Progress Software (PRGS +12%) hits record highs today after surpassing Q3 earnings and sales estimates and offering solid Q4 guidance. Although the company's adjusted EPS forecast for Q4 fell short, it was impacted by the planned acquisition of ShareFile, expected to finalize by year-end.
The $875 million ShareFile acquisition is substantial for PRGS, given its $2.44 billion market cap. Initially, the acquisition was poorly received, leading PRGS to suspend its dividend to quickly reduce debt post-deal. However, ShareFile's 86,000 customer base, 100% recurring revenue, and $240 million boost to PRGS's annualized recurring revenue (ARR) were significant positives, aligning well with PRGS's Digital Experience offerings.
By delivering strong Q3 results and indicating minimal financial impact from ShareFile, PRGS eased acquisition concerns and highlighted its technological growth.
- In Q3, PRGS's adjusted EPS grew 17% year-over-year to $1.26, beating the $1.11-1.15 forecast. This was driven by a 200 basis point increase in operating margins and a return to positive revenue growth of 2% to $178.69 million, following a -2.3% decline last quarter.
- ARR increased slightly from Q2 to end Q3 at $582 million, with growth spread across multiple product lines. Net retention remained strong at 99%.
- ShareFile was a major focus during the earnings call, but PRGS's emphasis on AI, which enhances efficiency in its DevOps market, should not be overlooked. AI integration into its products is a key driver of recent performance.
- For Q4, PRGS expects adjusted EPS of $1.15-1.25 and revenues of $207-217 million, including one month of ShareFile's contribution. The acquisition will impact cash flows by $15-20 million, but PRGS anticipates a quick recovery, citing ShareFile's 15-20% operating margins. Full integration is expected within 12 months post-closing.
Despite initial concerns over the ShareFile acquisition and dividend suspension, PRGS's strong Q3 performance and optimistic Q4 outlook have reassured investors, highlighting the company's strengthened position in an AI-driven market.
