Progress Investor Overview. July 2018

Transcription

1 Progress Investor Overview July 2018

2 Forward Looking Statements This presentation contains statements that are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Progress has identified some of these forward-looking statements with words like believe, may, could, would, might, should, expect, intend, plan, target, anticipate and continue, the negative of these words, other terms of similar meaning or the use of future dates. Forward-looking statements in this presentation include, but are not limited to, statements regarding Progress s strategy; acquisitions; future revenue growth, operating margin and cost savings; product development, strategic partnering and marketing initiatives; the growth rates of certain markets; and other statements regarding the future operation, direction and success of Progress s business. There are a number of factors that could cause actual results or future events to differ materially from those anticipated by the forward-looking statements, including, without limitation: Economic, geopolitical and market conditions can adversely affect our business, results of operations and financial condition, including our revenue growth and profitability, which in turn could adversely affect our stock price. We may fail to achieve our financial forecasts due to such factors as delays or size reductions in transactions, fewer large transactions in a particular quarter, fluctuations in currency exchange rates, or a decline in our renewal rates for contracts. Our ability to successfully manage transitions to new business models and markets, including an increased emphasis on a cloud and subscription strategy, may not be successful. If we are unable to develop new or sufficiently differentiated products and services, or to enhance and improve our existing products and services in a timely manner to meet market demand, partners and customers may not purchase new software licenses or subscriptions or purchase or renew support contracts. We depend upon our extensive partner channel and we may not be successful in retaining or expanding our relationships with channel partners. Our international sales and operations subject us to additional risks that can adversely affect our operating results, including risks relating to foreign currency gains and losses. If the security measures for our software, services or other offerings are compromised or subject to a successful cyber-attack, or if such offerings contain significant coding or configuration errors, we may experience reputational harm, legal claims and financial exposure. We may make acquisitions in the future and those acquisitions may not be successful, may involve unanticipated costs or other integration issues or may disrupt our existing operations. For further information regarding risks and uncertainties associated with our business, please refer to our filings with the Securities and Exchange Commission. Progress undertakes no obligation to update any forward-looking statements, which speak only as of the date of this presentation, except for statements relating to Progress' projected results for the fiscal year ended November 30, 2018 and quarter ended August 31, 2018, which speak only as of June 27, Finally, during this presentation we will be referring to non-gaap financial measures such as non-gaap revenue, non-gaap income from operations and operating margin, adjusted free cash flow and non-gaap diluted earnings per share. These non-gaap measures are not prepared in accordance with generally accepted accounting principles. A reconciliation between non-gaap and the most directly comparable GAAP financial measures appears in the Events and Presentations portion of the Investor Relations section of our Web site. 2

3 Progress At A Glance Global leader in application development and deployment technologies Our mission: To provide the best platform to build and deploy missioncritical business applications 1,700+ ISV partners build their applications on Progress technologies 100,000+ Enterprises run their missioncritical business systems on Progress 2+ million Developers build applications using Progress technologies 6+ million Business users work with applications that run on Progress technologies 100+ million Consumers use applications that run on Progress technologies Deep Domain Expertise What We Sell Who We Sell To ISV Channel is Key Strength 35+ years of delivering the tools and technologies business application developers need 1. Frontend developer tools to easily create engaging user interfaces for applications 2. Backend platforms and services for building and running business applications 3. Data connectivity for connecting applications to any other application or data source Software vendors (ISVs) that build applications on Progress technologies to sell to their customers Enterprises for internal application development Progress is the largest company where majority of revenue comes from ISVs 3

4 Business Strategy Our goal is to create long-term shareholder value by building an increasingly stronger business. To deliver on that goal, our corporate strategy has three key elements 1. Continue to operate a lean, highly profitable business 2. Provide a future technology path for our strong network of ISVs and customers, and win new customers and partners in the application development market 3. Leverage our operating model to acquire complementary businesses and operate them more efficiently We will succeed with #2 by delivering the best platform for building their future mission-critical business applications 4

5 Second Quarter 2018 Highlights Exceeded expectations for both revenue and EPS 17% YTD growth in cloud-based SaaS revenue from OpenEdge partners EPS growth of 43% versus Q Operating margin of 39%, increase of nearly 400 bps year-over-year Raised 2018 guidance for Operating Margin, EPS and Free Cash Flow Returned over $50M to shareholders via dividends and share buybacks Refer to the investor relations section of our website for definitions and reconciliation of our non-gaap metrics 5

