Progress Software Reports Fourth Quarter Results

Progress Software Corporation (Nasdaq: PRGS), a provider of leading application infrastructure software to develop, deploy, integrate and manage business applications, today announced results for its fourth quarter ended November 30, 2006. Revenue for the quarter was a record $122 million, up 13 percent (10 percent at constant currency) from $108 million in the fourth quarter of fiscal 2005. Software license revenue increased 12 percent (10 percent at constant currency) to $49.4 million from $44.1 million in the same quarter last year. On a generally accepted accounting principles (GAAP) basis, operating income decreased 49 percent to $9.5 million from $18.6 million in the fourth quarter of fiscal 2005. Net income decreased 49 percent to $6.9 million from $13.6 million in the same quarter last year. Diluted earnings per share decreased 50 percent to 16 cents from 32 cents in the fourth quarter of fiscal 2005. On a non-GAAP basis, operating income decreased 11 percent to $20.1 million from $22.5 million in the same quarter last year. Non-GAAP net income decreased 13 percent to $14.1 million from $16.2 million in the same quarter last year and non-GAAP diluted earnings per share decreased 16 percent to 32 cents per share from 38 cents in the fourth quarter of fiscal 2005. The non-GAAP results in the fourth quarter of fiscal 2006 exclude after-tax charges of $4.0 million for stock-based compensation, $0.4 million for an accrual for payments to be made to current and former employees for options that were cancelled or expired during the suspension of the issuance of shares under the company’s option plans and reimbursements for excise taxes resulting from the exercise of below market options in fiscal 2006 and $2.8 million for amortization of acquired intangibles. The non-GAAP results in the fourth quarter of fiscal 2005 exclude after-tax charges of $0.5 million for stock-based compensation, $1.7 million for amortization of acquired intangibles and $0.4 million for certain other acquisition-related expenses. The GAAP and non-GAAP results for the fourth quarter of fiscal 2006 include an after-tax charge of $1.5 million, or 3 cents per share, for legal and accounting expenses associated with our stock option accounting investigation and restatement. For the twelve months ended November 30, 2006, revenue increased 10 percent (11 percent at constant currency) to $447 million from $405 million in fiscal 2005. On a GAAP basis, operating income decreased 32 percent to $40.9 million from $60.0 million in fiscal 2005. Net income decreased 36 percent to $29.4 million from $46.3 million in fiscal 2005 and diluted earnings per share decreased 39 percent to 68 cents from $1.12 in fiscal 2005. On a non-GAAP basis, operating income increased 4 percent to $81.4 million from $78.3 million last year. Non-GAAP net income increased 4 percent to $56.8 million from $54.8 million last year and non-GAAP diluted earnings per share decreased 1 percent to $1.31 from $1.32 in fiscal 2005. The non-GAAP results in fiscal 2006 exclude after-tax charges of $15.9 million for stock-based compensation, $0.4 million for an accrual for payments to be made to current and former employees for options that were cancelled or expired during the suspension of the issuance of shares under the company’s option plans and reimbursements for excise taxes resulting from the exercise of below market options in fiscal 2006, $9.8 million for amortization of acquired intangibles and $1.3 million for certain other acquisition-related expenses. The non-GAAP results in fiscal 2005 exclude after-tax charges of $1.9 million for stock-based compensation, $6.3 million for amortization of acquired intangibles, $2.3 million for certain other acquisition-related expenses and $1.9 million for compensation expense from repurchase of subsidiary stock and a tax benefit of $3.8 million. The GAAP and non-GAAP results for fiscal 2006 include an after-tax charge of $2.2 million, or 5 cents per share, for legal and accounting expenses associated with our stock option accounting investigation and restatement. The company's cash and short-term investments at the end of the quarter totaled $241 million. The company did not purchase any shares in the open market in the fourth quarter of fiscal 2006. The company's existing repurchase authorization, under which approximately 10 million shares remain available for repurchase, expires on September 30, 2007. The above amounts reflect the restatement of the company’s previously issued consolidated financial statements, which were recently filed with the Securities and Exchange Commission. "Overall, we achieved double-digit growth in software license revenue and total revenue for the fourth quarter and for the full fiscal year. Our Progress® OpenEdge® division