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Understanding Changes in Progress Software’s Risk Factors

Progress Software (PRGS) is an American company whose products are used by developers to build and deploy business apps. It serves a community of three million developers working on commercial and open-source projects. (See Analysts’ Top Stocks on TipRanks)

Let’s take a look at the company’s latest financial performance, corporate updates, and changes in risk factors.

Fiscal Q3 Financial Results and 2021 Outlook

Progress Software reported a 38% year-over-year increase in adjusted revenue to $152.6 million for its Fiscal 2021 third-quarter ended August 31. That beat the consensus estimate of $131 million.

Adjusted EPS of $1.18 improved from $0.78 in the same quarter last year and beat the consensus estimate of $0.82. Progress Software ended Q3 with $383.7 million in cash.

The company anticipates adjusted revenue in the range of $134 million to $138 million for Q4 and expects adjusted EPS in the band of $0.73 to $0.75.

For the Fiscal 2021 full-year, Progress raised its adjusted revenue guidance to between $548 million and $552 million from $529 million to $535 million previously. The consensus estimate is $533.2 million. The company also boosted its adjusted EPS outlook to between $3.68 and $3.70 from $3.46 to $3.50. The consensus estimate calls for EPS of $3.47.

Corporate Updates

Progress Software plans to distribute a quarterly dividend of $0.175 per share on December 15. Shareholders of record on December 1 will be eligible for the dividend payout.

The company plans to acquire Kemp Technologies for $258 million in cash. Kemp is an application experience provider, helping businesses deliver and secure their apps across cloud and hybrid environments. The transaction is expected to close in October 2021.

Risk Factors

The new TipRanks Risk Factors tool shows 37 risk factors for Progress Software. Since August 2021, the company has updated its risk profile to add seven new risk factors and remove one older risk factor.

Progress Software tells investors in a newly added risk factor that it ended Q3 with $563 million in debt. The company says it may incur more debt in the future to meet financing needs. Progress cautions that the debt could make it more vulnerable to unfavorable economic conditions. It goes on to warn that servicing the debt will reduce its cash, which may limit its ability to react to changes in its business.

The company says that some of its borrowing agreements contain terms that could discourage third parties from acquiring it even if such a deal would be favorable. For example, there are circumstances where it may be required to repurchase outstanding notes for cash or increase the conversion rates of some notes. It says this may make acquiring it more expensive or difficult.

In another newly added risk factor, Progress cautions that the sale of shares from converted notes may adversely impact its stock price.

The company removed the risk factor that warned that its operating flexibility may be adversely impacted if it were to borrow or sell additional shares to raise money to finance an acquisition.

The majority of Progress Software’s risk factors fall under the Finance and Corporate category, with 41% of total risks. That is below the sector average of 50%. The company’s stock price has increased about 9% since the beginning of 2021.

Analysts’ Take

Following the Q3 earnings report, Citigroup analyst Tyler Radke reiterated a Hold rating on Progress Software stock and raised the price target to $50 from $48. Radke’s new price target suggests 1.87% upside potential.

Consensus among analysts is a Moderate Buy based on 2 Buys and 1 Hold. The average Progress Software price target of $56 implies 14.10% upside potential to current levels.

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