform or discover vulnerabilities.
SaaS KPIs
All quarters →Non-GAAP Operating Margin
Adjusted Free Cash Flow
Annualized Recurring Revenue (ARR)
Net Retention Rate
Summary, forecast, risks and KPIs are extracted from PROGRESS SOFTWARE CORP /MA's SEC filings for Q2 FY2023 (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.