and our DataDirect Technologies® division, which includes the DataDirect® Shadow® mainframe integration products acquired earlier this year, performed extremely well this quarter and for the entire fiscal year," stated Joseph Alsop, co-founder and chief executive officer of Progress Software. "Our Enterprise Infrastructure product line was slightly down this quarter, but achieved double-digit software license revenue and total revenue growth for the year, with Data Services products performing less than anticipated and Sonic and Apama products demonstrating solid growth." Other Developments On December 19, 2006, the Board of Directors elected Michael Mark, who is currently serving as an independent member of our Board of Directors, as Non-Executive Chairman of the Board of Directors and appointed Chuck Kane, who joined the board in November, as Chairman of the Audit Committee of our Board of Directors. In June 2006, we announced that we had received an informal inquiry from the SEC regarding our option-granting practices. On December 19, 2006, the SEC informed us that it had issued a formal order of investigation. Highlights DataDirect Technologies announced the launch of XQuery.com (www.xquery.com). The Web site provides software developers and IT architects with a comprehensive resource for navigating the complexity of today's application architectures via the power of XQuery - the XML Query Language under development by the World Wide Web Consortium (W3C). http://www.progress.com/xquerylaunch Progress Software announced that Expedia, Inc., the world's leading online travel company, has selected Progress Sonic products as the messaging infrastructure for its reservation system. http://www.progress.com/expedia Progress Software announced that leading Korean financial IT vendor, Koscom, has selected the Progress® Apama® algorithmic trading platform to enable algorithmic trading on the Korea Exchange (KRX). In addition, Progress and Koscom have entered into a strategic partnership, whereby Koscom will develop a localized version of the Apama platform for distribution in Asia. This partnership makes the Apama platform the first commercial algorithmic trading system available in Korea. http://www.progress.com/koscom DataDirect Technologies announced its acquisition of OpenAccess Software, Inc., a provider of development toolkits for rapid development of ODBC and JDBC drivers, as well as ADO.NET and OLE DB providers. http://www.progress.com/openaccess Significant New Customer and Partner Wins, New Technology Adoptions, and Major Deployments Significant new partners and customers adopting technology from Progress Software operating companies, or deploying solutions using Progress technology, include: Federal Retirement Thrift Investment Board, Fidelity Information Services, Gesenu Spa, Global DVD Ltd, Group Mutuel, Hernando County Property Appraiser, IRI Ubiteq, Journal Sentinel Inc., Kuraray Company, Mercedes-Benz USA, Mississippi Lime Company, New York City Housing Authority, Nord-West Oelleitung GMBH, Normah Medical Specialists, Open Integration Incorporate, Operax, Orange Lake Resort & Country Club, Plamatels Corporation, Public School Retirement Systems, Rex Materials Inc., Scottish Power PLC., Shin Nikkei Company Ltd., Sincor, Somerfield Stores Ltd., Sonofon, Star Garment Company Ltd., State of Maryland, T&K Toka Company Ltd., Trust Solutions., Unitrin Services Company, Valley Medial Center, Ventura Foods, Visiting Nurse Service of New York and Vocel Inc. Significant existing partners and customers adopting technology from different Progress Software operating companies, or making substantial additional deployments of Progress technology, include: A.O. Smith Electrical Products, Alliance One, Altivity Packaging, Banco Hipotecario S.A., BANK DELEN, Banque Privee Edmond de Rothschild, Beneficiência Médica Brasileira, Bolsa Mexicana de Valores, Bristol Group S.A., City of San Francisco, El Comercio Cia.de Seguros, Conseco Services, DBS Bank Ltd., Del Monte Foods, Federal Home Loan Bank, Freedom Mortgage, Homeserve GB Ltd., Imprivata, Inc., Imtac, Inva Spa, Kal Tire, Laboratorios Combix, Micro Electronics Inc., Mikaru, Norfolk Southern, O'Neill Europe, Origin Energy Services Ltd., Ouro Fino Saude Animal Ltda, Purolator Courier Ltd., Quicken Loans, Rakuten Inc., Reimbursement Technologies Inc., Sanmina-SCI, SELESTA S.P.A., Teacher Housing Authority NS, Technological Resources Ltd., Telmex, Tecsidel, Toemda Soriana, Tintas Coral Ltda., Wachovia Corporation, Wells Fargo & Company, Wolf Informatik GmbH, Yui Co. Ltd. and Zacharias Group. Business Outlook The company is providing the following guidance for the fiscal year ending November 30, 2007: Revenue is expected to be in the range of $465 million to $475 million. GAAP diluted earnings per share are expected