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PS

PROGRESS SOFTWARE CORP /MA (PRGS)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 revenue was $214.961M (+21% YoY), near the high end of prior guidance ($207–$217M), with non-GAAP EPS of $1.33 above guidance ($1.15–$1.25); GAAP EPS fell to $0.03, largely impacted by non-GAAP excluded items and a $14M deferred tax liability recognized in Q4 .
  • ARR reached $842M (+46% YoY constant currency) and NRR was above 100%; ShareFile contributed ~$21M revenue in November and will drive ~100% SaaS revenue growth, taking SaaS mix toward ~30% in FY25 and recurring revenue to ~87% .
  • FY25 guidance: revenue $958–$970M; non-GAAP operating margin 37–38%; non-GAAP EPS $5.00–$5.12; unlevered FCF $282–$294M; Q1 FY25 revenue $232–$238M and non-GAAP EPS $1.02–$1.08 .
  • Capital allocation pivot: dividend suspended post-ShareFile closing to prioritize ~$150M debt repayment in FY25 and future M&A/share repurchases; net debt ended FY24 at ~$1.42B (cash $118M; debt $1.54B) .

What Went Well and What Went Wrong

  • What Went Well

    • Strong execution: Non-GAAP operating margin of 37% and EPS of $1.33 beat prior guidance; CEO: “We exceeded the high end of guidance on earnings and free cash flow” .
    • ARR momentum and retention: ARR $842M (+46% YoY CC) with NRR above 100%; CFO: “NRR closed the year above 100%, … ShareFile delivered results in line with expectations” .
    • Product strength and AI: Demand across OpenEdge, DataDirect, MarkLogic and DevTools; expanded AI use cases (RAG, vector) and federal traction; CEO details RAG and vector enhancements enabling accurate GenAI responses with traceability .

  • What Went Wrong

    • GAAP EPS compression: Diluted GAAP EPS fell to $0.03 (from $0.34 YoY), driven by higher acquisition-related, restructuring, and amortization costs and a $14M deferred tax liability recognized in Q4 .
    • Working capital/CF timing: Q4 cash from ops declined to $19.651M vs $33.161M YoY due to acquisition structure (ShareFile receivables not acquired, offset by purchase price adjustment), with AFCF $18.087M .
    • DSO and operating expenses: DSO increased to 67 days (vs 45 days in Q3), and total operating expenses rose 30% YoY on acquisition-related items and higher R&D/SG&A .

Financial Results

MetricQ4 2023Q2 2024Q3 2024Q4 2024
Revenue (GAAP, $USD Millions)$176.970 $175.077 $178.686 $214.961
Revenue (Non-GAAP, $USD Millions)$177.523 $179.233 $175.783 $214.961
Diluted EPS (GAAP, $USD)$0.34 $0.37 $0.65 $0.03
Diluted EPS (Non-GAAP, $USD)$1.02 $1.09 $1.26 $1.33
Operating Margin (GAAP, %)13% 16% 23% 10%
Operating Margin (Non-GAAP, %)35% 38% 41% 37%

Segment breakdown (revenue):

Segment Revenue ($USD Millions)Q4 2023Q3 2024Q4 2024
Software licenses$56.270 $57.850 $73.402
Maintenance and services$120.700 $120.836 $141.559
Total$176.970 $178.686 $214.961

KPIs and cash metrics:

KPIQ2 2024Q3 2024Q4 2024
ARR ($USD Millions)$579 $582 $842
Net Retention Rate (%)—99% 100%+
DSO (days)41 45 67
Cash from Operations ($USD Millions)$63.681 $57.658 $19.651
Adjusted Free Cash Flow ($USD Millions)$64.073 $57.525 $18.087
Cash & Equivalents ($USD Millions)$190.420 $232.713 $118.077
Deferred Revenue ($USD Millions)—$285 $404
Net Debt ($USD Millions)—$577 ~$1,420

Notes:

  • CFO disclosed ShareFile contributed ~$21M to Q4 revenue and added $96M deferred revenue at close; Q4 deferred revenue rise reflects both seasonality and ShareFile .
  • Q4 GAAP tax provision reflected recognition of ~$14M deferred tax liability on repatriation, impacting GAAP EPS .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($M)FY 2025N/A$958–$970 New
Non-GAAP EPS ($)FY 2025N/A$5.00–$5.12 New
GAAP EPS ($)FY 2025N/A$1.08–$1.23 New
Non-GAAP Operating Margin (%)FY 2025N/A37–38 New
Cash from Ops ($M)FY 2025N/A$216–$228 New
Adjusted Free Cash Flow ($M)FY 2025N/A$225–$237 New
Unlevered Free Cash Flow ($M)FY 2025N/A$282–$294 New
Effective Tax Rate (%)FY 2025N/AGAAP 21; Non-GAAP 20 New
Revenue ($M)Q1 FY25N/A$232–$238 New
Non-GAAP EPS ($)Q1 FY25N/A$1.02–$1.08 New
Dividend PolicyOngoing$0.175/qtr prior to close Suspended post-acquisition Lowered/Suspended
Debt RepaymentFY 2025N/A~$150M modeled repayments New
EPS impact (interest & converts)FY 2025N/A~$(0.74–$0.75) from interest; ~$(0.20) dilution New driver

