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PROGRESS SOFTWARE CORP /MA : Results of Operations and Financial Condition, Financial Statements and Exhibits (form 8-K)

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03/26/2020 | 03:24pm EDT

Item 2.02 Results of Operations and Financial Condition

On March 26, 2020, Progress Software Corporation ("Progress") issued a press release announcing its financial results for the fiscal first quarter ended February 29, 2020. A copy of the press release is attached to this Current Report on Form 8-K as Exhibit 99.1 and is incorporated herein by reference.

This information shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not deemed incorporated by reference into any other filing of the company, whether made before or after the date of this report, regardless of any general incorporation language in the filing.

Non-GAAP Financial Information - Progress provides non-GAAP supplemental information to its financial results. We use this non-GAAP information to evaluate our period-over-period operating performance because our management believes the information helps illustrate underlying trends in our business and provides us with a more comparable measure of our continuing business, as well as a greater understanding of the results from the primary operations of our business, by excluding the effects of certain items that do not reflect the ordinary earnings of our operations. Management also uses this non-GAAP financial information to establish budgets and operational goals, which are communicated internally and externally, evaluate performance, and allocate resources. In addition, compensation of our executives and non-executive employees is based in part on the performance of our business evaluated using this same non-GAAP information. We believe this non-GAAP financial information enhances investors' overall understanding of our current financial performance and our prospects for the future by providing more transparency for certain financial measures and providing a level of disclosure that helps investors understand how we plan and measure our business. We believe that providing this non-GAAP information affords investors a view of our operating results that may be more easily compared to our peer companies and enables investors to consider our operating results on both a GAAP and non-GAAP basis during and following the integration period of our acquisitions.

However, this non-GAAP information is not in accordance with, or an alternative to, generally accepted accounting principles in the United States ("GAAP") and should be considered in conjunction with our GAAP results as the items excluded from the non-GAAP information often have a material impact on Progress' financial results. A reconciliation of non-GAAP adjustments to Progress' GAAP financial results is included in the tables in the press release and is available on the Progress website at www.progress.com within the investor relations section.

As described in more detail below, non-GAAP revenue, non-GAAP costs of sales and operating expenses, non-GAAP income from operations and operating margin, non-GAAP net income, and non-GAAP diluted earnings per share exclude the effect of purchase accounting on the fair value of acquired deferred revenue, amortization of acquired intangible assets, stock-based compensation expense, restructuring charges, acquisition-related and transition expenses, and the related tax effects of the preceding items. We also provide guidance on adjusted free cash flow, which is equal to cash flows from operating activities less purchases of property and equipment, plus restructuring payments.

In the noted fiscal periods, we adjusted for the following items from our GAAP financial results to arrive at our non-GAAP financial measures:

•      Acquisition-related revenue - In all periods presented, we include
       acquisition-related revenue, which constitutes revenue reflected as
       pre-acquisition deferred revenue that would otherwise have been recognized
       but for the purchase accounting treatment of acquisitions. The
       acquisition-related revenue relates to Ipswitch, which we acquired on
       April 30, 2019. Since GAAP accounting requires the elimination of this
       revenue, GAAP results alone do not fully capture all of our economic
       activities. We believe these adjustments are useful to management and
       investors as a measure of the ongoing performance of the business because,
       although we cannot be certain that customers will renew their contracts,
       we have historically experienced high renewal rates on maintenance and
       support agreements and other customer contracts. Additionally, although
       acquisition-related revenue adjustments are non-recurring with respect to
       past acquisitions, we expect to incur these adjustments in connection with
       any future acquisitions.

•      Amortization of acquired intangibles - In all periods presented, we
       exclude amortization of acquired intangibles because those expenses are
       unrelated to our core operating performance and the intangible assets
       acquired vary significantly based on the timing and magnitude of our
       acquisition transactions and the maturities of the businesses acquired.

•      Stock-based compensation - In all periods presented, we exclude
       stock-based compensation to be consistent with the way management and the
       financial community evaluates our performance and the methods used by
       analysts to calculate consensus estimates. The expense related to
       stock-based awards is generally not controllable in the short-


term and can vary significantly based on the timing, size and nature of awards
granted. As such, we do not include these charges in operating plans.
Stock-based compensation will continue in future periods.
•      Restructuring expenses - In all periods presented, we exclude
       restructuring expenses incurred because those expenses distort trends and
       are not part of our core operating results.

•      Acquisition-related and transition expenses - In all periods presented, we
       exclude acquisition-related expenses because those expenses distort trends
       and are not part of our core operating results. In recent years, we have
       completed a number of acquisitions, which result in our incurring
       operating expenses which would not otherwise have been incurred. By
       excluding certain transition, integration and other acquisition-related
       expense items in connection with acquisitions, this provides more
       meaningful comparisons of the financial results to our historical
       operations and forward-looking guidance and the financial results of less
       acquisitive peer companies. We consider these types of costs and
       adjustments, to a great extent, to be unpredictable and dependent on a
       significant number of factors that are outside of our control.
       Furthermore, we do not consider these acquisition-related costs and
       adjustments to be related to the organic continuing operations of the
       acquired businesses and are generally not relevant to assessing or
       estimating the long-term performance of the acquired assets. In addition,
       the size, complexity and/or volume of past acquisitions, which often
       drives the magnitude of acquisition-related costs, may not be indicative
       of the size, complexity and/or volume of future acquisitions.

•      Income tax adjustment - In all periods presented, we adjust our income tax
       provision by excluding the tax impact of the non-GAAP adjustments
       discussed above.

Constant Currency - Revenue from our international operations has historically represented a substantial portion of our total revenue. As a result, our revenue results have been impacted, and we expect will continue to be impacted, by fluctuations in foreign currency exchange rates. For example, if the local currencies of our foreign subsidiaries strengthen, our consolidated results stated in U.S. dollars are positively impacted.

As exchange rates are an important factor in understanding period to period comparisons, we present revenue growth rates on a constant currency basis, which helps improve the understanding of our revenue results and our performance in comparison to prior periods. The constant currency information presented is calculated by translating current period results using prior period weighted average foreign currency exchange rates. These results should be considered in addition to, not as a substitute for, results reported in accordance with GAAP.

Item 9.01 Financial Statements and Exhibits

(d) Exhibits.
Exhibit No.   Description
                Press release issued by Progress Software Corporation dated March 26,
99.1          2020


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