Progress Software Corporation — FY2021 Form 10-K
Reporting period: Fiscal year ended November 30, 2021. The filing reports annual results; it does not provide a clear standalone Q4 income statement summary. Progress sells software for developing, deploying and managing applications, using direct and partner channels. It operated as one reporting segment from Q2 2021.
Key financial metrics
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Revenue | $531.3 million | $442.2 million | +20% reported; +19% constant currency |
| Gross profit / margin | $452.9 million / 85% | $380.0 million / 86% | Gross profit +19%; margin down 1 point |
| Operating income / margin | $116.1 million / 22% | $107.7 million / 24% | Income +8%; margin down 2 points |
| Net income / margin | $78.4 million / 15% | $79.7 million / 18% | Down 2%; margin down 3 points |
| Diluted EPS | $1.76 | $1.76 | Flat |
| Cash flow from operations | $178.5 million | $144.8 million | +23% |
- Revenue mix: software licenses $156.6 million (+36%); maintenance $325.9 million (+13%); professional services $48.9 million (+29%). Maintenance and services together were 71% of revenue.
- ARR, a non-GAAP operating metric, rose 12% to $486 million. Net dollar retention generally ranged from 98% to 101%.
- Cash, cash equivalents and short-term investments were $157.4 million, versus $106.0 million. Current assets were $337.8 million and current liabilities $322.9 million.
- Balance-sheet debt carrying value was approximately $560.3 million, including $294.5 million of convertible notes; debt face value was $627.1 million. The filing separately describes consolidated indebtedness as approximately $560 million.
Material changes versus FY2020
- Revenue growth reflected the full-year contribution from Chef, acquired in October 2020; demand for OpenEdge and Ipswitch; and Kemp, acquired November 1, 2021, which contributed $5.9 million of FY2021 revenue.
- Kemp was acquired for a base cash purchase price of $258 million. Its preliminary purchase-price allocation included $179.5 million of goodwill; acquired intangible valuations remained subject to measurement-period updates.
- Operating expenses rose, including sales and marketing (+26%), product development (+17%), general and administrative (+21%) and acquired-intangible amortization (+60%). Higher costs and interest expense contributed to lower net income and margins despite revenue growth.
- Operating cash flow increased to $178.5 million. Deferred revenue increased by $59.1 million year over year to $252.4 million; receivable days rose to 60 from 54.
Outlook, risks and unusual items
- Management said existing cash, operating cash flow and credit-facility availability should fund operations and foreseeable needs for at least 12 months. It did not provide numerical FY2022 revenue or earnings guidance in the supplied filing text.
- In January 2022, the company amended its credit agreement to provide a $275 million secured term loan and a $300 million secured revolving facility, generally maturing in January 2027, subject to specified conditions. Covenants restrict certain actions, including acquisitions, dividends and repurchases.
- In April 2021, Progress issued $360 million principal amount of 1% convertible notes due 2026 and paid $43.1 million for capped calls intended to reduce potential dilution, subject to a cap. The notes’ effective interest rate was 5.7% under the accounting treatment used.
- Capital returns included $31.6 million of dividends and $35.0 million of repurchases in FY2021; $155.0 million remained under the repurchase authorization. The quarterly dividend was raised to $0.175 per share.
- Key disclosed risks include dependence on OpenEdge and indirect sales partners, intense competition, acquisition integration and goodwill impairment, cybersecurity and product security, privacy regulation, foreign-currency exposure, COVID-19 uncertainty and debt obligations. A hypothetical 10% adverse currency move was estimated to reduce reported revenue by about 3% ($14 million) and net income by about 6% ($5 million), before hedging offsets.
- Restructuring and acquisition-related expenses were $6.3 million and $4.1 million, respectively. Management expected additional FY2022 facility and employee costs related to the Chef and Kemp integrations, but did not expect them to be material. Ordinary-course legal matters were not expected to materially affect financial results.
- The independent auditor issued unqualified opinions on the financial statements and internal controls. Kemp was excluded from management’s FY2021 internal-control assessment as a recently acquired business; the auditor’s assessment likewise excluded Kemp.
Most important facts to verify
- Whether ARR growth and retention persist, and how much growth is organic versus acquired.
- Kemp’s finalized purchase accounting, integration progress and contribution to revenue, profit and cash flow.
- Debt repayment capacity, refinancing and covenant headroom under the amended credit agreement, including potential note conversion or repurchase obligations.
- Whether operating cash flow converts sustainably to shareholder returns while funding acquisitions and servicing debt.
- Exposure to foreign exchange, cybersecurity, privacy regulation and the company’s largest product and channel dependencies.