6 Investment Highlights Strong, Stable Business, Opportunity for Growth Large base of customers and partners who continue to grow and thrive Stable and predictable business with ~ 67% recurring revenues, and even greater visibility Consistently strong cash flows ($122M in 2017, guidance for 2018 is $120 - $125M) Strong margins and non-gaap EPS projected for 2018 (Guidance is for margins of 38%, EPS of $ $2.50) New leadership: New management team, five of eight board members new Disciplined capital allocation strategy focused on returning free cash flow to shareholders ($200M returned through buybacks & dividends in the last 6 quarters) Well-positioned to be the platform of choice for the future of business application development a large growing market opportunity Refer to the investor relations section of our website for definitions and reconciliation of our non-gaap metrics 6

7 Deep & Long-Standing Customer Relationships ISV MANUFACTURING HEALTHCARE FINANCIAL SERVICES RETAIL 7

8 The New Requirements for Mission-Critical Apps Adaptive User Experience Cognitive and Predictive Connected to All Data and Systems Internet Scale Agile, Flexible, Reliable, Secure 8

9 Progress Delivers on the New Requirements Mobile Web Wearables Chatbots AR/VR Adaptive Experience Cognitive Cloud Connected Data Systems of Record Big Data Internet of Things 9

10 Our Software Solutions 10

11 Backend Platform: OpenEdge Foundation for Mission-critical Systems of Record Largest Revenue/Margin Contributor Used by 1,500+ ISVs & 55,000+ Enterprises Very sticky product, at the core of customers/partners most mission-critical apps Unbelievably reliable: It Just Works Sold to CIOs and VPs of App Dev 2017 segment revenue of $276M, 74% margin 60% + revenue from ISV channel Cloud-based revenue growth in low-double-digits % 11

12 Kinvey: The Leading Modern Backend Platform The most advanced serverless cloud platform for modern business applications Forrester Wave Enterprise Health Clouds, Q3 17 Rated # 1 in Forrester Enterprise Health Clouds Wave, Q3 17 Cloud only, SaaS-based offering Comprehensive, scalable and reliable platform with extensive security and data connectivity Designed for compliance and governance HIPAA-compliant, supports life-critical apps for healthcare and pharma 12

13 Why Kinvey The Most Advanced Cloud App Platform Kinvey is a leading modern, high-productivity application platform Enable OpenEdge customers and partners to grow their businesses by providing the technologies they need for their new application projects, while leveraging their legacy ones Win new logos: Enable new customers to build and deploy modern serverless cloud-native applications on the most modern technology platform Backend-as-a-service market: Less than $1B in 2016* Growing at over 35% CAGR* Fragmented market *Source: 451 Group, August

14 DataRPM: Predictive Maintenance Cutting-edge Machine Learning Technology Makes predictive analytics and machine learning easy for any organization to embed in their applications Differentiated, patented technology and approach Focused on the manufacturing and industrial space 14

15 Why DataRPM Manufacturing is Key Vertical for OpenEdge ISVs OpenEdge ISVs Other 25% Predictive analytics / predictive maintenance is a top need for all manufacturers Government 14% Financial Services 14% Manufacturing 47% Predictive Maintenance market is growing rapidly: Approx. $1.4B in 2016* Growing at approx 30% CAGR* Predictive Maintenance will help companies save $630 billion by 2025 (McKinsey, Dec 2016) *Source: MarketsandMarkets,

16 Frontend Developer Tools Frontend Tools for Web and Mobile App Development that 2 Million Developers Love Gartner-recognized leader in developer tools for building mobile and web applications Customers can build better, more engaging apps in less time Sold to the individual developer or development teams 2017 segment revenue of $80M, 67% margin Improved profitability: + 17% versus

17 Data Connectivity The Industry Standard for Data Connectivity Undisputed leader in premium data access market 10,000 enterprise customers 350 OEMs embed DataDirect, including most major software vendors 8 of 10 top BI/Analytics vendors embed DataDirect Sold to CIOs, CTOs and VPs of App Dev 2017 segment revenue of $41M, 77% margin 75% + revenue from OEM channel 17

