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Progress Software (PRGS +8%) bounces off nine-month lows reached yesterday as shares advance toward March highs on better-than-expected Q1 (Feb) numbers and uplifting guidance for next quarter and FY25 (Nov). The software provider was coming off a disappointing quarterly report, mired by lighter-than-anticipated FY25 earnings guidance. With shares trending roughly +30% higher over the trailing six months ahead of Q4 results, this was enough to ignite an extended correction, ultimately pushing shares 20% lower YTD as of yesterday's close.

However, Q1 saw notable improvements from last quarter, as top-line growth accelerated and adjusted earnings zoomed past estimates. Additionally, PRGS lifted its FY25 EPS outlook. While the figure is not where analysts initially expected in January, it was an encouraging development given the caution surrounding the economic environment and the fact that PRGS has stayed relatively conservative in its earnings guidance over the past several quarters.

• Headline performance was sturdy, with revenue expanding by 28.9% yr/yr, a nice uptick from +21.1% in Q4 to $238.02 mln, tagging the high-end of PRGS's $232-238 mln guidance. Earnings blew away PRGS's $1.02-1.08 target, inching 4.8% higher yr/yr to $1.31. Management chalked up the outperformance to quicker-than-expected ShareFile integration and disciplined expense management, part of which arose due to the quick integration of ShareFile.
• PRGS's $875 mln acquisition of ShareFile last year is providing a major boost, predominately pushing the company's annualized recurring revenue 48% higher yr/yr in constant currency in Q1. ShareFile is a file-sharing platform used across businesses to collaborate on content. The purchase was met with selling pressure, given that it represented over a third of PRGS's market cap at the time of acquisition. However, it has thus far been hitting its mark, with full integration on track with PRGS's original 12-month timeframe announced in September.
• ShareFile is expected to continue acting as a tailwind for PRGS, predicting the business to add around $250 mln to its total revenue in FY25, all of which is SaaS recurring revenue, bolstering the company's dependable revenue stream to comprise over 85% of total revenue. Furthermore, as a SaaS platform, ShareFile carries excellent gross margins of over 80%. Meanwhile, PRGS expects to reach 40% operating margins for ShareFile by the end of FY25, supporting its improving bottom line in Q1 and raised FY25 guidance.
• Speaking of which, PRGS projected promising numbers for Q2 (May) and FY25. The company expects adjusted EPS of $1.28-1.34 for the upcoming quarter on revs of $235-241 mln, translating to a 36% jump yr/yr at the midpoint. PRGS reiterated its FY25 revenue guidance of $958-970 mln but pushed its earnings forecast $0.25 higher to $5.25-5.37.

PRGS put on a much better showing in Q1 than Q4, kicking off FY25 on the right foot. The macroeconomic environment can cause medium-term volatility. However, PRGS is not seeing any disruption from the uncertain environment, particularly related to its minor federal government business. As such, it is well-positioned to continue its outperformance in subsequent quarters, especially as it continues to integrate ShareFile.