Summary
Progress reported fiscal third quarter revenue of $147.4 million, up 34.4% from the prior-year quarter. Gross profit rose 34.1% to $127.3 million, and operating income climbed 38.7% to $46.0 million. Net income came in at $31.0 million, up 29.2%, while diluted earnings per share was $0.70 against $0.53 a year ago. Much of the growth traces to Chef, acquired in the fourth quarter of fiscal 2020, though management also credited strength in DataDirect, OpenEdge and Ipswitch, plus a software license mix that tilted heavily toward license revenue in the period.
The margin picture is less uniform than the top line. Gross margin slipped to 86.4% from 86.6% a year ago, a decline of 0.2 points, as maintenance and services costs and amortization of acquired intangibles grew. Operating margin improved to 31.2%, up 1.0 point. The year-to-date story is weaker: revenue of $391.2 million was up 22.3%, but operating income of $95.7 million grew only 7.3% and net income of $63.5 million rose 2.3%. Operating margin for the nine months fell 3.4 points to 24.5%, and gross margin declined 0.9 points to 85.3%. Higher amortization, interest expense tied to the convertible notes issued in April 2021, and acquisition costs all weigh on reported results.
Cash generation held up. Operating cash flow for the quarter was $35.2 million, up 13.2%, and capital expenditures of $0.62 million were down 62.4%. For the nine months, operating cash flow reached $134.6 million, up 31.9%, with capital expenditures of $2.74 million, down 19.8%. Deferred revenue of $203.0 million rose 18.5%, and remaining performance obligations of $213.7 million were up 22.1%. Days sales outstanding moved to 54 days from 49 days a year earlier and 44 days in the fiscal second quarter, which the company attributed to the timing of billings and collections.
Non-GAAP figures add color on the underlying business. Non-GAAP revenue of $152.6 million was up 38%, non-GAAP diluted earnings per share of $1.18 compared with $0.78, an increase of 51%, and the non-GAAP operating margin was 47%. Adjusted free cash flow of $35.0 million was up 16%. Annualized recurring revenue of $444 million increased 25% year over year on a constant currency basis, and the net dollar retention rate moved above 100% after generally ranging between 98% and 101% in earlier periods.
Management raised its full year fiscal 2021 outlook for the third time this year. For the fiscal year ending November 30, 2021, guidance now calls for non-GAAP revenue of $548 million to $552 million and non-GAAP diluted earnings per share of $3.68 to $3.70. Adjusted free cash flow is projected at $168 million to $172 million, and the non-GAAP operating margin is guided to 40%. The June outlook had called for non-GAAP revenue of $529 million to $535 million and non-GAAP diluted earnings per share of $3.46 to $3.50, with a non-GAAP operating margin of 39%. For the fiscal fourth quarter ending November 30, 2021, the company guides non-GAAP revenue of $134 million to $138 million and non-GAAP diluted earnings per share of $0.73 to $0.75.
The largest strategic item is Kemp. Progress agreed to buy Kemp Technologies for $258 million in cash, expects the deal to close in the fourth quarter of fiscal 2021, and projects approximately $70 million of revenue for 2022 with operating margins above 40% after cost synergies. Kemp is expected to contribute $4 million to $5 million of non-GAAP revenue and $0.01 of non-GAAP net income per share in fiscal 2021, reflecting roughly one month of ownership, and to be accretive to non-GAAP earnings per share and cash flow beginning in the fourth quarter. Integration and synergy execution remain the obvious exposures, and the company expects about $2.9 million of restructuring charges in the fourth quarter from a facility closure.
