Progress Software (PRGS 36.15, -6.40, -15.04%) is trading sharply lower today after
reporting Q3 (Aug) earnings results last night and providing guidance for Q4
(Nov). In case you're not familiar, Progress offers a platform to businesses
that is used to develop business applications. Progress offers technologies for
easily building user interfaces across any type of device, a reliable backend
platform to deploy modern applications, leading data connectivity and
More than 100,000 enterprise customers and two mln developers rely on Progress to power their applications. Its products are generally sold as perpetual licenses, but certain products also use term licensing models. Application partners are ISVs that develop and market applications using Progress' technology and resell products in conjunction with sales of their own products that incorporate Progress technology.
Progress OpenEdge is its flagship offering. OpenEdge is development software for building applications for secure deployment across any platform, any device, and any cloud. OpenEdge provides a unified environment comprising development tools, application servers, application management tools, an embedded relational database management system, and the capability to connect and integrate with other applications and data sources.
Another key product is Progress Corticon, which is a Business Rules Management System (BRMS) that enables applications with decision automation, decision change process and decision-related insight capabilities. Corticon helps both business and IT users to quickly create or reuse business rules as well as create decision logic. Progress also offers DataRPM, which is a cognitive predictive maintenance platform for industrial IoT. It automates predictive modeling, leveraging proprietary Meta Learning capabilities to increase quality, accuracy and timeliness of equipment failure predictions. The technology enables customers such as Jaguar, Samsung and Mitsubishi Heavy Industries to predict and prevent asset failures, and increase yield and efficiencies.
Turning to the Q3 (Aug) results, non-GAAP EPS rose 25% Year/year to $0.60, which was above prior guidance of $0.56-0.58. Non-GAAP revenue fell 1.9% year/year to $95.8 mln, in-line with prior guidance of $95-97 mln. Non-GAAP operating margin was flat Year/year at 37%. So the AugQ was decent although revenue was at the lower end of guidance. In fairness, PRGS says revenue would have been at the high end of guidance if not for some FX headwinds in the quarter.
The bigger problem was the weak guidance for Q4 (Nov). Progress sees non-GAAP EPS of $0.71-0.74 and non-GAAP revenue of $107-110 mln. Both of these are a good bit below market expectations. On the call, PRGS says the shortfall is partially a result of the incremental FX headwinds seen in AugQ, with the remainder primarily due to timing, structure and size of a few large OpenEdge deals.
PRGS went on to explain on the call that its goal when negotiating contracts is to maximize its overall economic value. Unfortunately, that sometimes means that revenue shifts in the short-term relative to expectations. With that said, PRGS believes its business remains stable and the company remains encouraged by the commitment of its loyal customer base.
PRGS says its OpenEdge Partner business remains very solid, with strong license growth during the quarter, again, driven primarily by those ISVs who now offer their applications in a SaaS model. Progress' revenue from sales of these cloud-based applications grew by 12% in Q3 and 15% year-to-date. Many of the enhancements to OpenEdge in the past few years and several more that will be included in the next major release are designed to make it even easier for partners to transition to the cloud.
In sum, investors are clearly not happy with Progress Software's AugQ results/guidance. It sounds like some FX headwinds coupled with the timing of closing some deals is mostly to blame. Hopefully the outlook improves later this year and into 2019.
- OUR VIEW
- LEARNING CENTER