Progress Software Corporation

09/30/2026 | Press release | Distributed by Public on 09/30/2026 14:11

Quarterly Report for Quarter Ending August 31, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q may contain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended; Section 21E of the Securities Exchange Act of 1934, as amended; and the Private Securities Litigation Reform Act of 1995. Whenever we use words such as "believe," "may," "could," "would," "might," "should," "expect," "intend," "plan," "estimate," "target," "anticipate" and negatives and derivatives of these or similar expressions, or when we make statements concerning future financial results, product offerings, or other events that have not yet occurred, we are making forward-looking statements. Actual future results may differ materially from those contained in or implied by our forward-looking statements due to various factors which are more fully described in Part I, Item 1A. Risk Factors in our 2025 Annual Report as well as any risk factors described in Part II, Item 1A of this Quarterly Report on Form 10-Q. Although we have sought to identify the most significant risks to our business, we cannot predict whether, or to what extent, any of such risks may be realized. We also cannot assure you that we have identified all possible issues that we might face. We undertake no obligation to update any forward-looking statements that we make.
Overview
Progress Software Corporation ("Progress," the "Company," "we," "us," or "our") provides software products that enable our customers to develop, deploy and manage responsible AI-powered applications and digital experiences.
Critical Accounting Policies
Management's discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. We make estimates and assumptions in the preparation of our consolidated financial statements that affect the reported amounts of assets and liabilities, revenue and expenses and related disclosures of contingent assets and liabilities. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances. However, actual results may differ from these estimates. The most significant estimates relate to revenue recognition, loss contingencies and the MOVEit Vulnerability, and business combinations. For further information regarding the application of these and other accounting policies, see Note 1, Nature of Business and Summary of Significant Accounting Policies to our Consolidated Financial Statements in Item 8 of our 2025 Annual Report. There have been no significant changes to our critical accounting policies and estimates since our 2025 Annual Report.
Use of 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 believe the presentation of revenue growth rates on a constant currency basis enhances the understanding of our revenue results and evaluation of 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 accounting principles generally accepted in the United States of America.
Results of Operations
Revenue
Three Months Ended Percentage Change
(in thousands) August 31, 2026 August 31, 2025 As Reported Constant Currency
Revenue $ 246,005 $ 249,795 (2) % (2) %
Nine Months Ended Percentage Change
(in thousands) August 31, 2026 August 31, 2025 As Reported Constant Currency
Revenue $ 747,269 $ 725,165 3 % 2 %
Total revenue decreased in the third quarter of fiscal year 2026 as compared to the same period last year primarily due to the timing of renewals on multiyear subscription contracts. Total revenue increased in the first nine months of fiscal year 2026 due to increases in license sales as well as a positive impact from foreign currency exchange, while maintenance, SaaS, and professional services were essentially unchanged from prior periods.
Software Licenses Revenue
Three Months Ended Percentage Change
(in thousands) August 31, 2026 August 31, 2025 As Reported Constant Currency
Software licenses $ 63,556 $ 63,437 - % - %
As a percentage of total revenue 26 % 25 %
Nine Months Ended Percentage Change
(in thousands) August 31, 2026 August 31, 2025 As Reported Constant Currency
Software licenses $ 200,116 $ 172,677 16 % 14 %
As a percentage of total revenue 27 % 24 %
Software licenses revenue remained flat in the third quarter of fiscal year 2026 compared to the same period in the prior year. Software licenses revenue increased in the first nine months of fiscal year 2026 primarily due to increases in our DataDirect and OpenEdge product offerings.
