Firing on all cylinders, Progress Software Corp. today disclosed record fourth-quarter and fiscal 2005 revenues and robust bottom-line results, despite a strengthening U.S. dollar which shaved a full percentage point from top-line growth.
Concurrently, the Bedford, MA provider of application infrastructure software said it has agreed to acquire Neon Systems, Inc., a publicly held, Sugar Land, TX provider of mainframe integration software in a cash deal valued at $68 million. The tender offer represents a 46% premium on Neon's shares based on the stock's 30-day trailing average price, the companies said.
For the quarter ended November 30, Progress posted revenues of $107.9 million, up 12% (13% at constant currency) from the like period last year. Software license revenues increased 20% to $44.1 million from the corresponding quarter last year. Maintenance and service revenues grew 8% to $63.8 million from the like period of 2004.
Operating income increased to $19.2 million -- 21% above the like quarter of fiscal 2004 on a Generally Accepted Accounting Principles (GAAP) basis. Net income increased 29% to $14.0 million from the like period last year.
For the year, revenues increased 12% percent from the like period of 2004 (10% at constant currency) to $405.3 million. Software license revenues jumped 12% to $156.8 million; maintenance and services also increased 12% to $248.5 million from fiscal 2004.
North America represented 43% of total revenues, compared with 42% in fiscal 2004, reflecting the impact of the strengthening dollar.
On a GAAP basis, operating income increased 38% to $63.8 million from fiscal 2004. Net income, meanwhile, increased 52% to $48.9 million from fiscal 2004.
"All Progress product lines contributed to a successful fourth quarter and a record 2005 fiscal year," noted Joseph Alsop, co-founder and chief executive officer, in a prepared statement. "Our newer operating units -- Sonic Software, Progress Real Time, and DataDirect Technologies -- delivered excellent revenue growth of 33% in fiscal 2005 and now account for 36% of our software license revenue. Revenue from the OpenEdge Division continues to grow and deliver very substantial profitability."
An important cog in the company's growth is its Sonic Software unit, which a number of independent software vendors such as QAD Inc. rely on to form the underpinnings of their new service-oriented architectures (SOA).
In a conference call with financial analysts, Progress CFO Norman "Bud" Robertson said Sonic's revenues jumped 43% in the fourth quarter to $9.9 million from the year-earlier period and increased 24% year-over-year to $32.5 million.
Progress's Real Time unit, which is being merged with Sonic, saw revenues increase in the quarter and year-over year 89% and 56%, to $8.7 million and $28.9 million, respectively. "The combined unit is on pace to meet its profitability goal by the end of fiscal 2007," Robertson said, adding that the company expected to get better efficiency by having one sales force selling into the same customer base.
Revenues for Progress's cornerstone Open Edge database product, meanwhile, increased 3% to $79.4 million, accounting for 74% of total revenue in the period -- down six percentage points from the like period last year, Robertson said. For the year, Open Edge revenues reached $308.2 million, up 6% from fiscal 2004, accounting for 76% of total revenue -- down four percentage points from the prior year, he noted.
Infor Global uses Progress's database management system in its SX enterprise applications suite.
Progress's DataDirect Technologies middleware unit saw revenues rise 26% to $10 million in the quarter and showed year-over-year growth of 26% to $35.7 million, Robertson said.
The pending acquisition of Neon will complement DataDirect Technologies, the unit's president Rick Reidy told industry analysts, and help to drive incremental growth. While Neon provides middleware that enables users to access mainframe data via SQL, ODBC, JDBC, and web services integration, DataDirect provides database application connectivity for a multiplicity of non-mainframe-based platforms.
Neon, which has grown through acquisition, had hit a wall, one analyst commented, as user companies seek to consolidate the number of vendors with which they conduct business. Neon's CEO Mark Cresswell didn't disagree with that assessment: "As the infrastructure [software] market has matured, buyers have tended to gravitate towards larger organizations, sometimes at the expense of leading technology," he said. "We view [the acquisition] as an opportunity to improve the reach of the product sales organization."
One analyst on the call also worried about possible confusion between the acquisition of Neon and Progress's Sonic unit, as both provide the infrastructure necessary to support an SOA. Progress's Reidy dismissed that possibility, noting that Neon will extend DataDirect's ability to help customers build web services to make "mission-critical" green-screen data available to non-mainframe applications, something Sonic doesn't do.
The deal, which has been approved by both companies' boards of directors, is expected to be completed by December 30, 2005.
Meanwhile, Progress expects the good times to continue in fiscal 2006. Revenue in the first quarter of fiscal 2006 is expected to be in the range of $103 million to $105 million, up from $98 million in the like period of fiscal 2005. GAAP operating income is predicted to reach between $9 million to $10 million, off from the $14.4 million recorded in the fiscal first quarter of 2005, dragged down by amortization of acquired intangibles, stock-based compensation expense, and other acquisition-related expenses of approximately $9 million, Robertson said.
For fiscal 2006, revenue is expected to be in the range of $435 million to $445 million, generating GAAP operating income in the range of $51 million to $54 million, including amortization of acquired intangibles, stock-based compensation, and other acquisition-related expenses of approximately $37 million.
The company's balance also remains strong: it had $266 million in cash and equivalents on hand as of the end of fiscal 2005, up $75 million from this time last year.