Progress Software Reports Fourth Quarter Results; Revenue, Operating Income and EPS All Show Double Digit Increases

On a generally accepted accounting principles (GAAP) basis,operating income increased 21 percent to $19.2 million from $15.9million in the fourth quarter of fiscal 2004. Net income increased 29percent to $14.0 million from $10.9 million in the same quarter lastyear. Diluted earnings per share increased 18 percent to 33 cents from28 cents in the fourth quarter of fiscal 2004.

On a pro forma basis, operating income increased 27 percent to$22.6 million from $17.7 million in the fourth quarter of fiscal 2004.Pro forma net income increased 34 percent to $16.3 million from $12.1million in the same quarter last year. Pro forma diluted earnings pershare increased 23 percent to 38 cents from 31 cents in the fourthquarter of fiscal 2004.

The pro forma results in the fourth quarter of fiscal 2005 excludeafter-tax charges for amortization of acquired intangibles of $1.7million, certain other acquisition-related expenses for retentionbonuses for key employees of acquired companies of $0.4 million andstock-based compensation related to issuance of restricted stock of$0.1 million. The pro forma results in the fourth quarter of fiscal2004 exclude an after-tax charge for amortization of acquiredintangibles of $1.3 million.

For the 12 months ended November 30, 2005, revenue increased 12percent (10 percent at constant currency) to $405 million from $363million in fiscal 2004. On a GAAP basis, operating income increased 38percent to $63.8 million from $46.4 million in fiscal 2004. Net incomeincreased 52 percent to $48.9 million from $32.1 million in fiscal2004 and diluted earnings per share increased 44 percent to $1.18 from82 cents in fiscal 2004.

On a pro forma basis, operating income increased 42 percent to$79.5 million from $56.0 million in fiscal 2004. Pro forma net incomeincreased 44 percent to $55.8 million from $38.7 million in fiscal2004. Pro forma diluted earnings per share increased 35 percent to$1.34 from 99 cents in fiscal 2004.

The pro forma results in fiscal 2005 exclude after-tax charges foramortization of acquired intangibles of $6.3 million, certain otheracquisition-related expenses of $2.3 million, compensation expensefrom repurchase of subsidiary stock of $1.9 million, stock-basedcompensation of $0.1 million and a tax benefit of $3.8 million. Thepro forma results in fiscal 2004 exclude after-tax charges foramortization of acquired intangibles of $4.8 million and certain otheracquisition-related expenses of $1.8 million.

The company's cash and short-term investments at the end of thequarter totaled $266 million. During the fourth quarter, the companypurchased 81,000 shares of its stock at a cost of $2.4 million. Thecompany's existing repurchase authorization, under which approximately9.9 million shares remain available for repurchase, expires onSeptember 30, 2006.

"All Progress product lines contributed to a successful fourthquarter and a record 2005 fiscal year. Our newer operating units -Sonic Software, Proress Real Time and DataDirect Technologies -delivered excellent revenue growth of 33 percent in fiscal 2005 andnow account for 36 percent of our software license revenue," statedJoseph Alsop, co-founder and chief executive officer of PSC. "Revenuefrom the OpenEdge Division continues to grow and deliver verysubstantial profitability. We are also pleased to have Neon Systemsjoin us, per the companion press release."

Highlights

The Progress OpenEdge Division introduced Progress(R) OpenEdge10.1. Included in this latest release of OpenEdge is a newEclipse-based integrated development environment (IDE), as well asauditing services designed to address the compliance needs of finance,healthcare, and other industries traditionally affected by audit andcompliance requirements.

http://www.progress.com/new_openedge_platform

The Progress OpenEdge Division announced new additions to itsaward-winning partner program designed to help both existing andprospective application partners learn how to enhance their businessapplications with the latest technology advances using ProgressOpenEdge technology. Based on its highly successful ApplicationTransformation Approach (ATA), the new Accelerator Program combinesproducts, services and best practices to bring new partners and theirnon-Progress-based applications through the SOA-enablement process.

http://www.progress.com/enhances_partner_program

Sonic Software joined forces with AmberPoint and Systinet tocreate and publish a new Service-Oriented Architecture (SOA) MaturityModel (SOA MM) to assess, guide and establish a vision for maximizingthe strategic benefits of SOA investments. The three firms publiclypresented the SOA Maturity Model to senior IT decision managers duringa 10-city Management Forum Seminar Series designed to educate managerson the strategic business value of SOA.

