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, 1999
Business Overview: The Company develops, markets, and supports application development, deployment, and management software. Core products include the Progress product set (ProVision, RDBMS, WebSpeed, Open AppServer, DataServers), Progress Apptivity, and the ISQ product line for network monitoring.
Key Financial Metrics
| Metric (in thousands) | 3 Months Ended Aug 31, 1999 |
9 Months Ended Aug 31, 1999 |
3 Months Ended Aug 31, 1998 |
9 Months Ended Aug 31, 1998 |
|---|---|---|---|---|
| Total Revenue | $70,159 | $208,054 | $59,482 | $170,734 |
| Net Income | $8,277 | $23,214 | $6,161 | $14,381 |
| Diluted EPS | $0.43 | $1.19 | $0.31 | $0.75 |
| Operating Cash Flow | N/A | $37,640 | N/A | $44,322 |
| Cash & Equivalents | $69,246 | $69,246 | N/A | N/A |
| Short-term Investments | $61,112 | $61,112 | N/A | N/A |
| Total Current Liabilities | $100,793 | $100,793 | N/A | N/A |
Liquidity: As of August 31, 1999, total cash and short-term investments were $130.4 million. The Company reported no long-term debt in the provided balance sheet data.
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 18% for the quarter and 22% for the nine-month period compared to the prior year. Software license revenue grew 15% (quarter) and 17% (nine months), while maintenance and services revenue grew 21% (quarter) and 26% (nine months).
- Profitability: Net income increased 34% for the quarter and 61% for the nine-month period. Operating income rose 33% (quarter) and 63% (nine months).
- International Sales: Revenue outside North America increased 24% (quarter) and 29% (nine months), representing 59% of total revenue in the quarter and 60% for the nine months.
- Expense Trends: Product development expenses increased 32% (quarter) and 28% (nine months) due to higher headcount and compensation. Sales and marketing expenses grew 4% (quarter) and 14% (nine months) but decreased as a percentage of revenue due to improved productivity.
- Cash Flow: Operating cash flow decreased 15% for the nine-month period ($37.6M vs $44.3M) primarily due to timing of payments and a smaller increase in deferred revenue, despite higher net income.
Guidance, Outlook, and Risks
- Outlook: Management expects sales and marketing expenses to grow at a slower rate than revenue for the remainder of fiscal 1999 if planned revenue is achieved. Headcount for technical support, consulting, and education is expected to continue increasing.
- Stock Repurchase: In September 1999, the Board authorized the repurchase of up to 5,000,000 shares of common stock through September 30, 2000. The Company repurchased 988,236 shares for $23.8 million in the first nine months of 1999.
- Year 2000 (Y2K): The Company believes current versions of its products are Y2K ready, though two Crescent products required patches. Internal systems are substantially ready. Risks include potential customer delays in purchasing due to their own Y2K remediation efforts and potential litigation regarding Y2K readiness.
- Market Risks: Significant exposure to foreign currency fluctuations (hedging programs in place). Competition is intense, particularly in Java-based application development and Internet transaction processing. Success depends on the adoption of new products like Progress Version 9 and Apptivity.
- Accounting Changes: The Company will adopt SFAS No. 133 (Derivatives and Hedging) in fiscal 2001 but does not expect a material effect on financial position.
Investor Verification Checklist
- Verify the sustainability of the 22% revenue growth rate, particularly the reliance on international markets (60% of revenue).
- Monitor the impact of increased product development and consulting headcount on future operating margins.
- Assess the risk of revenue deferral by customers focusing on Year 2000 remediation.
- Review the execution of the new $500 million stock repurchase program authorized in September 1999.
- Confirm the market acceptance of new product lines (Progress Version 9, Apptivity, ISQ) against competitive pressures.