to be in the range of $1.07 to $1.14. On a non-GAAP basis, diluted earnings per share are expected to be in the range of $1.65 to $1.72. The non-GAAP projections exclude after-tax charges of approximately $15 million (34 cents per share) for stock-based compensation and approximately $11 million (24 cents per share) for amortization of acquired intangibles. The GAAP and non-GAAP projections exclude any costs associated with the stock option inquiry and restatement, shareholder-related litigation and the current or any future investigations by regulatory agencies. The company is providing the following guidance for the first fiscal quarter ending February 28, 2007: Revenue is expected to be in the range of $110 million to $112 million. GAAP diluted earnings per share are expected to be in the range of 18 cents to 20 cents. On a non-GAAP basis, diluted earnings per share are expected to be in the range of 34 cents to 36 cents. The non-GAAP projections exclude after-tax charges of approximately $4 million (9 cents per share) for stock-based compensation and $3 million (7 cents per share) for amortization of acquired intangibles. The GAAP and non-GAAP projections exclude any costs associated with the stock option inquiry and restatement, shareholder-related litigation and the current or any future investigations by regulatory agencies. Legal Notice Regarding Non-GAAP Financial Information The company provides non-GAAP operating income, net income and earnings per share as additional information for investors. These measures are not in accordance with, or an alternative to, generally accepted accounting principles in the United States (GAAP). Such measures are intended to supplement GAAP and may be different from non-GAAP measures used by other companies. The company believes that the non-GAAP results described in this release are useful for an understanding of its ongoing operations and provide additional detail and an alternative method of assessing its operating results. Management of the company uses these non-GAAP results to compare the company's performance to that of prior periods for analysis of trends and for budget and planning purposes. A reconciliation of non-GAAP adjustments to the company's GAAP financial results is included in the tables below. Conference Call PSC’s conference call to discuss its fourth quarter results will be Webcast live today at 9:00 a.m. Eastern via CCBN on the company's Web site, located at www.progress.com/investors. The call will also be Webcast live via Yahoo (www.yahoo.com), Motley Fool (www.fool.com), Streetevents (www.streetevents.com), TD Waterhouse (www.tdwaterhouse.com) and Fidelity.com (www.fidelity.com). An archived version of the conference call will be available for replay. About Progress Software Corporation Progress Software Corporation (Nasdaq: PRGS) provides application infrastructure software for the development, deployment, integration and management of business applications. Our goal is to maximize the benefits of information technology while minimizing its complexity and total cost of ownership. Progress can be reached at www.progress.com or +1-781-280-4000. Safe Harbor Statement Except for the historical information and discussions contained herein, statements contained in this release may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially, including but not limited to the following: the receipt and shipment of new orders, the timely release of enhancements to the company's products, the growth rates of certain market segments, the positioning of the company's products in those market segments, variations in the demand for customer service and technical support, pricing pressures and the competitive environment in the software industry, business and consumer use of the Internet, and the company's ability to penetrate international markets and manage its international operations; unanticipated consequences of the restatement; the risk that the Nasdaq Stock Market will delist the company's common stock; risks associated with the SEC’s formal investigation of the company’s option-grant practices; the risk that the company will face additional claims and proceedings in connection with those stock option grant practices, including additional shareholder litigation and additional proceedings by the other governmental agencies; and the financial impact of the foregoing, including potentially significant litigation defense costs and claims for indemnification and advancement of expenses by directors, officers and others. The company undertakes no obligation to update information contained in this release. For further information regarding risks and uncertainties associated with the company's business, please refer to the company's filings with the Securities and Exchange Commission. Progress, Actional, DataDirect, OpenEdge, Sonic