Business Context and Reporting Period
Company: Progress Software Corporation
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Three and nine months ended August 31, 1997
Business Overview: The Company develops, markets, and supports application development environments, including the PROGRESS product line, WebSpeed, and tools for Visual Basic and Visual J++. On July 15, 1997, the Company acquired Apptivity Corporation, a developer of Java-based application development tools.
Key Financial Metrics
| Metric (in thousands) | 3 Months Ended Aug 31, 1997 |
3 Months Ended Aug 31, 1996 |
9 Months Ended Aug 31, 1997 |
9 Months Ended Aug 31, 1996 |
|---|---|---|---|---|
| Total Revenue | $45,880 | $41,411 | $136,055 | $131,455 |
| Net Income (Loss) | $(9,369) | $218 | $(5,349) | $4,792 |
| Net Income (Loss) Excl. Nonrecurring | $1,919 | $218 | $5,939 | $4,792 |
| Operating Income (Loss) | $(10,216) | $(776) | $(6,637) | $4,290 |
| Cash and Equivalents | $26,897 | $30,872 | $26,897 | $30,878 |
| Short-term Investments | $55,682 | $66,451 | $55,682 | $66,451 |
| Total Cash & Investments | $82,579 | $97,323 | $82,579 | $97,329 |
| Long-term Debt | $0 | $85 | $0 | $85 |
| Net Cash from Operating Activities | N/A | N/A | $20,289 | $18,980 |
Note: Net Income figures for 1997 include a significant nonrecurring charge related to the Apptivity acquisition.
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 11% for the quarter and 3% for the nine-month period compared to the prior year. Software license revenue grew 14% in the quarter, driven by sales of PROGRESS Versions 7 and 8 and WebSpeed.
- Nonrecurring Charges: The Company recorded a nonrecurring charge of $11,537,000 in the third quarter. This consisted of $10,806,000 for in-process software development from the Apptivity acquisition and $731,000 for writedowns of capitalized software costs and intangible assets.
- Profitability Impact: While net income excluding nonrecurring charges increased 780% for the quarter and 24% for the nine-month period, the reported net loss for the quarter was $(9,369,000) and for the nine months was $(5,349,000) due to the acquisition charges.
- Stock Repurchases: The Company repurchased 1,562,000 shares of common stock for $26,453,000 during the first nine months of fiscal 1997.
- International Revenue: Revenue from markets outside North America represented 57% of total revenue in the quarter and 59% for the nine-month period.
Guidance, Outlook, Risks, and Contingencies
- Outlook: Management believes existing cash balances and funds from operations are sufficient to finance operations for the next twelve months. The Company expects to adopt SFAS 128 (Earnings per Share) in the first quarter of fiscal 1998.
- Acquisition Integration: The Company is integrating Apptivity Corporation, which adds Java-based application development tools to its portfolio.
- Legal Proceedings:
- Newstar Technologies: A dispute regarding a purported contract was settled in July 1997. Newstar became an Application Partner, and all prior claims were released.
- Naf Naf S.A.: An expert proceeding in Paris regarding alleged product deficiencies and late availability is ongoing. No specific damage claim has been filed. Management does not expect a material adverse effect, and defense costs are being reimbursed by insurance.
- Risks: Key risks include intense competition, dependence on the PROGRESS product line, foreign currency fluctuations (approx. 50% of revenue is international), and the ability to timely release product enhancements. Revenue forecasting is noted as uncertain due to the timing of order shipments.
- 401(k) Plan: The Company is in the process of purchasing Guaranteed Investment Contracts (GICs) from its 401(k) plan to allow participants to choose other investment vehicles. This is expected to be completed before the end of the fiscal year with no material financial effect.
Investor Verification Checklist
- Nonrecurring Charge Details: Verify the specific allocation of the $11.5M charge and its impact on future amortization schedules.
- Apptivity Integration: Assess the revenue contribution and integration progress of the newly acquired Apptivity Corporation.
- Stock Repurchase Program: Confirm the remaining authorization under the current buyback program (up to 3,000,000 shares authorized for the fiscal year).
- International Exposure: Monitor foreign currency hedging strategies given that nearly 60% of revenue is generated outside North America.
- Product Lifecycle: Track the market acceptance of PROGRESS Version 8.2 and WebSpeed Version 2.0 to ensure continued revenue growth.