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q3)Current Period (Q4)Trend
AI/technology initiativesQ2: steady demand; Q3: RAG/vector in MarkLogic/Semaphore; Flowmon AI threat detection Expanded AI across DX and developer tools; ShareFile adds AI summarization and workflow guidance Expanding capabilities and adoption; federal win cited
ShareFile integration & SaaS mixQ3: deal announced; 1-month expected in Q4; margins high-teens initially Contributed ~$21M in Nov; ~$250M FY25 revenue; SaaS ~30% of total; recurring ~87%; margin improving through FY25 Integration on track; margin trajectory improving
Capital allocation & leverageQ3: converts issued/refi; cash strong Net debt ~$1.42B; plan ~$150M paydown in FY25; buybacks to offset dilution; dividend suspended Focus on deleveraging; opportunistic buybacks
Regulatory/legal (MOVEit)Q3: SEC concluded no enforcement; regulators closed cases Continue to incur legal/pro services; costs excluded in non-GAAP; investigation closed Overhang easing; residual expenses persist
Demand environmentQ2: outperformance; Q3: strong across products Demand sustained into FY25; pipeline robust; majority revenue from existing customers Stable demand backdrop
R&D execution/investment envelopeQ2: innovation focus; Q3: portfolio enhancements No material change to investment envelope; focus on enhancing AI capabilities Consistent investment discipline

Management Commentary

  • CEO: “We exceeded the high end of guidance on earnings and free cash flow, and ARR grew by 46% in constant currency… ShareFile… will contribute meaningfully to our top- and bottom-line” .
  • CEO on AI: “MarkLogic and Semaphore now use retrieval augmented generation and vector capabilities… accurate and contextually relevant GenAI responses… with traceability” .
  • CFO: “Operating income for the quarter was $81 million for an operating margin of 37%… earnings per share of $1.33… $0.08 above the high end of our guidance” .
  • CFO on financing and leverage: “Ended the year with cash… $118M and debt of $1.54B… expect net leverage ~3.5x post-synergy; modeling $150M debt repayment during fiscal 2025” .
  • CFO on EPS headwinds: “Incremental interest expense is about $0.74–$0.75 for the year and dilution from our converts is about $0.20” .

Q&A Highlights

  • Organic demand drivers: Strength across OpenEdge, DataDirect, MarkLogic; AI capabilities bolstering upsell across geographies/channels/products .
  • Investment envelope: No material change; focus on enhancing AI within existing budget envelope .
  • M&A strategy in higher-for-longer rates: No pause; disciplined approach; environment may favor reasonable valuations and Progress’ financing structure .
  • SaaS financial breakout: Likely to provide a services line aggregating SaaS solutions for better modeling transparency in FY25 .
  • Margin trajectory: ShareFile starting high-teens operating margin in Q4; gradual improvement through FY25 toward 40% .
  • MarkLogic GenAI use case: U.S. government agency extending use with RAG/vector; initial internal applications .
  • FY25 ShareFile revenue: ~ $250M; consistent low-single-digit ARR growth across business .
  • EPS modeling nuance: Organic revenue lumpiness due to timing of term-license renewals (e.g., DataDirect/OpenEdge) and FX impact (~$5–$6M FY25) .

Estimates Context

  • S&P Global consensus (revenue and EPS) was unavailable at time of request due to vendor daily limit; therefore vs-estimate comparisons are omitted and we benchmarked results vs company guidance instead. Q4 revenue ($214.961M) was near the high end of $207–$217M guidance, and non-GAAP EPS ($1.33) exceeded $1.15–$1.25 guidance .

Key Takeaways for Investors

  • Non-GAAP performance beat: Strong execution drove a non-GAAP margin of 37% and EPS above guidance, supported by broad product demand and disciplined cost control .
  • Recurring mix rising: ShareFile accelerates SaaS and recurring revenue (~87% in FY25), improving visibility and durability of top line .
  • GAAP EPS headwinds: Expect EPS pressure from higher interest expense ($0.74–$0.75) and convert dilution ($0.20) in FY25; non-GAAP framing provides clearer operating view .
  • Deleveraging plan is a catalyst: ~$150M modeled debt repayment in FY25, dividend suspended to prioritize flexibility for future M&A and buybacks .
  • Integration watchpoints: ShareFile margin improvement is linear through FY25 (start high-teens), with target 40% by year-end; track quarterly progress and SaaS services line reporting .
  • Tax and working capital nuances: Q4 GAAP EPS hit by $14M deferred tax liability; asset purchase structure created temporary cash flow drag—expect CF normalization as billing cycles roll through .
  • Product-led AI differentiation: RAG/vector in data platform, Flowmon AI, and ShareFile’s AI capabilities position PRGS well for secure, compliant, document-centric workflows and enterprise/federal use cases .