Maintenance, SaaS, and Professional Services Revenue
Three Months Ended Percentage Change
(in thousands) August 31, 2026 August 31, 2025 As Reported Constant Currency
Maintenance $ 100,016 $ 104,849 (5) % (5) %
As a percentage of total revenue 41 % 42 %
SaaS 72,623 71,512 2 % 2 %
As a percentage of total revenue 29 % 29 %
Professional services 9,810 9,997 (2) % (2) %
As a percentage of total revenue 4 % 4 %
Total maintenance, SaaS, and professional services $ 182,449 $ 186,358 (2) % (2) %
As a percentage of total revenue 74 % 75 %
Nine Months Ended Percentage Change
(in thousands) August 31, 2026 August 31, 2025 As Reported Constant Currency
Maintenance $ 301,577 $ 307,875 (2) % (4) %
As a percentage of total revenue 40 % 42 %
SaaS 216,089 213,027 1 % 1 %
As a percentage of total revenue 29 % 29 %
Professional services 29,487 31,586 (7) % (8) %
As a percentage of total revenue 4 % 4 %
Total maintenance, SaaS, and professional services $ 547,153 $ 552,488 (1) % (2) %
As a percentage of total revenue 73 % 76 %
Maintenance and professional services revenue decreased slightly across multiple product offerings as compared to the same periods last year. SaaS revenue slightly increased compared to prior periods presented.
Cost of Software Licenses
Three Months Ended Nine Months Ended
(in thousands) August 31, 2026 August 31, 2025 Percentage Change August 31, 2026 August 31, 2025 Percentage Change
Cost of software licenses $ 2,715 $ 2,833 (4) % $ 9,403 $ 8,745 8 %
As a percentage of software licenses revenue 4 % 4 % 5 % 5 %
Cost of software licenses consists primarily of royalties, electronic software distribution, duplication, and packaging. Cost of software licenses as a percentage of software license revenue varies from period to period depending upon the relative product mix. The increase in the first nine months of fiscal year 2026 compared to the same period last year was due to increased royalty costs.
Cost of Maintenance, SaaS, and Professional Services
Three Months Ended Nine Months Ended
(in thousands) August 31, 2026 August 31, 2025 Percentage Change August 31, 2026 August 31, 2025 Percentage Change
Cost of maintenance, SaaS, and professional services $ 30,815 $ 33,919 (9) % $ 95,174 $ 100,567 (5) %
As a percentage of maintenance, SaaS, and professional services revenue 17 % 18 % 17 % 18 %
Cost of maintenance, SaaS, and professional services consist primarily of hosting costs and personnel-related costs attributable to customer support, cloud operations, consulting, and education. The decreases in all periods shown are primarily due to decreased contractors and personnel-related costs in fiscal year 2026.
Amortization of Acquired Intangibles - Costs of Revenue
Three Months Ended Nine Months Ended
(in thousands) August 31, 2026 August 31, 2025 Percentage Change August 31, 2026 August 31, 2025 Percentage Change
Amortization of acquired intangibles $ 8,937 $ 10,784 (17) % $ 26,626 $ 31,743 (16) %
As a percentage of total revenue 4 % 4 % 4 % 4 %
Amortization of acquired intangibles included in costs of revenue primarily represents the amortization of the value assigned to technology-related intangible assets obtained in business combinations. The year-over-year decreases in all periods shown are due to the run-off of existing intangible assets over the period.
Sales and Marketing
Three Months Ended Nine Months Ended
(in thousands) August 31, 2026 August 31, 2025 Percentage Change August 31, 2026 August 31, 2025 Percentage Change
Sales and marketing $ 50,462 $ 51,850 (3) % $ 156,800 $ 152,823 3 %
As a percentage of total revenue 21 % 21 % 21 % 21 %
Sales and marketing expenses decreased in the third quarter of fiscal year 2026 primarily due to decreased variable compensation expenses during the period. Sales and marketing expenses increased in the first nine months of fiscal year 2026 primarily due to increased personnel-related costs and higher marketing and sales events costs.
Product Development
Three Months Ended Nine Months Ended
(in thousands) August 31, 2026 August 31, 2025 Percentage Change August 31, 2026 August 31, 2025 Percentage Change
Product development $ 46,054 $ 49,432 (7) % $ 145,368 $ 142,377 2 %
As a percentage of total revenue 19 % 20 % 19 % 20 %
Product development expenses decreased in the third quarter of fiscal year 2026 primarily due to decreased headcount related costs. In the first nine months of fiscal year 2026 product development expenses increased primarily due to increased personnel-related costs.