http://www.progress.com/new_soa_maturity_model

The Progress Real Time Division introduced the ProgressDataXtend(TM) product line, which provides enterprises with keycapabilities to efficiently deliver data to applications. The newDataXtend product line includes Progress DataXtend RE (ReplicationEngine) for mobile users and others with inconsistent networkreliability, and Progress DataXtend CE (Cache Engine) to enable highperformance distributed applications.

http://www.progress.com/dataxtend_product_line

DataDirect Technologies announced the release of DataDirectXQuery(TM), the first embeddable component for XQuery that is modeledafter the XQuery API for Java(TM) (XQJ). DataDirect XQuery simplifiesXML and relational data integration by providing developers with anXQuery implementation that offers greater productivity, performanceand interoperability for building standards-based data integrationapplications.

http://www.progress.com/simplify_xml

Significant New Customer and Partner Wins, New TechnologyAdoptions and Major Deployments

Significant new partners and customers adopting technology fromPSC operating companies, or deploying solutions using PSC technology,include: Abinet Holdings, Adlog BV, Aina Group Oyj, Amdocs Inc.,Artesano Moveis Ltda., Atlas Copco Holding GmbH, AutoTrader.com, Bankfor International Settlements, Bank of Canada, Blue Cross of Idaho,Blue River Software, City College Manchester, Community Transit,Configure One LLC, DDBC, Inc., Dundee Securities Corporation, EdwardC. Levy Company, Evans Company, Fasttrack, First Southwest, Company,Fleet and Industrial Supply Center, Fox Run Solutions, Georgia StateUniversity, Gevity, Granite State Software, Highbridge CapitalManagement, Innovations Group Inc., ITE Solutions, Inc., Jordan SchoolDistrict, JCM American Corporation, JD Alpha, Lombard North Central,Motorola, Netezza Corporation, Nexstar, Occidental College, OxfordInstruments, Paypal, Inc., Politiezon Buggenhout-Lebbeke, PryorConsulting Services, Paul Hastings Research Technology Inc., ShandsHealthcare, Standford Graduate School of Business, South CarolinaDepartment of Education, Teracruz, Inc., The TJX Companies, TheodorRietmann GmbH, Ultra Electronics Airport Systems, University of WalesSwanea, VBM Software LLC and Winterhur Insurance.

Significant existing partners and customers adopting technologyfrom PSC operating companies, or making substantial additionaldeployments of PSC technology, include: Airfoil TechnologiesInternational, Ameritrade Holding Inc., American Medical Security,Banc of America Securities, Banco Comafi, Bank of America, BarclaysCapital, Black & Decker, Blue Cross Blue Shield Corporation,Boehringer Ingelheim Pharmaceutial, Bristol Meyers, BT GlobalServices, Bundeswehr, CACI, ChoicePoint, CIGNA, CitiGroup Inc., eBay,Inc., Elections Canada, Fiserv Lending Solutions, Federal TradeCommission, General Electric Company, Goldman Sachs & Company,Healthplan Services, Homeserve, ING-Comercial America, IRS (Departmentof Treasury), JP Morgan, Kaiser Permaente, Lockheed Martin, PacificBlue Cross, Mercury Interactive, Mitsubishi UFJ Securities, NationwideAppraisal Services, NCR Corporation, Northrop Grumman, NRI, PuebloCounty Government, State of Michigan, Tarrant County Auditors Office,Technische Universitaet Berlin, Telecom Italia Mobile, Total Systems,Inc., Universal Forest Products Inc. and Verizon Data Services.

Business Outlook

The company is providing the following guidance for the firstfiscal quarter ending February 28, 2006:

-- Revenue is expected to be in the range of $103 million to $105 million. GAAP operating income is expected to be in the range of $9 million to $10 million, including amortization of acquired intangibles, stock-based compensation expense (including amounts associated with FASB No. 123(R), "Share-Based Payments," which the company will adopt in the first quarter of fiscal 2006), and certain other acquisition-related expenses of approximately $9 million.

-- GAAP diluted earnings per share are expected to be in the range of 15 cents to 17 cents.

-- On a pro forma basis, operating income is expected to be in the range of $18 million to $19 million, excluding amortization of acquired intangibles, stock-based compensation and certain other acquisition-related expenses of approximately $9 million.

-- On a pro forma basis, diluted earnings per share are expected to be in the range of 29 cents to 31 cents, excluding approximately 14 cents per share for amortization of acquired intangibles, stock-based compensation and certain other acquisition-related expenses.