18 Our Buyers Are Application Development Teams (at Enterprises and ISVs) Developers/Architects Work with tools/platforms they love We sell them best-in-class developer tools and platforms CIOs, CTOs and VPs Focused on risk, TCO, time-to-market Standardize on platforms that drive quality and efficiency but only when their developers love to work with them We sell them a world-class backend platform and data connectivity We offer technologies that appeal to both audiences and address both sets of needs CIO VP App Development Architects Developers Economic Buyers Users 18

19 Progress: Recognized as a Leader/Strong Performer by Gartner and Forrester Leader in Frontend Development Tools Gartner Magic Quadrant Mobile App Dev Platforms Strong Performer in Full Stack App Dev Forrester Wave Digital Experience Development Platforms Q

20 M&A Framework Two Types of Acquisitions 1. Technology or product capability that is critical to our core business strategy Meet evolving needs of our large installed base Not conducive to organic development DataRPM and Kinvey are examples We do not expect to make other acquisitions of this type for the foreseeable future 2. Complementary to Our Business (Product, Audience & Growth Profile) Bolster recurring revenue Cost synergistic and accretive Margins equal to or higher than 35% after synergies ROIC above our weighted average cost of capital 20

21 Strong, Experienced Management Team Yogesh Gupta, CEO Paul Jalbert, CFO John Ainsworth, SVP, Core Steve Faberman, CLO & Corp Dev Loren Jarrett, CMO Products Tony Murphy, CIO Gary Quinn, SVP, Core Products Field Faris Sweis, SVP, Dev Tools Dimitre Taslakov, Chief Talent Officer Dmitri Tcherevik, Chief Technology Officer 21

22 Progress Financial Performance Refer to the investor relations section of our website for definitions and reconciliation of our non-gaap metrics

23 Financial Highlights Committed to future Non-GAAP operating margins of 35% Guidance for FY18 increased to 38% Margin expansion through continuous prudent expense management Annual adjusted free cash flow of $120M+ 67% recurring revenue Includes $24M TTM partner-based SaaS related revenue (growing 10%+) Meaningful return of capital to shareholders Instituted a quarterly dividend in 2016, increased by 12% in 2017 Nearly $700M of share repurchases in last 6+ years Increased current authorization to $250M in September 2017 ($130M remaining) 23

24 Annual Financial Performance (Non-GAAP) Revenue ($M) Operating Income ($M) $420 $160 $410 $150 $400 $390 $380 $370 $360 $350 Guidance Range $140 $130 $120 $110 $100 Guidance Range FY15 FY16 FY17 FY18 Guidance Revenue $412.4 $407.4 $398.6 $399 to $404 YoY Growth % 24.0% -1.2% -2.2% Flat to Constant Currency 31.0% 0.2% -2.2% -1% to Flat FY15 FY16 FY17 FY18 Guidance Operating Income $120.4 $123.1 $144.5 $151.6 to $154.3 YoY Growth % 2.6% 2.2% 17.4% 4.9% to 6.8% Operating Margin 29.2% 30.2% 36.2% 38% Diluted EPS Adjusted Free Cash Flow ($M) $2.50 $2.25 $2.00 $1.75 $1.50 Guidance Range $130 $110 $90 Guidance Range $1.25 $1.00 FY15 FY16 FY17 FY18 Guidance Diluted EPS $1.58 $1.65 $1.91 $2.45 to $2.50 YoY Growth % 4.6% 4.4% 15.8% 28.3% to 30.9% $70 $50 FY15 FY16 FY17 FY18 Guidance Adjusted Free Cash Flow $102.0 $100.6 $121.5 $120 to