General and Administrative
Three Months Ended Nine Months Ended
(in thousands) August 31, 2026 August 31, 2025 Percentage Change August 31, 2026 August 31, 2025 Percentage Change
General and administrative $ 26,781 $ 28,308 (5) % $ 85,521 $ 79,568 7 %
As a percentage of total revenue 11 % 11 % 11 % 11 %
General and administrative expenses include the costs of our finance, human resources, legal, information systems, and administrative departments. The decrease in the third quarter of fiscal year 2026 was due to lower personnel-related costs. The increase in the first nine months of fiscal year 2026 was due to higher stock-based compensation expense and additional reserves related to our receivables, partially offset by lower contractors and outside services costs.
Amortization of Acquired Intangibles - Operating Expenses
Three Months Ended Nine Months Ended
(in thousands) August 31, 2026 August 31, 2025 Percentage Change August 31, 2026 August 31, 2025 Percentage Change
Amortization of acquired intangibles $ 26,162 $ 26,415 (1) % $ 77,946 $ 78,286 - %
As a percentage of total revenue 11 % 11 % 10 % 11 %
Amortization of acquired intangibles included in operating expenses primarily represents the amortization of value assigned to intangible assets obtained in business combinations other than assets identified as purchased technology. Amortization of acquired intangibles decreased in all periods shown due to the run-off of existing intangible assets over the period.
Cyber Vulnerability Response Expenses, Net
Three Months Ended Nine Months Ended
(in thousands) August 31, 2026 August 31, 2025 Percentage Change August 31, 2026 August 31, 2025 Percentage Change
Cyber vulnerability response expenses, net $ 3,455 $ 659 424 % $ 6,079 $ 2,126 186 %
As a percentage of total revenue 1 % - % 1 % - %
Since the discovery of the MOVEit Vulnerability that was disclosed on June 5, 2023, we have incurred expenses and will incur future costs related thereto. Such costs and expenses are net of received insurance recoveries. As of August 31, 2026, there is no remaining insurance recovery available to reduce costs incurred related to the MOVEit Vulnerability. Please refer to Note 12, Cyber Related Matters for additional details and updates regarding the MOVEit Vulnerability.
Restructuring Expenses
Three Months Ended Nine Months Ended
(in thousands) August 31, 2026 August 31, 2025 Percentage Change August 31, 2026 August 31, 2025 Percentage Change
Restructuring expenses $ 146 $ 907 (84) % $ 2,332 $ 8,979 (74) %
As a percentage of total revenue - % - % - % 1 %
Restructuring expenses recorded in the third quarter and first nine months of fiscal year 2026 primarily relate to the headcount reduction action in November 2025, and facility closures in other existing restructuring actions. Restructuring expenses recorded in the third quarter and first nine months of fiscal year 2025 primarily relate to headcount reductions and a facility closure in connection with the restructuring action related to the ShareFile acquisition in November 2024. See Note 9, Restructuring for additional details, including types of expenses incurred and the timing of future expenses and cash payments.
Acquisition-Related Expenses
Three Months Ended Nine Months Ended
(in thousands) August 31, 2026 August 31, 2025 Percentage Change August 31, 2026 August 31, 2025 Percentage Change
Acquisition-related expenses $ 3,928 $ 814 383 % $ 3,803 $ 5,035 (24) %
As a percentage of total revenue 2 % - % 1 % 1 %
Acquisition-related costs are expensed as incurred and include those costs incurred as a result of business combinations. These costs consist of professional service fees, including third-party legal and valuation-related fees. The increase in acquisition-related expenses in the third quarter of fiscal year 2026 are due to our acquisition of Domo. The decrease in acquisition costs in the first nine months of fiscal year 2026 was due to the fair value adjustment related to the contingent earn-out to former Nuclia shareholders. See Note 4, Business Combination. Acquisition-related expenses in the same periods of fiscal year 2025 were primarily related to our acquisitions of ShareFile and Nuclia.
