Progress Software: Making Progress Driven by the AI Revolution

Key Points

• Progress Software’s $875 million acquisition of SharePoint is on track to be fully integrated by September 2025.
• SharePoint’s platform carries gross margins of more than 80%.
• Progress Software's stock bounced off a nine-month low after beating and raising its fiscal Q1 2025 earnings report.

Progress Software Co. NASDAQ: PRGS offers artificial intelligence (AI)-powered infrastructure and business application development platforms. Its services enable businesses to better manage and leverage their data with AI-powered tools.

The company has been integrating its $875 million acquisition of ShareFile, an AI-powered workflow automation and document collaboration platform. The computer and technology sector leader may finally be reversing course, bouncing off nine-month lows as momentum accelerates, driven by the AI boom and tactical acquisitions.

Progress Software Reverses Course After Hitting a Nine-Month Low

Progress Software’s stock had reached a nine-month low ahead of the release of its fiscal Q1 2025 earnings report. The company surprised investors by reporting an earnings-per-share (EPS) of $1.31, which beat consensus estimates by 25 cents. Revenues rose sharply by 28.9% year-over-year (YOY) to $238.02 million, beating consensus analyst estimates of $235.62 million.

Its annualized recurring revenue (ARR) grew 48% YOY to $836 million. The ShareFile acquisition added around $250 million of ARR. Operating margin was 14%, but adjusted operating margin was 39%. Cash and cash equivalents were $124.2 million at the end of the quarter. Its net retention rate (NRR) surpassed 100%.

The Upside Forward Guidance Drove the Surge in Sentiment

Progress Software issued upside FQ2 EPS guidance of $1.28 to $1.34, with a midpoint for $1.31 versus $1.17 consensus estimates. FQ2 revenue is expected to be between $235 million and $241 million, with a midpoint of $238 million versus $233.82 million.

Progress Software also issued upside full-year fiscal 2025 EPS of $5.25 to $5.37, with a midpoint of $5.31, versus $5.06 consensus analyst estimates. Full-year 2025 revenues are expected between $958 million and $970 million, with a midpoint of $964 million, versus $964.35 million consensus estimates.

ShareFile Integration Is On Track for 12-Month Target

The ShareFile integration was a boon for FQ1 earnings, helping drive ARR to 48% YOY growth. The integration is scheduled to be completed on track within its September 2025 (12-month) target. The acquisition also enables Progress Software to integrate future software-as-a-service (SaaS) company acquisitions, as stated in its FQ1 conference call by CEO Yogesh Gupta, “ShareFile's proven at-scale SaaS platform, combined with the expertise of the technologists that joined us with this acquisition, provides us the foundation to accelerate our own SaaS product deliveries. It will also make it easier for us to integrate any additional SaaS companies that we may acquire in the future. What's more, with this demonstrable proof point of evaluating, buying and integrating a large SaaS business into our company, the universe of potential acquisition now expands to include other SaaS businesses as well.”

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The ShareFile acquisition will continue to be a tailwind for Progress Software, adding nearly $250 million of top-line growth to its fiscal 2025 total revenues. Since it’s all SaaS recurring revenue, it is also very predictable, and exceptional gross margins exceed 80%. 

This helped lift overall company operating margins to 39% in FQ1 and is also on track for reaching 40% operating margins for 2025. Despite the uncertain economic environment, Progress isn’t forecasting any disruptions. It’s worth noting that their government business is relatively tiny.

Valuations Are Still at Bargain Levels Versus Competitors

Due to Progress Software's acquisition strategy, its debt has ballooned to $1.497 billion. Backing out the $124 million in cash leaves a net debt of $1.373 billion. It carries a high debt-to-equity ratio of 3.48. The debt is one of the few blemishes. Progress did pay down $30 million of debt in FQ1. Interest expense on the debt was $33.28 million or roughly 25% of its cash.

With its updated fiscal 2025 sales guidance of $994 million at the midpoint, it brings the updated price-sales (P/S) ratio to 2.63, which is less than direct competitors like Pegasystems Inc. NASDAQ: PEGA of 3.63 and SS&C Technologies Inc. NASDAQ: SSNC of 3.12. Its forward price-earnings (P/E) is 10.99, based on the raised fiscal full year 2025 forecast of $5.31 (midpoint) on 43 million shares outstanding. Compare this to Pegasystems’s forward P/E of 33.49 and SS&C’s forward P/E of 13.9. The consensus analyst price target indicates a 33.82% upside at $75.17.