ESB, Apama, EasyAsk, DataDirect Technologies, Shadow, DataXtend, ObjectStore, and Progress OpenEdge are trademarks or registered trademarks of Progress Software Corporation or one of its subsidiaries or affiliates in the U.S. and other countries. Any other trademarks or service marks contained herein are the property of their respective owners. Progress Software Corporation Condensed Consolidated Statements of Income   Three Months Ended November 30, 2006 November 30, 2005 Percent Change (In thousands except per share data)               Revenue: Software licenses $ 49,412  $ 44,084  12  % Maintenance and services 72,782        63,873  14  % Total revenue 122,194        107,957  13  % Costs of revenue: Cost of software licenses 1,380  2,505  Cost of maintenance and services 16,796  14,048  Amortization of purchased technology 2,378        1,350  Total costs of revenue 20,554        17,903  15  % Gross profit 101,640        90,054  13  % Operating expenses: Sales and marketing 54,050  43,592  Product development 19,708  15,465  General and administrative 16,358  10,584  Amortization of other acquired intangibles 2,030  1,188  Acquisition-related expenses, net 15        653  Total operating expenses 92,161        71,482  29  % Income from operations 9,479  18,572  (49) % Other income, net 1,757        1,557  Income before provision for income taxes 11,236  20,129  (44) % Provision for income taxes 4,332        6,571  Net income $ 6,904        $ 13,558  (49) % Earnings per share: Basic $0.17  $0.34  (50) % Diluted $0.16        $0.32  (50) % Weighted average shares outstanding: Basic 41,207  39,953  3  % Diluted 43,643        42,962  2  % Non-GAAP Condensed Consolidated Statements of Income   Three Months Ended November 30, 2006 Three Months Ended November 30, 2005 As Reported Adjustments Non-GAAP As Reported Adjustments Non-GAAP Percent Change (In thousands except per share data)       Revenue: Software licenses $ 49,412  $ 49,412  $ 44,084  $ 44,084  12  % Maintenance and services 72,782    72,782    63,873    63,873  14  % Total revenue 122,194    122,194    107,957    107,957  13  % Costs and expenses: Cost of software licenses (1) 1,380  (38) 1,342  2,505  (4) 2,501  Cost of maintenance and services (1) (2) 16,796  (441) 16,355  14,048  (52) 13,996  Amortizationof purchased technology 2,378  (2,378) -    1,350  (1,350) -  Total costs of revenue 20,554  (2,857) 17,697    17,903  (1,406) 16,497  Gross profit 101,640  2,857  104,497    90,054  1,406  91,460  Operating expenses: Sales and marketing (1) (2) 54,050  (2,281) 51,769  43,592  (291) 43,301  Product development (1) (2) 19,708  (1,422) 18,286  15,465  (169) 15,296  General and administrative (1) (2) 16,358  (2,012) 14,346  10,584  (202) 10,382  Amortization of other acquired int-angibles 2,030  (2,030) -  1,188  (1,188) -  Acquisition-related expenses, net 15  (15) -    653  (653) -  Total costs and expenses 92,161  (7,760) 84,401    71,482  (2,503) 68,979  22  % Income from operations 9,479  10,617  20,096  18,572  3,909  22,481  (11) % Other income, net 1,757    1,757    1,557    1,557  Income before provision for income taxes 11,236  10,617  21,853  20,129  3,909  24,038  (9) % Provision for income taxes 4,332  3,419  7,751    6,571  1,275  7,846  Net income $ 6,904  $ 7,198  $ 14,102    $ 13,558  $ 2,634  $ 16,192  (13) % Earnings per share: Basic $0.17  $0.34  $0.34  $0.41  (17) % Diluted $0.16    $0.32    $0.32    $0.38  (16) % Weighted average shares outstanding: Basic 41,207  41,207  39,953  39,953  3  % Diluted 43,643    43,643    42,962    42,962  2  %     (1) Non-GAAP adjustments represent amounts recorded for stock-based compensation in these costs and expenses (2) Non-GAAP adjustments also include an accrual for payments to be made to current and former employees for options that were cancelled or expired during suspension of the issuance of shares under the company's option plans and reimbursements for excise taxes resulting from the exercise of below market options in fiscal 2006 Progress Software Corporation Condensed Consolidated Statements of Income   Twelve Months Ended November 30, 2006 November 30, 2005 Percent Change (In thousands except per share data)               Revenue: Software licenses $ 175,845  $ 156,846  12  % Maintenance and services 271,218        248,530  9  % Total revenue 447,063        405,376  10  % Costs of revenue: Cost of software licenses 7,441  8,170  Cost of maintenance and services 61,196  55,752  Amortization of purchased technology 8,150        5,122  Total costs of revenue 76,787        69,044  11  % Gross profit 370,276        336,332  10  % Operating expenses: Sales and marketing 186,286  158,544  Product development 77,269  64,010  General and administrative 56,571  43,345  Amortization of other acquired intangibles 7,358  4,277  Compensation