Other (Expense) Income
Three Months Ended Nine Months Ended
(in thousands) August 31, 2026 August 31, 2025 Percentage Change August 31, 2026 August 31, 2025 Percentage Change
Interest expense $ (16,907) $ (17,737) (5) % $ (48,064) $ (54,304) (11) %
Interest income and other, net 757 260 191 % 1,307 1,041 26 %
Foreign currency loss, net (867) (191) 354 % (2,795) (2,281) 23 %
Total other expense, net $ (17,017) $ (17,668) 4 % $ (49,552) $ (55,544) 11 %
As a percentage of total revenue (7) % (7) % (7) % (8) %
Total other expense, net, decreased in the third quarter and first nine months of fiscal year 2026 due to a lower weighted average balance and interest rate on our revolving line of credit as compared to the same periods last year. These decreases in interest expense were partially offset by the redemption of our 2026 Notes in April, which was funded by drawing on our revolving line of credit that carries a higher interest rate than the Notes. Refer to Note 5, Debt for further discussion.
Provision for Income Taxes
Three Months Ended Nine Months Ended
(in thousands) August 31, 2026 August 31, 2025 Percentage Change August 31, 2026 August 31, 2025 Percentage Change
Provision for income taxes $ 6,757 $ 6,793 (1) % $ 22,003 $ 11,984 84 %
As a percentage of income before income taxes 23 % 26 % 25 % 20 %
Our effective tax rate was 23% and 26% in the third fiscal quarters of 2026 and 2025, respectively. The decrease in the effective rate is primarily due to changes in the jurisdictional mix of earnings, including the proportion of U.S. versus non-U.S. income, and minimal discrete tax benefit in the third fiscal quarter of 2026 compared to discrete tax expense of $2.0 million in the third fiscal quarter of 2025.
On July 4, 2025, the One Big Beautiful Bill Act ("OBBBA") was enacted into law, introducing significant changes to the U.S. federal income tax system. The legislation contains key modifications to the provisions of the 2017 Tax Cuts and Jobs Act and has multiple effective dates. In our fiscal 2026, provisions under OBBBA allow for an immediate deduction of U.S. Research & Experimental expenditures and a return to interest expense limitations based on EBITDA, which results in a reduction to the current taxes payable.
Select Performance Metrics:
Management evaluates our financial performance using a number of financial and operating metrics. These metrics are periodically reviewed and revised to reflect changes in our business.
Annualized Recurring Revenue ("ARR")
We disclose ARR as a performance metric to help investors better understand and assess the performance of our business because our mix of revenue generated from recurring sources currently represents the substantial majority of our revenues and is expected to continue in the future. We define ARR as the annualized revenue of all active and contractually binding term-based contracts from all customers at a point in time. ARR includes revenue from maintenance, software upgrade rights, public cloud, and on-premises subscription-based transactions and managed services. ARR mitigates fluctuations in revenue due to seasonality, contract term and the sales mix of subscriptions for term-based licenses and SaaS. We use ARR to understand customer trends and the overall health of our business, helping us to formulate strategic business decisions.
We calculate the annualized value of annual and multi-year contracts, and contracts with terms less than one year, by dividing the total contract value of each contract by the number of months in the term and then multiplying by 12. Annualizing contracts with terms less than one-year results in amounts being included in our ARR that are in excess of the total contract value for those contracts at the end of the reporting period. We generally do not sell non-SaaS-based contracts with a term of less than one year unless a customer is purchasing additional licenses under an existing annual or multi-year contract. The expectation is that at the time of renewal, such contracts with a term less than one year will renew with the same term as the existing contracts being renewed, such that both contracts are co-termed. Historically, such contracts with a term of less than one year renew at rates equal to or better than annual or multi-year contracts.
