Progress Software (PRGS 44.33, +6.01, +15.67%) is trading sharply higher today after the company reported Q1 (Feb) earnings results last night and
provided guidance for Q2 (May). Progress offers a platform for businesses that
is used to develop business applications and to easily build user interfaces
across any type of device. More than 100,000 enterprise customers and two
million developers rely on Progress to power their applications. Progress
OpenEdge is its flagship offering. OpenEdge is development software for
building applications for deployment across any platform, any device, and any
Turning to the Q1 results, non-GAAP EPS fell 11% yr/yr to $0.50, which was well above prior guidance of $0.45-0.47. Non-GAAP revenue fell 6.3% yr/yr to $89.5 mln, above prior guidance of $85-88 mln. Non-GAAP operating margin dipped to 34% from 38% last year. The guidance for Q2 was just as impressive: non-GAAP EPS of $0.55-0.57 and non-GAAP revs of $96-99 mln; both forecasts are above market expectations.
PRGS explained on the call that the revenue and EPS overachievement was accomplished primarily due to its flagship product OpenEdge, which had better than expected license sales from both ISV partners and direct enterprises. OpenEdge also again achieved maintenance renewal rate well over 90% in Q1, a key indicator of the ongoing strength and stability of that business. PRGS also recently announced the latest major release for the OpenEdge line with OpenEdge 12, which features improved database performance and enhancements to support continuous operations availability, agile collaborative development, and application security.
Earnings were not the only news last night. Progress announced it will acquire privately held Ipswitch, a producer of data file transfer and network management software, for $225 mln in cash. Tdeal should close in late April. The acquisition is immediately accretive and will bolster Progress' core offerings. Ipswitch targets IT professionals and CTOs at SMBs and enterprises across a variety of industries. Ipswitch's primary products are MOVEit, WhatsUp Gold, and WS_FTP. Its flagship offering, MOVEit, is a secure data transfer product that allows enterprise customers to securely transfer critical documents between users, locations, and partners. WhatsUp Gold enables customers to continuously monitor their IT infrastructure.
Ipswitch should fit in nicely with Progress' current offering. Ipswitch has blue-chip customers across all verticals, so there should be cross-selling opportunities. Also, Ipswitch has annual revenues of approximately $75 mln, and PRGS reported FY18 revs of $398 mln, so the deal was pretty large in a relative way. Importantly, PRGS has identified areas where it can leverage its operating model to achieve approximately $15 mln of annualized cost synergies within 12 months.
Investors are clearly happy with Progress Software's FebQ results/guidance, and the Ipswitch acquisition news seems to be a welcome event as well. The stock sold off in late September on a weak AugQ, and that was followed by a so-so NovQ report with weak guidance for FebQ. It was good to finally see a solid beat and raise from Progress Software.
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