Progress Software Lifts Guidance as AI Products Drive Revenue Beat
The application-development software maker posted $253 million in quarterly revenue, topping its own forecast by as much as $13 million on AI-driven demand.
Progress Software (PRGS) reported fiscal second-quarter revenue of $253 million, beating the top end of its guidance range by $7 million as AI-powered product offerings accelerated growth. The application-development software maker said the outperformance was largely driven by the success of several AI-powered product offerings, according to its chief financial officer.
The revenue beat marked a notable inflection for a company whose growth rate had been settling following the anniversary of its ShareFile acquisition. After posting 40% year-over-year growth in the third quarter of fiscal 2025 and 18% in the fourth, Progress had decelerated to 4% growth in the first quarter of fiscal 2026. The second quarter's 7% year-over-year expansion represented a clear reacceleration within what the company characterized as its new organic growth range.
GAAP diluted earnings per share rose 28% year over year to $0.50, while non-GAAP diluted EPS climbed 16% to $1.62. Both metrics decelerated from the prior quarter's pace, which had benefited from a low year-earlier base. On the margin front, GAAP operating margin improved 200 basis points year over year to 18%, though it slipped one percentage point sequentially. Non-GAAP operating margin held at 40% compared with a year earlier but also fell one point from the first quarter.
Annualized recurring revenue edged up to $868 million from $863 million in the first quarter, maintaining a 2% year-over-year constant-currency growth rate — a pace that reflects the normalization after the ShareFile integration surge of 47% growth logged in the third quarter of fiscal 2025. Net retention rate remained at 100%, unchanged from recent quarters. Days sales outstanding, meanwhile, improved to 49 days from 52 days in the first quarter and 73 days in the fourth quarter of fiscal 2025, signaling accelerating collections.
Cash generation strengthened sharply. Cash from operations surged 163% year over year to $78.8 million, and adjusted free cash flow more than doubled to $79.2 million. The company used that cash to pay down debt and repurchase $35 million of shares, though cash and equivalents declined to $103 million from $113.2 million at the end of the first quarter. The trailing twelve-month net leverage ratio fell to 2.9 times, with the CFO citing an aggressive debt paydown strategy.
Progress raised its full-year fiscal 2026 guidance across several key metrics. Revenue guidance moved to $990 million to $1.002 billion, up $2 million at both ends of the range. Non-GAAP EPS guidance was lifted to $6.09 to $6.21, an increase of $0.18 per share at each bound. Cash from operations guidance rose to $273 million to $285 million, and adjusted free cash flow guidance climbed to $271 million to $283 million. For the third quarter, the company guided revenue of $244 million to $250 million with non-GAAP EPS of $1.53 to $1.59.
GAAP EPS guidance, however, was narrowed and lowered to $1.60 to $1.74 from the prior $1.71 to $1.87, reflecting higher non-cash adjustments including an increased GAAP effective tax rate of 25% versus the prior 23% forecast. The company also flagged rising costs tied to its cyber vulnerability response, with full-year MOVEit-related legal expense guidance climbing to $12.4 million from $7.7 million at the start of the year. Stock-based compensation and restructuring expense guidance were similarly revised upward.