For SaaS-based contracts, there is a meaningful percentage of monthly auto-renewing contracts for which annualizing the contracts results in amounts being included in our ARR that are in excess of the total contract value for those contracts at the end of the reporting period.
Revenue from term-based license and on-premises subscription arrangements include a portion of the arrangement consideration that is allocated to the software license that is recognized up-front at the point in time control is transferred under ASC 606 revenue recognition principles. ARR for these arrangements is calculated as described above. The expectation is that the total contract value, inclusive of revenue recognized as software license, will be renewed at the end of the contract term. The calculation is done at constant currency using the current year budgeted exchange rates for all periods presented.
ARR is not defined in GAAP and is not derived from a GAAP measure. Rather, ARR generally aligns to billings (as opposed to GAAP revenue which aligns to the transfer of control of each performance obligation). ARR does not have any standardized meaning and is therefore unlikely to be comparable to similarly titled measures presented by other companies. ARR should be viewed independently of revenue and deferred revenue and is not intended to be combined with or to replace either of those items. ARR is not a forecast and the active contracts at the end of a reporting period used in calculating ARR may or may not be extended or renewed by our customers.
Our ARR was $873 million and $861 million as of August 31, 2026 and 2025, respectively, which is an increase of 1% year-over-year.
Net Retention Rate
We calculate net retention rate as of a period end by starting with the ARR from the cohort of all customers as of 12 months prior to such period end ("Prior Period ARR"). We then calculate the ARR from these same customers as of the current period end ("Current Period ARR"). Current Period ARR includes any expansion and is net of contraction or attrition over the last 12 months but excludes ARR from new customers in the current period. We then divide the total Current Period ARR by the total Prior Period ARR to arrive at the net retention rate. Net retention rate is not calculated in accordance with GAAP and is not derived from a GAAP measure.
Our net retention rates have generally ranged between 99% and 100% for all periods presented. We believe net retention rates can be a helpful indicator of the durability of top line performance.
Liquidity and Capital Resources
Cash and Cash Equivalents
(in thousands) August 31, 2026 November 30, 2025
Cash and cash equivalents $ 113,653 $ 94,807
The increase in cash and cash equivalents of $18.8 million from the end of fiscal year 2025 was due to cash inflows from operations of $265.5 million. The cash inflows described above were offset by cash outflows of $170.0 million to pay down the revolving line of credit, repurchases of common stock of $72.0 million, and purchases of property and equipment of $6.3 million. Except as described below, there are no limitations on our ability to access our cash and cash equivalents.
As of August 31, 2026, $68.8 million of our cash and cash equivalents was held by our foreign subsidiaries. We plan to utilize worldwide cash based on the needs of the parent entity, including principal payments on our revolving credit facility. These amounts will be repatriated as needed, and deferred taxes are recorded for earnings of our foreign operations that we determine are not indefinitely reinvested.
Nine Months Ended
(in thousands) August 31, 2026 August 31, 2025
Net cash flows provided by operating activities $ 265,474 $ 172,389
Net cash flows used in investing activities $ (6,264) $ (23,493)
Net cash flows used in financing activities $ (238,286) $ (175,784)
Cash Flows Provided by Operating Activities
The increase in cash generated from operations in the first nine months of fiscal year 2026, as compared to the same period last year, was primarily attributable to higher collections, increased income from operations, and lower interest expense.
Our gross accounts receivable as of August 31, 2026, decreased by $78.8 million from the end of fiscal year 2025. Our days sales outstanding ("DSO") in accounts receivable was 42 days in the third quarter of fiscal year 2026 compared to 55 days and 73 days in the third and fourth fiscal quarters of 2025, respectively, due to the timing of billings and collections.
Cash Flows Used in Investing Activities
Net cash outflows and inflows of our net investment activity are generally a result of capital expenditures as well as the timing of acquisitions. In the first nine months of fiscal year 2026, we purchased $6.3 million of property and equipment. In the third quarter of fiscal year 2025 we had $2.8 million of purchases of property and equipment and a payment of $20.7 million related to the acquisition of Nuclia.
