Progress Software Stock Back in the Green After Beating Forecasts

Key Points

• Progress Software is back in the green in 2024 after beating earnings estimates.
• Progress Software's stock surpassed expectations of several key metrics and raised its guidance.
• Projected growth is somewhat low, but the firm consistently beats earnings estimates.

Progress Software NASDAQ: PRGS is a technology company within the systems software sub-industry. The stock reached its 2024 low on Jun. 20, when it was down nearly 11% year to date. The firm reported its second-quarter financial results on Jun. 25, 2024, and is back in the green, now up almost 2% on the year. The firm's results impressed the market, with the stock shooting up nearly 13% on the day following the release. Let's explore Progress Software's products, recent financial results, and outlook to understand whether this is a name to consider adding.

Explore Progress Software's Product Lineup: AI-Powered Solutions for Developers

The firm's 2023 annual financial report, or Form 10-K, provides descriptions of 12 different software products the firm offers. The firm's main products allow software developers to create, deploy, and manage their applications more efficiently. It also provides software that enables secure file transfer and a solution that enables data sharing between different applications. Some of the most notable products include Progress OpenEdge, Progress Chef, and Progress Developer Tools. Many of these products are AI-powered.

The firm monetizes these products mainly through perpetual licenses, which allow the use of the software indefinitely. It also offers renewable term licenses on some products and a subscription model for its cloud-based offerings. Along with its licenses, the firm also provides product maintenance that gives access to software updates and technical support. Purchasers of perpetual licenses have the option, but not the requirement, to add maintenance support. The firm actually makes the majority of its revenues from its maintenance services. 58% of total revenue came from this stream in 2023.

Progress does not identify any direct competitors in its annual filing, but some companies that offer similar products include Amazon (NASDAQ: AMZN), Microsoft NASDAQ: MSFT, and Oracle NYSE: ORCL.

Progress Software's Impressive Financial Results: Surpassing Expectations

Results surpassed expectations on many fronts. Second-quarter revenues were $175 million, beating out the $170 million guidance midpoint and the $169 million consensus estimate. Earnings per share (EPS) also beat expectations, coming in at $1.09, well above the guidance midpoint and consensus estimate of $0.95.

Other essential measures shined as well. Annual recurring revenue (ARR) was $579 million. This measures the value of all contractually binding agreements the firm has in place. Contracts provide a reliable source of revenue, ensured by their legal binding. About 83% of the firm’s total revenue comes from annually recurring sources. The Net Retention Rate was 99%, which measures the firm’s ability to renew or replace annual recurring revenue.

Days Sales Outstanding (DSO) has also been consistently improving. DSO measures how many days it takes to convert sales purchased on credit into cash.  DSO was at 50 days in Q2 2023 and dropped to 44 days in Q1 2024. It fell again to 41 days in Q2 2024. This shows the firm is getting paid by customers faster and is consistently becoming more capable in that area. Lastly, adjusted free cash flow grew by 33% from Q2 2023. Overall, this was an impressive report from Progress.

Progress Software’s Guidance and Outlook: Increased 2024 Revenue and EPS Projections

Not only did Progress show impressive backward-looking results, but it also raised its future expectations. The company raised its fiscal year 2024 revenue guidance by $3 million and increased its EPS by 5 cents. Analysts are bullish on the stock, with five buy ratings and two holds.

The average price forecast sits at $63.14, implying a 15% upside. The firm has a projected earnings growth rate of 9%, on the low side relative to its industry.

In the firm’s quarterly earnings conference call, executives detailed the initiatives the firm is pursuing going forward. These include further integrating generative AI into its products and using AI internally to optimize the company's operations.

The firm is also actively involved in M&A activity. It is currently conducting due diligence on the potential acquisition of Irish software company MariaDB.

Lastly, the firm is dealing with the aftermath of a data breach that involved one of its products. At the end of May, the Spanish Data Protection Agency informed Progress that it would not take regulatory action against the firm.

Progress Software’s recent earnings report was impressive, but the modest implied upside and projected growth are concerning. However, the firm has made a habit of consistently beating its estimates, so it's possible it can do much better than analysts expect over the long term.