PROGRESS SOFTWARE CORP /MA Q3 FY2026 earnings

Progress Software reported fiscal third quarter revenue of $246.0 million, down from $249.8 million in the prior-year quarter. Management tied the decline to the timing of renewals on multiyear subscription contracts rather than to weaker demand. Through the first nine months of fiscal 2026, revenue was $747.3 million, up 3.0% from the same stretch a year earlier. The recurring base held up better than reported revenue. Annualized recurring revenue was $873 million, up 1% year over year on a constant currency basis, and the net retention rate was 99%.

Profitability improved on both a GAAP and a non-GAAP basis. Gross profit was $203.5 million and the gross margin was 82.7%, compared with 81.0% in the prior-year quarter. Operating income rose to $46.6 million, lifting the GAAP operating margin to 18.9% from 17.6%. Net income was $22.8 million, up 17.3%, and diluted earnings per share was $0.55 against $0.44, an increase of 25%. The gap between the two sets of numbers stays wide. Non-GAAP operating margin was 43%, up from 40%, and non-GAAP diluted earnings per share was $1.69, up 13% from $1.50. The largest add-backs were amortization of acquired intangibles and stock-based compensation.

Mix inside revenue was uneven. Maintenance and professional services revenue declined, while SaaS revenue rose slightly. Software license revenue was flat quarter over quarter. Cost of maintenance, SaaS, and professional services fell 9% as contractor and personnel costs came down, and total operating expenses were roughly flat as lower selling, product development and administrative spending offset higher cyber and acquisition charges.

Cash generation was the cleanest part of the quarter. Operating cash flow was $88.0 million, up 19.8% from the prior-year quarter, and capital expenditures were $1.7 million. Adjusted free cash flow, a non-GAAP measure, was $87.2 million, up 17%, while unlevered free cash flow, also non-GAAP, was $100.7 million, up 14%. Days sales outstanding was 42 days, compared with 55 days a year earlier and 73 days at the close of fiscal 2025, helped by the timing of billings and collections. Cash and cash equivalents were $113.7 million. Deferred revenue was $406.5 million, up 6.7% year over year, but remaining performance obligations fell 16.0% to $497.8 million, a decline worth watching because that line measures contracted backlog.

The bigger story sits outside the reported quarter. Progress closed its purchase of Domo's AI and data platform business on September 22, 2026, paying $400 million in cash and drawing $390 million on its revolver. The supplemental deck puts net leverage at roughly 3.8x at close and about 2.9x on a pro forma basis, and describes Domo as roughly 85% consumption-based ARR, with steady-state revenue below its pre-deal run rate as professional services shrink and some seat-based business churns. Management expects Domo's stand-alone operating margin to run slightly below 30% in fiscal 2027 before integration synergies of 100 to 200 basis points arrive, and said formal fiscal 2027 guidance will come in January. Guidance for the fourth quarter calls for non-GAAP diluted earnings per share of $1.24 to $1.33, while GAAP results are expected to show a loss as acquisition and amortization charges land. Management also raised its full-year revenue and earnings outlook and now guides to a non-GAAP operating margin of 38% for the fiscal year ending November 30, 2026, with non-GAAP diluted earnings per share of $6.15 to $6.23, up from the prior $6.09 to $6.21.

Risks have not gone away. Cyber vulnerability response expenses, net were $3.5 million in the quarter, and as of August 31, 2026 no insurance recovery remains available to offset MOVEit-related costs. Fact discovery in the multidistrict litigation closed on September 29, 2026, class certification work continues into the fourth quarter, and the litigation is not expected to conclude within the next twelve months. Layered on top are integration risk from Domo, the higher leverage taken on to fund it, exposure to foreign currency swings, and a reliance on renewal rates that drove the quarterly revenue decline in the first place. The 16.0% drop in remaining performance obligations and the 99% net retention rate are the metrics to watch next quarter.