Summary
Progress Software's fiscal 2022 third quarter was a split story. Revenue rose to $151.2 million from $147.4 million a year earlier, a gain of 2.6%. Gross profit was flat at $127.4 million against $127.3 million. Profitability fell hard. Operating income dropped 30.5% to $32.0 million, and net income fell 29.6% to $21.8 million. Diluted earnings per share came to $0.50, down 28.6% from $0.70. Operating margin compressed to 21.2% from 31.2%, a slide of 10.1 percentage points. Gross margin slipped to 84.3% from 86.4%. The year-to-date picture looks different. Revenue for the nine months rose 13.7% to $444.9 million, operating income rose 6.2% to $101.7 million, net income rose 12.4% to $71.4 million, and diluted earnings per share rose 12.6% to $1.61.
Non-GAAP results held up better. Non-GAAP revenue was $153.1 million, flat year over year on an actual currency basis and up 4% in constant currency. Non-GAAP operating margin was 39%, and non-GAAP diluted earnings per share was $1.00 versus $1.18, a decline of 15%. Annualized recurring revenue reached $495 million, up 13% year over year in constant currency, and management said net dollar retention rates exceeded 101%. The MD&A put ARR at $495.0 million as of August 31, 2022, up 12.7% from $439.0 million a year earlier, and said net dollar retention has generally ranged between 101% and 102%. Most of the ARR growth came from the Kemp acquisition.
Cash generation was solid. Operating cash flow for the quarter was $39.7 million, up 12.6% from $35.2 million, and year-to-date operating cash flow was $152.0 million, up 12.9%. Capital expenditures were $1.1 million for the quarter, up 77.1% from $0.6 million. Adjusted free cash flow, a non-GAAP measure, came to $39.2 million, up 12%. Deferred revenue was $251.1 million, up 23.7%, and remaining performance obligations were $256.0 million, up 19.8%. Cash, cash equivalents and short-term investments totaled $224.9 million at quarter end. Days sales outstanding fell to 48 days from 54 days a year earlier and 39 days in the fiscal second quarter of 2022. Progress repurchased 541,988 shares for $24.1 million in the quarter, bringing fiscal 2022 repurchases to $75.5 million, with roughly $79.5 million left on the authorization. The board declared a quarterly dividend of $0.175 per share.
Guidance for the full fiscal year ending November 30, 2022 calls for non-GAAP revenue of $609 million to $617 million and non-GAAP diluted earnings per share of $4.08 to $4.12. For the fiscal fourth quarter, the company guided non-GAAP revenue of $158 million to $166 million and non-GAAP diluted earnings per share of $1.06 to $1.10. Currency remains a drag. Management estimated that translation will reduce full-year revenue by about $15.9 million and diluted earnings per share by about $0.06, with roughly $5.0 million and $0.02 of that landing in the fourth quarter.
Costs tied to the Kemp acquisition weighed on the profit lines, and a tough prior-year comparison made the decline look steeper. Management still points to its total growth strategy, which pairs disciplined acquisitions with dividends and share repurchases. The company flagged a long list of risks: foreign exchange volatility, geopolitical and economic conditions, a successful cyber attack, delays or smaller transactions, declining renewal rates, and the ability to integrate Kemp. Roughly one-third of revenue is denominated in foreign currency, and $56.5 million of cash, cash equivalents and short-term investments sits with foreign subsidiaries. The credit agreement amended in January 2022 provides a $275.0 million secured term loan and a $300 million revolver. The term loan had $269.8 million outstanding at quarter end, and nothing was drawn on the revolver.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2022 | Q2 FY2022 | QoQ | Q3 FY2021 | YoY |
|---|---|---|---|---|---|
| Revenue | $151.2M | $148.7M | +1.7% | $147.4M | +2.6% |
| Gross profit | $127.4M | $124.8M | +2.1% | $127.3M | +0.1% |
| Gross margin | 84.3% | 83.9% | +0.4 pp | 86.4% | -2.1 pp |
| Sales & marketing | $34.6M | $32.7M | +5.8% | $29.7M | +16.3% |
| General & administrative | $20.1M | $19.2M | +4.9% | $16.5M | +22.4% |
| Total operating expenses | $95.4M | $84.6M | +12.8% | $81.3M | +17.3% |
| Operating income (loss) | $32.0M | $40.2M | -20.4% | $46.0M | -30.5% |
| Operating margin | 21.2% | 27.1% | -5.9 pp | 31.2% | -10.1 pp |
| Net income (loss) | $21.8M | $29.1M | -25.1% | $31.0M | -29.6% |
| Net margin | 14.4% | 19.6% | -5.2 pp | 21.0% | -6.6 pp |
| Diluted EPS | $0.50 | $0.66 | -$0.16 | — | — |
| Net retention rate | 101.0% | 100.0% | +1.0 pp | 98.0% | +3.0 pp |
Risks
U.S. and global markets are experiencing volatility tied to Russia's invasion of Ukraine, with the conflict contributing to higher interest rates, diminished credit availability and global inflationary pressures. The company notes meaningful reliance on revenue generated outside North America (40% of total revenue in fiscal 2021) and EMEA specifically (32% of total revenue in fiscal 2021), so disruption of commercial activity in these regions could materially adversely affect results.
Approximately one-third of revenue is denominated in foreign currencies, and the strengthening U.S. dollar relative to EMEA currencies reduced reported international revenue. Third quarter fiscal 2022 revenue rose 2.6% as reported per the reported figures versus a higher 6% constant currency growth cited in MD&A, illustrating the FX drag contributed to first quarter 2022 revenue results being impacted, and the company's currency hedging may not be effective.
The company is realigning go-to-market, product and operational teams and centralizing additional shared services, which may be complex, incur significant costs and divert management focus. The filing warns of possible loss of continuity, reduced employee morale and retention, delays in new product development, and unintended consequences including adverse effects on merger and acquisition execution.
Total revenue growth in the quarter and nine month period ended August 31, 2022 was driven primarily by the Kemp acquisition and increases in Chef offerings, partially offset by decreases in OpenEdge and DataDirect product offerings. Software license revenue decreased 8% as reported in the third fiscal quarter, with continued declines in legacy OpenEdge and DataDirect products concentrating growth dependence on acquired products.
The company's forward-looking statements identify risk that it may fail to achieve financial forecasts due to delays or size reductions in transactions, fewer large transactions in a particular quarter, and declines in renewal rates for contracts. Net dollar retention rates have ranged between 101% and 102%, leaving limited cushion against any deterioration in renewal or expansion activity.
The amended credit agreement carries a $269.8 million term loan outstanding as of August 31, 2022 with $6.9 million due in the next 12 months, plus $325 million of convertible senior notes due 2026. The agreement imposes a consolidated interest charge coverage ratio and total net leverage ratio and restricts liens, investments, acquisitions, dividends, stock repurchases and indebtedness, limiting financial flexibility.
SaaS KPIs
All quarters →Non-GAAP Operating Margin
Adjusted Free Cash Flow
Net Retention Rate
Annualized Recurring Revenue
Summary, forecast, risks and KPIs are extracted from PROGRESS SOFTWARE CORP /MA's SEC filings for Q3 FY2022 (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.