Summary
Progress Software reported fiscal third quarter revenue of $174.99 million, up 15.7% year over year, and year to date revenue of $517.47 million, up 16.3%. The MarkLogic acquisition, closed in February 2023, supplied much of the growth, with OpenEdge and Kemp contributing as well. DataDirect and Chef declined in the quarter and partly offset those gains. North America delivered the largest regional increase, and management said demand held up around the world.
Profitability moved the other way. Gross profit rose 11.5% to $142.07 million, but gross margin fell 3.1 percentage points to 81.2% as amortization and service delivery costs climbed alongside MarkLogic. Operating income declined 8.3% to $29.37 million, and operating margin was 16.8%, down 4.4 percentage points. Net income fell 12.4% to $19.10 million, and diluted earnings per share was $0.42, down 16.0%. Interest expense on the debt raised to fund MarkLogic weighed on the bottom line.
The non-GAAP picture was brighter. Non-GAAP revenue was $175.8 million, up 15%, non-GAAP income from operations was $68.39 million, up 14%, and the non-GAAP operating margin held at 39%. Non-GAAP diluted earnings per share was $1.08, up 8%. Cash generation was mixed. Operating cash flow was $46.04 million in the quarter, up 16.1%, while year to date operating cash flow of $140.76 million was down 7.4%. Capital expenditures were $3.18 million year to date, up 3.1%. Adjusted free cash flow, a non-GAAP measure, came to $47.6 million for the quarter, up 21%, and $142.56 million year to date, down 6%.
Recurring revenue metrics stayed healthy. Annualized recurring revenue reached $577 million, up 18% year over year in constant currency, or 2% on a pro forma basis that includes MarkLogic in both periods. Net retention was 100.6%, above the company's target of 100%, and the CFO noted the rate has ranged between 100% and 103% in recent periods. Deferred revenue of $279.77 million rose 11.4% and remaining performance obligations of $288.00 million rose 12.5%, both pointing to a durable backlog. MarkLogic integration remains on plan, and management continues to hunt for its next acquisition.
Guidance moved up. For the full fiscal year ending November 30, 2023, Progress now expects non-GAAP revenue of $692 million to $698 million and non-GAAP diluted earnings per share of $4.20 to $4.26, with a non-GAAP operating margin of 38% to 39%. Adjusted free cash flow for the fiscal year is guided at $177 million to $183 million. For the fiscal fourth quarter ending November 30, 2023, the company guides non-GAAP revenue of $171 million to $177 million and non-GAAP diluted earnings per share of $0.87 to $0.93. Currency is expected to add roughly $2.3 million to full-year revenue and about $0.03 to earnings per share, and about $2.6 million to fourth quarter revenue and $0.01 to fourth quarter earnings per share.
The MOVEit Vulnerability remains the largest open risk. MOVEit Transfer and MOVEit Cloud together were less than 4% of revenue for the nine months ended August 31, 2023, yet the legal exposure is broad. Progress has received formal letters from 23 customers and others claiming impact, some seeking indemnification, plus a subrogation notice from an insurer, and it faces 58 class action lawsuits that were consolidated on October 4, 2023 in the U.S. District Court for the District of Massachusetts. The SEC issued a subpoena on October 2, 2023. The company carried $15.0 million of cybersecurity insurance coverage and has recorded about $4.9 million in recoveries, leaving $10.1 million of coverage subject to a $0.5 million retention per claim. Management could not estimate a range of possible losses from the pending matters.
Capital returns continued. The board declared a quarterly dividend of $0.175 per share on September 20, 2023, payable December 15, 2023, and $198 million remains under the share repurchase authorization. Progress paid down $30 million of debt during the quarter with excess free cash flow, leaving net leverage modest.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2023 | Q2 FY2023 | QoQ | Q3 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $175.0M | $178.3M | -1.8% | $151.2M | +15.7% |
| Gross profit | $142.1M | $144.5M | -1.7% | $127.4M | +11.5% |
| Gross margin | 81.2% | 81.0% | +0.1 pp | 84.3% | -3.1 pp |
| Sales & marketing | $38.6M | $40.1M | -3.8% | $34.6M | +11.6% |
| General & administrative | $20.8M | $21.5M | -3.2% | $20.1M | +3.2% |
| Total operating expenses | $112.7M | $121.4M | -7.2% | $95.4M | +18.1% |
| Operating income (loss) | $29.4M | $23.0M | +27.6% | $32.0M | -8.3% |
| Operating margin | 16.8% | 12.9% | +3.9 pp | 21.2% | -4.4 pp |
| Net income (loss) | $19.1M | $12.1M | +58.0% | $21.8M | -12.4% |
| Net margin | 10.9% | 6.8% | +4.1 pp | 14.4% | -3.5 pp |
| Diluted EPS | $0.42 | $0.27 | +$0.15 | $0.50 | -$0.08 |
| Customers | 23 | — | — | — | — |
| Net retention rate | 100.0% | 101.0% | -1.0 pp | 101.0% | -1.0 pp |
Risks
The May 2023 zero-day MOVEit Vulnerability allowed unauthorized escalated privileges and access to customer environments in both MOVEit Transfer and MOVEit Cloud, with two dedicated cloud customers reporting threat actor access and one reporting exfiltration of personally identifiable information. MOVEit Transfer is installed on-premise and lacks ongoing telemetry, limiting the company's ability to track customer usage, deployed versions, or patch application.
Progress received a subpoena from the SEC on October 2, 2023, seeking documents relating to the MOVEit Vulnerability, and faces inquiries from domestic and foreign data privacy regulators, several state attorneys general, and a U.S. federal law enforcement agency. The company states it is unable to estimate the quantitative impact of any resulting liability with reasonable certainty.
As of the filing date, Progress is party to 58 class action lawsuits related to exfiltration of data from MOVEit Transfer customer environments, consolidated on October 4, 2023 in the U.S. District Court for the District of Massachusetts, and has received formal letters from 23 customers and others seeking indemnification plus an insurer subrogation claim. The proceedings remain in early stages, alleged damages have not been specified, and no loss contingency liability has been recorded.
MOVEit Transfer and MOVEit Cloud customers have sought refunds or delayed implementation timelines, and additional customers may delay payment, withhold payments, or cease using the MOVEit product line entirely as the scope of the MOVEit Vulnerability becomes clearer. MOVEit Transfer and MOVEit Cloud represented less than 4% in aggregate of the Company's revenue for the nine months ended August 31, 2023.
Following the MOVEit Vulnerability, additional vulnerabilities have been discovered and patched within MOVEit Transfer and MOVEit Cloud, and the company cannot guarantee it will uncover or address all vulnerabilities before exploitation. Separately, patches were released for WS_FTP vulnerabilities but there have been reports of exploitation following the release of those patches, and WS_FTP accounted for less than 1% of annual gross revenue as of August 31, 2023.
SaaS KPIs
All quarters →Non-GAAP Operating Margin
Adjusted Free Cash Flow
Net Retention Rate
Annualized Recurring Revenue
Free Cash Flow
Summary, forecast, risks and KPIs are extracted from PROGRESS SOFTWARE CORP /MA's SEC filings for Q3 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.