Cash Flows Used in Financing Activities
We made payments on our revolving line of credit of $170.0 million through the third quarter of fiscal year 2026 as compared to $110.0 million in the same period of fiscal year 2025. We repurchased $72.0 million of our common stock under our share repurchase plan in the first nine months of fiscal year 2026 as compared to $65.1 million in the same period of the prior year. Further, we received proceeds from our revolving line of credit of $360.0 million which we used to repurchase the 2026 Notes for $360.0 million.
Share Repurchases
On September 23, 2025, our Board of Directors increased the share repurchase authorization by $200.0 million to an aggregate authorization of $242.2 million. During the three and nine months ended August 31, 2026, we repurchased and retired 0.5 million shares for $16.9 million and 2.2 million shares for $71.6 million, respectively. During the three and nine months ended August 31, 2025, we repurchased and retired 0.3 million shares for $15.0 million and 1.2 million shares for $65.1 million, respectively. The shares were repurchased in both periods as part of the share repurchase program as authorized by our Board of Directors. As of August 31, 2026, there was $130.7 million remaining under the current authorization.
Restructuring Activities
See Note 9, Restructuring to the condensed consolidated financial statements.
Convertible Senior Notes and Long-Term Debt
See Note 5, Debt to the condensed consolidated financial statements.
Liquidity Outlook
Cash from operations in fiscal year 2026 could be affected by various risks and uncertainties, including, but not limited to, the effects of various risks detailed in Part I, Item 1A. Risk Factors in our 2025 Annual Report, including increased disruption and volatility in capital markets and credit markets that could adversely affect our liquidity and capital resources in the future. However, based on our current business plan, we believe that existing cash balances, together with funds generated from operations and amounts available under our revolving credit facility, will be sufficient to finance our operations and meet our foreseeable cash requirements through at least the next twelve months. Our foreseeable cash needs include capital expenditures, acquisitions (including the acquisition of Domo for approximately $400 million, funded with borrowings under our existing revolving credit facility), debt repayments, share repurchases, lease commitments, restructuring obligations, and other long-term obligations.
We expect to continue to make payments on the revolving credit facility and are also continuously evaluating additional financing options, the net proceeds of which could be used for general corporate purposes or to repay outstanding indebtedness.
Legal and Other Regulatory Matters
MOVEit Vulnerability
As previously disclosed, on the evening of May 28, 2023, we learned that our MOVEit Transfer (the on-premise version) and MOVEit Cloud (a cloud-hosted version of MOVEit Transfer) products were attacked by a threat actor who compromised and exfiltrated personal data from various customer-controlled MOVEit Transfer environments. As a result of the MOVEit Vulnerability, we are party to certain class action lawsuits filed by individuals who claim to have been impacted by the exfiltration of data from the environments of our MOVEit Transfer customers, which have been centralized in the MDL. The MDL has also consolidated an insurance subrogation complaint (where an insurer is seeking recovery for expenses incurred on behalf of its insured in connection with the MOVEit Vulnerability) and, as of the date of this filing, one customer cross-claim. Motions to dismiss were filed and partially granted in July 2025, then further partially granted in January 2026 in response to our motions for reconsideration. In all, the court has dismissed, in whole or in part, 23 of the 33 claims asserted by the bellwether plaintiffs in the MDL. The court has ordered the conclusion of fact discovery by September 29, 2026. The filing of class certification occurred on August 28, 2026, and will continue into the fourth quarter of 2026. The MDL is not expected to conclude within the next twelve months. As previously disclosed, we have also cooperated with inquiries and investigations from various governmental authorities, a number of which have been formally closed and, as of the date of this filing, have not resulted in any prosecution or enforcement actions.
Please refer to Note 12, Cyber Related Matters to the condensed consolidated financial statements for additional details and updates regarding the MOVEit Vulnerability.
Recent Accounting Pronouncements
Refer to Note 1, Summary of Significant Accounting Policies to the condensed consolidated financial statements for further discussion.
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