Other risks are familiar. Currency swings matter because roughly one-third of revenue is denominated in foreign currencies. Delays or size reductions in large transactions, lower renewal rates, the shift toward cloud and subscription models, reliance on the partner channel, and cybersecurity exposure all remain live issues, and COVID-19 is still an open variable. Even so, the quarter shows firm demand and a larger recurring revenue base, and the raised full year outlook reflects management's confidence in the near term.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2021 | Q2 FY2021 | QoQ | Q3 FY2020 | YoY |
|---|---|---|---|---|---|
| Revenue | $147.4M | $122.5M | +20.4% | $109.7M | +34.4% |
| Gross profit | $127.3M | $103.2M | +23.4% | $95.0M | +34.1% |
| Gross margin | 86.4% | 84.2% | +2.2 pp | 86.6% | -0.2 pp |
| Sales & marketing | $29.7M | $29.3M | +1.6% | $22.2M | +34.0% |
| General & administrative | $16.5M | $16.5M | -0.1% | $13.5M | +21.7% |
| Total operating expenses | $81.3M | $80.9M | +0.5% | $61.8M | +31.6% |
| Operating income (loss) | $46.0M | $22.3M | +106.7% | $33.2M | +38.7% |
| Operating margin | 31.2% | 18.2% | +13.0 pp | 30.3% | +1.0 pp |
| Net income (loss) | $31.0M | $13.6M | +128.5% | $24.0M | +29.2% |
| Net margin | 21.0% | 11.1% | +9.9 pp | 21.9% | -0.8 pp |
| Net retention rate | 98.0% | 97.0% | +1.0 pp | — | — |
Risks
Progress entered a definitive agreement on September 23, 2021 to acquire Kemp for approximately $258 million, funded with existing cash. The filing cites uncertainties about closing conditions and government approvals, disruption to relationships with employees, customers and partners, transaction costs, and whether anticipated synergies and integration will be realized.
As of August 31, 2021, Progress had approximately $563 million of consolidated indebtedness, including convertible senior notes issued in April 2021 and a term loan. The filing says debt service may limit cash flow for operations and flexibility, and credit facility financial covenants could cause default or acceleration if not met. MD&A also reports interest expense increased 183% in the third fiscal quarter and 77% in the first nine months, driven by the convertible senior notes.
The ongoing COVID-19 pandemic could cause delays in sales cycles, failures of customers to renew at the anticipated scope, requests for payment term deferrals or pricing concessions, and disruptions at third-party service providers. Although these events did not have a material adverse impact on results for the first nine months ended August 31, 2021 or fiscal year ended November 30, 2020, management cannot assure they will not have a material adverse impact in future periods.
Progress intends to make additional acquisitions as a key element of a total growth strategy driven by accretive M&A, and MD&A says cash position will be reduced by Kemp and any additional acquisitions, potentially requiring more debt. Risks include integration delays, inability to realize acquired asset value, management distraction, restructuring charges, goodwill impairment, and dilution if stock is issued.
The accounting method for the convertible senior notes may lower reported income or increase reported loss, and ASU 2020-06 could change diluted EPS treatment. If conversion conditions are satisfied, the notes liability may be reclassified as current, potentially materially reducing reported working capital, and conversion of notes may dilute existing stockholders.
Privacy regulation is expanding and becoming more complex. The filing notes the CJEU invalidated the EU-U.S. Privacy Shield on July 16, 2020, new standard contractual clauses were approved on June 4, 2021, and GDPR non-compliance can carry penalties up to 4% of worldwide revenue. This could cause European customers to refuse or hesitate to use Progress products and increase compliance costs.
A significant portion of revenue comes from software license and maintenance revenue attributable to Progress OpenEdge. MD&A notes OpenEdge contributed to revenue increases in the third fiscal quarter and first nine months of fiscal year 2021, but the filing warns that if demand declines or superior technologies emerge, business, financial condition and operating results may be materially adversely affected.
SaaS KPIs
All quarters →Non-GAAP Operating Margin
Adjusted Free Cash Flow
Annualized Recurring Revenue (ARR)
Summary, forecast, risks and KPIs are extracted from PROGRESS SOFTWARE CORP /MA's SEC filings for Q3 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.