expense from repurchase of subsidiary stock options -  2,803  Acquisition-related expenses, net 1,849        3,403  Total operating expenses 329,333        276,382  19  % Income from operations 40,943  59,950  (32) % Other income, net 4,640        3,099  Income before provision for income taxes 45,583  63,049  (28) % Provision for income taxes 16,182        16,792  Net income $ 29,401        $ 46,257  (36) % Earnings per share: Basic $0.72  $1.21  (40) % Diluted $0.68        $1.12  (39) % Weighted average shares outstanding: Basic 40,976  38,227  7  % Diluted 43,269        41,424  4  %   Non-GAAP Condensed Consolidated Statements of Income   Twelve Months Ended November 30, 2006 Twelve Months Ended November 30, 2005 As Reported Adjustments Non-GAAP As Reported Adjustments Non-GAAP Percent Change (In thousands except per share data)       Revenue: Software licenses $ 175,845  $ 175,845  $ 156,846  $ 156,846  12  % Maintenance and services 271,218    271,218    248,530    248,530  9  % Total revenue 447,063    447,063    405,376    405,376  10  % Costs and expenses: Cost of software licenses (1) 7,441  (148) 7,293  8,170  (20) 8,150  Cost of maintenance and services (1) (2) 61,196  (1,692) 59,504  55,752  (202) 55,550  Amortization of purchased technology 8,150  (8,150) -    5,122  (5,122) -  Total costs of revenue 76,787  (9,990) 66,797    69,044  (5,344) 63,700  Gross profit 370,276  9,990  380,266    336,332  5,344  341,676  Operating expenses: Sales and marketing (1) (2) 186,286  (8,560) 177,726  158,544  (1,050) 157,494  Product development (1) (2) 77,269  (5,281) 71,988  64,010  (571) 63,439  General and administrative (1) (2) 56,571  (7,387) 49,184  43,345  (902) 42,443  Amortization of other acquired intangibles 7,358  (7,358) -  4,277  (4,277) -  Compensation expense from repurchase of subsidiary stock options -  -  -  2,803  (2,803) -  Acquisition-related expenses, net 1,849  (1,849) -    3,403  (3,403) -  Total costs and expenses 329,333  (30,435) 298,898    276,382  (13,006) 263,376  13  % Income from operations 40,943  40,425  81,368  59,950  18,350  78,300  4  % Other income, net 4,640    4,640    3,099    3,099  Income before provision for income taxes 45,583  40,425  86,008  63,049  18,350  81,399  6  % Provision for income taxes 16,182  13,061  29,243    16,792  9,793  26,585  Net income $ 29,401  $ 27,364  $ 56,765    $ 46,257  $ 8,557  $ 54,814  4  % Earnings per share: Basic $0.72  $1.39  $1.21  $1.43  (3) % Diluted $0.68    $1.31    $1.12    $1.32  (1) % Weighted average shares outstanding: Basic 40,976  40,976  38,227  38,227  7  % Diluted 43,269    43,269    41,424    41,424  4  %     (1) Non-GAAP adjustments represent amounts recorded for stock-based compensation in these costs and expenses (2) Non-GAAP adjustments also include an accrual for payments to be made to current and former employees for options that were cancelled or expired during suspension of the issuance of shares under the company's option plans and reimbursements for excise taxes resulting from the exercise of below market options in fiscal 2006 Progress Software Corporation Condensed Consolidated Balance Sheets   November 30, November 30, (In thousands) 2006    2005    Assets Cash and short-term investments $ 241,315  $ 266,420  Accounts receivable, net 82,762  66,592  Other current assets 36,062    28,192  Total current assets 360,139    361,204  Property and equipment, net 57,585  42,816  Goodwill and intangible assets, net 232,927  132,187  Other assets 19,588    25,508  Total $ 670,239    $ 561,715    Liabilities and shareholders' equity Accounts payable and other current liabilities $ 93,195  $ 77,428  Short-term deferred revenue 120,974    99,697  Total current liabilities 214,169    177,125  Long-term debt 1,657  1,938  Long-term deferred revenue 6,355  5,068  Other liabilities 3,494  3,580  Shareholders' equity: Common stock and additional paid-in capital 197,748  155,205  Retained earnings 246,816    218,799  Total shareholders' equity 444,564    374,004  Total $ 670,239    $ 561,715  Condensed Consolidated Statements of Cash Flows   Twelve Months Ended November 30, (In thousands except per share data) 2006    2005    Cash flows from operations: Net income $ 29,401  $ 46,257  Depreciation, amortization and other noncash charges 48,084  20,934  Tax benefit from stock plans 1,064  17,745  Other changes in operating assets and liabilities (11,882)   (4,306) Net cash flows from operations 66,667  80,630  Capital expenditures (21,738) (10,909) Acquisitions, net of cash acquired (78,040) (31,488) Share issuances, net of repurchases 53  43,481  Other 7,953    (6,561) Net change in cash and short-term investments (25,105) 75,153  Cash and short-term investments, beginning of period 266,420    191,267  Cash and short-term investments, end of period $ 241,315    $ 266,420