25 Quarterly Financial Performance (Non-GAAP) Revenue ($M) Operating Income ($M) $120 $100 $80 $60 $40 $20 $0 Q316 Q416 Q117 Q217 Q317 Q417 Q118 Q218 Q318 Guidance Revenue $102.4 $118.0 $91.2 $93.4 $97.6 $116.3 $94.2 $96.2 $95 to $97 YoY Growth % 1.7% 2.3% 1.1% -3.4% -4.7% -1.4% 3.3% 3.0% - 1% to Constant Currency 2.7% 3.2% 2.0% -2.2% -5.0% -2.9% 0.3% 0.5% - 1% to -3% Guidance Range $50 $40 $30 $20 $10 $0 Q316 Q416 Q117 Q217 Q317 Q417 Q118 Q218 Operating Income $32.0 $42.6 $27.1 $32.6 $35.7 $49.1 $34.7 $37.4 YoY Growth % 0.9% 5.1% 26.0% 20.7% 11.5% 15.3% 28.1% 14.7% Operating Margin 31.2% 36.1% 29.7% 34.9% 36.5% 42.2% 36.9% 38.9% $0.80 $0.60 Revenue FY15 FY16 FY17 FY18 Total $412.4 $407.4 $398.6 $399 $5 Revenue ($M) Diluted EPS $50 $40 Adjusted Free Cash Flow ($M) $410 $0.40 $400 $0.20 $390 $380 $0.00 $370 $360 $412.4 $407.4 $404 $398.6 $399 Q316 Q416 Q117 Q217 Q317 Q417 Q118 Q218 FY15 FY16 FY17 FY18 Q318 Guidance Diluted EPS $0.44 $0.62 $0.34 $0.42 $0.48 $0.67 $0.54 $0.60 $ $0.58 YoY Growth $350 % 12.8% 17.0% 25.9% 27.3% 9.1% 8.1% 58.8% 42.9% 17% to 21% Guidance Range $30 $20 $10 $0 Q316 Q416 Q117 Q217 Q317 Q417 Q118 Q218 Adjusted Free Cash Flow $19.1 $32.4 $43.0 $27.9 $18.3 $32.4 $32.9 $42.8 Note: Progress does not issue quarterly guidance for Operating Income or Adjusted Free Cash Flow 25

26 High level of Recurring Revenue FY17 Revenue % by Type Growing Recurring Revenue 67% Recurring $275.0 $4.1 $6.0 $6.4 $250.0 $18.1 $19.6 $22.4 $225.0 $242.3 $242.6 $244.5 $200.0 FY15 FY16 FY17 $273M of Recurring Revenue in FY17 Maint O/E SaaS Other SaaS & Subscription * Excludes impact of FX by using constant exchange rates for all years. 26

27 Revenue diversified across geographies FY17 Revenue % by Region FY17 Revenue by Region by Segment $250.0 $225M 44% International Revenues $200.0 $150.0 $100.0 $50.0 $0.0 16% 23% $130M 3% 16% 61% 81% $22M 3% $21M 0.1% 30% 9% 67% 91% NA EMEA APJ Latin America OpenEdge ADD DCI 27

28 Capital Allocation ($M) Non-GAAP Adjusted Free Cash Flow Share Repurchases $686 (current authorization $250M; $130M remaining) Capital Deployed YTD $112 $73 $99 $102 $101 $122 $76 Cash Dividends $ (YTD) Cash $355 $231 $283 $241 $250 $184 $144 Debt $144 $135 $124 $121 Capital Spending $46 Debt Principal Payments $29 Significant Acquisitions Acquisitions $363 $88 $269 Capital Returns $79 $53 $33 $98 $ Share Buybacks Dividends 28

29 Target Capital Allocation Dividends Target 25-30% payout ratio based on annual Cash Flow from Operations Share Repurchases $250 million current authorization ($130 million remaining) $120 million spent in the last three quarters $30 million to be spent in the remainder of FY18 Remaining $100 million by end of FY19 Target 50% of annual Cash Flow from Operations to future repurchases 29

30 FY 2018 Financial Guidance * Full Year FY18 Q3 FY18 Non-GAAP Revenue $399 - $404M $95 - $97M Non-GAAP EPS $ $2.50 Prior guidance: $ $2.41 $ $0.58 Non-GAAP Operating Margin Adjusted Free Cash Flow 38% Prior guidance: 36% - 37% $120 - $125M Prior guidance: $115 - $120M Non-GAAP Effective Tax Rate ~ 22% ---- Increased full year guidance for EPS, Operating Margin and Adjusted Free Cash Flow following strong Q2 results Positive revenue impact of foreign currency translation relative to weakening USD: Full Year: ~ $4.5 million on revenue; ~ $0.02 cent impact on non-gaap EPS * Note: As of June 27,

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