The company is providing the following guidance for the fiscalyear ending November 30, 2006:

-- Revenue is expected to be in the range of $435 million to $445 million. GAAP operating income is expected to be in the range of $51 million to $54 million, including amortization of acquired intangibles, stock-based compensation and certain other acquisition-related expenses of approximately $37 million.

-- GAAP diluted earnings per share are expected to be in the range of 85 cents to 91 cents.

-- On a pro forma basis, operating income is expected to be in the range of $88 million to $91 million, excluding amortization of acquired intangibles, stock-based compensation and certain other acquisition-related expenses of approximately $37 million.

-- On a pro forma basis, diluted earnings per share are expected to be in the range of $1.45 to $1.51, excluding approximately 60 cents per share for amortization of acquired intangibles, stock-based compensation and certain other acquisition-related expenses.

The above guidance includes an estimate for the impact of theacquisition of Neon, which is expected to be completed in January2006. Any delays in the completion of this transaction could have amaterial effect on this guidance.

Conference Call

PSC's conference call to discuss its fourth quarter results willbe Webcast live today at 9:00 a.m. Eastern via CCBN on the company'sWeb site, located at www.progress.com/investors. The call will also beWebcast 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). Anarchived version of the conference call will be available for replay.

About Progress Software Corporation

Progress Software Corporation (Nasdaq: PRGS) is a global industryleader providing application infrastructure software for all aspectsof the development, deployment, integration and management of businessapplications through its operating units: Progress OpenEdge Division,Sonic Software, DataDirect Technologies, and Progress Real TimeDivision. Headquartered in Bedford, Mass., Progress can be reached atwww.progress.com or +1-781-280-4000.

Safe Harbor Statement

Except for the historical information and discussions containedherein, statements contained in this release may constitute"forward-looking statements" within the meaning of the PrivateSecurities Litigation Reform Act of 1995. These statements involve anumber of risks, uncertainties and other factors that could causeactual results to differ materially, including but not limited to thefollowing: the receipt and shipment of new orders, the timely releaseof enhancements to the company's products, the growth rates of certainmarket segments, the positioning of the company's products in thosemarket segments, variations in the demand for customer service andtechnical support, pricing pressures and the competitive environmentin the software industry, business and consumer use of the Internet,and the company's ability to penetrate international markets andmanage its international operations. The company undertakes noobligation to update information contained in this release. Forfurther information regarding risks and uncertainties associated withthe company's business, please refer to the company's filings with theSecurities and Exchange Commission.

Progress, DataXtend, DataDirect XQuery, and OpenEdge aretrademarks or registered trademarks of Progress Software Corporationin the U.S. and other countries. Java and all Java-based marks aretrademarks or registered trademarks of Sun Microsystems, Inc. in theU.S. and other countries. Any other trademarks contained herein arethe property of their respective owners.
Progress Software Corporation
Condensed Consolidated Statements of Income

Three Months Ended
--------------------------------
November 30, November 30, Percent
(In thousands except per share data) 2005 2004 Change
----------------------------------------------------------------------
Revenue:
Software licenses $ 44,084 $ 36,798 20 %
Maintenance and services 63,873 59,396 8 %
------------------------
Total revenue 107,957 96,194 12 %
------------------------
Costs and expenses:
Cost of software licenses 2,501 1,990
Cost of maintenance and services 13,981 12,743
Sales and marketing 43,274 38,581
Product development 15,269 15,580
General and administrative 10,374 9,566
Amortization of acquired
intangibles 2,538 1,871
Stock-based compensation 134 -
Acquisition-related expenses, net 653 -
------------------------
Total costs and expenses 88,724 80,331 10 %
------------------------
Income from operations 19,233 15,863 21 %
Other income, net 1,557 101
------------------------
Income before provision for income
taxes 20,790 15,964 30 %
Provision for income taxes 6,757 5,108
------------------------
Net income $ 14,033 $ 10,856 29 %
------------------------
Earnings per share:
Basic $ 0.35 $ 0.30 17 %
Diluted $ 0.33 $ 0.28 18 %
------------------------
Weighted average shares outstanding:
Basic 39,953 36,212 10 %
Diluted 43,083 38,997 10 %
------------------------


Pro Forma Condensed Consolidated Statements of Income



Three Months Ended
November 30, 2005
---------------------------------
As Pro Forma
(In thousands except per share data) Reported Adjustments Pro Forma
----------------------------------------------------------------------
Revenue:
Software licenses $ 44,084 $ 44,084
Maintenance and services 63,873 63,873
--------------------------------
Total revenue 107,957 107,957
--------------------------------
Costs and expenses:
Cost of software licenses 2,501 2,501
Cost of maintenance and services 13,981 13,981
Sales and marketing 43,274 43,274
Product development 15,269 15,269
General and administrative 10,374 10,374
Amortization of acquired
intangibles 2,538 $(2,538) -
Stock-based compensation 134 (134) -
Acquisition-related expenses,
net 653 (653) -
--------------------------------
Total costs and expenses 88,724 (3,325) 85,399
--------------------------------
Income from operations 19,233 3,325 22,558
Other income, net 1,557 1,557
--------------------------------
Income before provision for income
taxes 20,790 3,325 24,115
Provision for income taxes 6,757 1,081 7,838
--------------------------------
Net income $ 14,033 $ 2,244 $ 16,277
--------------------------------
Earnings per share:
Basic $ 0.35 $ 0.41
Diluted $ 0.33 $ 0.38
--------------------------------
Weighted average shares outstanding:
Basic 39,953 39,953
Diluted 43,083 43,083
--------------------------------


Three Months Ended
November 30, 2004
-----------------------------------------
As Pro Forma Percent
(In thousands except per Reported Adjustments Pro Forma Change
share data)
----------------------------------------------------------------------
Revenue:
Software licenses $ 36,798 $ 36,798 20 %
Maintenance and services 59,396 59,396 8 %
--------------------------------
Total revenue 96,194 96,194 12 %
--------------------------------
Costs and expenses:
Cost of software
licenses 1,990 1,990
Cost of maintenance and
services 12,743 12,743
Sales and marketing 38,581 38,581
Product development 15,580 15,580
General and
administrative 9,566 9,566
Amortization of acquired
intangibles 1,871 $ (1,871) -
Stock-based compensation - - -
Acquisition-related
expenses, net - - -
--------------------------------
Total costs and
expenses 80,331 (1,871) 78,460 9 %
--------------------------------
Income from operations 15,863 1,871 17,734 27 %
Other income, net 101 101
--------------------------------
Income before provision for
income taxes 15,964 1,871 17,835 35 %
Provision for income taxes 5,108 598 5,706
--------------------------------
Net income $ 10,856 $ 1,273 $ 12,129 34 %
--------------------------------
Earnings per share:
Basic $ 0.30 $ 0.33 24 %
Diluted $ 0.28 $ 0.31 23 %
--------------------------------
Weighted average shares
outstanding:
Basic 36,212 36,212 10 %
Diluted 38,997 38,997 10 %
--------------------------------


Progress Software Corporation
Condensed Consolidated Statements of Income

Twelve Months Ended
--------------------------------
November 30, November 30, Percent
(In thousands except per share data) 2005 2004 Change
----------------------------------------------------------------------
Revenue:
Software licenses $ 156,846 $ 140,462 12 %
Maintenance and services 248,530 222,200 12 %
------------------------
Total revenue 405,376 362,662 12 %
------------------------
Costs and expenses:
Cost of software licenses 8,150 8,973
Cost of maintenance and services 55,309 52,354
Sales and marketing 157,073 146,171
Product development 63,018 60,371
General and administrative 42,322 38,753
Amortization of acquired
intangibles 9,399 7,076
Compensation expense from
repurchase of subsidiary stock 2,803 -
Stock-based compensation 134 -
Acquisition-related expenses, net 3,403 2,600
------------------------
Total costs and expenses 341,611 316,298 8 %
------------------------
Income from operations 63,765 46,364 38 %
Other income, net 3,099 843
------------------------
Income before provision for income
taxes 66,864 47,207 42 %
Provision for income taxes 17,931 15,106
------------------------
Net income $ 48,933 $ 32,101 52 %
------------------------
Earnings per share:
Basic $ 1.28 $ 0.89 44 %
Diluted $ 1.18 $ 0.82 44 %
------------------------
Weighted average shares outstanding:
Basic 38,227 36,031 6 %
Diluted 41,571 39,010 7 %
------------------------


Pro Forma Condensed Consolidated Statements of Income


Twelve Months Ended
November 30, 2005
---------------------------------
As Pro Forma
(In thousands except per share data) Reported Adjustments Pro Forma
----------------------------------------------------------------------
Revenue:
Software licenses $ 156,846 $ 156,846
Maintenance and services 248,530 248,530
--------------------------------
Total revenue 405,376 405,376
--------------------------------
Costs and expenses:
Cost of software licenses 8,150 8,150
Cost of maintenance and services 55,309 55,309
Sales and marketing 157,073 157,073
Product development 63,018 63,018
General and administrative 42,322 42,322
Amortization of acquired
intangibles 9,399 $ (9,399) -
Compensation expense from
repurchase of subsidiary stock 2,803 $ (2,803) -
Stock-based compensation 134 $ (134) -
Acquisition-related expenses,
net 3,403 (3,403) -
--------------------------------
Total costs and expenses 341,611 (15,739) 325,872
--------------------------------
Income from operations 63,765 15,739 79,504
Other income, net 3,099 3,099
--------------------------------
Income before provision for income
taxes 66,864 15,739 82,603
Provision for income taxes 17,931 8,915 26,846
--------------------------------
Net income $ 48,933 $ 6,824 $ 55,757
--------------------------------
Earnings per share:
Basic $ 1.28 $ 1.46
Diluted $ 1.18 $ 1.34
--------------------------------
Weighted average shares outstanding:
Basic 38,227 38,227
Diluted 41,571 41,571
--------------------------------

Twelve Months Ended
November 30, 2004
-----------------------------------------
As Pro Forma Percent
(In thousands except per Reported Adjustments Pro Forma Change
share data)
----------------------------------------------------------------------
Revenue:
Software licenses $ 140,462 $ 140,462 12 %
Maintenance and services 222,200 222,200 12 %
--------------------------------
Total revenue 362,662 362,662 12 %
--------------------------------
Costs and expenses:
Cost of software
licenses 8,973 8,973
Cost of maintenance and
services 52,354 52,354
Sales and marketing 146,171 146,171
Product development 60,371 60,371
General and
administrative 38,753 38,753
Amortization of acquired
intangibles 7,076 $ (7,076) -
Compensation expense from
repurchase
of subsidiary stock - $ - -
Stock-based compensation - $ - -
Acquisition-related
expenses, net 2,600 (2,600) -
--------------------------------
Total costs and
expenses 316,298 (9,676) 306,622 6 %
--------------------------------
Income from operations 46,364 9,676 56,040 42 %
Other income, net 843 843
--------------------------------
Income before provision for
income taxes 47,207 9,676 56,883 45 %
Provision for income taxes 15,106 3,096 18,202
--------------------------------
Net income $ 32,101 $ 6,580 $ 38,681 44 %
--------------------------------
Earnings per share:
Basic $ 0.89 $ 1.07 36 %
Diluted $ 0.82 $ 0.99 35 %
--------------------------------
Weighted average shares
outstanding:
Basic 36,031 36,031 6 %
Diluted 39,010 39,010 7 %
--------------------------------


Progress Software Corporation
Condensed Consolidated Balance Sheets

November 30, November 30,
(In thousands) 2005 2004
----------------------------------------------------------------------
Assets
Cash and short-term investments $ 266,420 $ 191,267
Accounts receivable, net 66,592 63,503
Other current assets 33,315 23,485
-------------------------
Total current assets 366,327 278,255
-------------------------
Property and equipment, net 42,816 40,658
Goodwill and intangible assets, net 134,270 107,363
Other assets 23,425 20,538
-------------------------
Total $ 566,838 $ 446,814
-------------------------

Liabilities and shareholders' equity
Accounts payable and other current
liabilities $ 74,896 $ 70,669
Short-term deferred revenue 99,697 101,106
-------------------------
Total current liabilities 174,593 171,775
-------------------------
Long-term debt 1,938 2,200
Long-term deferred revenue 5,068 5,861
Other liabilities 3,580 -
Shareholders' equity:
Common stock and additional paid-in
capital 140,883 70,085
Retained earnings 240,776 196,893
-------------------------
Total shareholders' equity 381,659 266,978
-------------------------
Total $ 566,838 $ 446,814
-------------------------


Condensed Consolidated Statements of Cash Flows

Twelve Months Ended
November 30,
--------------------------
(In thousands except per share data) 2005 2004
----------------------------------------------------------------------
Cash flows from operations:
Net income $ 48,933 $ 32,101
Depreciation, amortization and other
noncash charges 18,323 19,123
Other changes in operating assets and
liabilities 14,277 21,086
-------------------------
Net cash flows from
operations 81,533 72,310
Capital expenditures (10,909) (10,716)
Acquisitions, net of cash acquired (32,161) (99,320)
Share issuances, net of repurchases 43,481 8,140
Other (6,791) 1,722
-------------------------
Net change in cash and short-term
investments 75,153 (27,864)
Cash and short-term investments, beginning
of period 191,267 219,131
-------------------------
Cash and short-term investments, end of
period $ 266,420 $ 191,267
-------------------------