Progress Software Q3 Earnings Call Highlights

Key Points

• Progress Software delivered a solid fiscal Q3: ARR rose more than 1% year over year to $873 million, adjusted EPS increased 13% to $1.69, and operating margin expanded to 43%. Adjusted free cash flow climbed 17% to $87 million.
• The Domo AI and data-platform acquisition is now complete for approximately $390 million in cash. Management expects Domo to add more than $100 million in annual EBITDA after integration, although its lower initial margins and added interest expense will pressure fiscal 2027 results.
• Progress raised its fiscal 2026 outlook to $1.044 billion–$1.052 billion in revenue, 38% operating margin, and $6.15–$6.23 in adjusted EPS. The company plans to prioritize Domo integration, debt reduction and retention improvements through fiscal 2027.

Progress Software NASDAQ: PRGS reported third-quarter fiscal 2026 results marked by low-single-digit annual recurring revenue growth, expanded operating margins and higher free cash flow, while outlining integration plans for its recently completed acquisition of Domo’s AI and data platform business.

President and CEO Yogesh Gupta said annual recurring revenue, or ARR, rose more than 1% year over year on a constant-currency basis to $873 million. Net retention was 99%, remaining within the company’s expected 99% to 100% range. Quarterly revenue totaled $246 million, near the midpoint of Progress’ previous guidance range, while non-GAAP earnings per share increased 13% from a year earlier to $1.69, above the high end of management’s outlook.

Gupta cited strength from OpenEdge, DataDirect, MOVEit and LoadMaster, among other products. He said customers in financial services, health care, energy, technology, government and law enforcement expanded or renewed relationships with the company, citing reliability, security, compliance and operational efficiency.

Margins and cash flow improve

Chief Financial Officer Anthony Folger said Progress generated non-GAAP operating income of $105 million in the third quarter, up 6% year over year. Operating margin reached 43%, an increase of 300 basis points from the prior-year period, as total costs and operating expenses declined about 6% to $141 million.

Adjusted free cash flow increased 17% year over year to $87 million, while unlevered free cash flow rose 14% to $101 million. Year-to-date adjusted free cash flow was $265 million, up 44% from the comparable period last year.

Folger attributed part of the cash-flow improvement to stronger collections and the resolution of operational backlog related to the prior ShareFile acquisition. Days sales outstanding improved to 42 days, compared with 55 days a year earlier and 73 days at the end of fiscal 2025.

The company ended the quarter with $114 million in cash and cash equivalents, total debt of about $1.24 billion and net debt of approximately $1.1 billion. Its net leverage ratio was about 2.7 times trailing-12-month results. During the quarter, Progress repaid $60 million on its revolving credit facility, bringing year-to-date debt repayment to $170 million, and repurchased about $17 million in stock. The company had approximately $131 million remaining under its buyback authorization.

Domo acquisition adds AI and data capabilities

Progress closed its acquisition of Domo’s AI and data platform business after the quarter ended. The company announced a $400 million cash purchase price, though Folger said the actual cash outlay was $390 million after considering cash received at closing and assumed transaction expenses. Progress funded the transaction with its revolving credit facility and said it intends to reduce debt quickly.

Gupta said Domo’s cloud-native platform adds real-time data integration and transformation, analytics, visualization, automation and agentic orchestration to Progress’ existing data capabilities. He said Progress sees Domo as a way to help customers connect enterprise data, apply artificial intelligence to that data and deliver insights and actions within business workflows.

Management said Domo’s revenue currently annualizes at approximately $300 million, but expects it to settle into a steady-state range of $280 million to $290 million as the company manages planned churn in legacy seat-based contracts and further reduces professional-services revenue. More than 85% of Domo’s ARR comes from its consumption-based platform, according to Folger, and that segment has higher net retention rates than the legacy seat-based business.

Progress plans to shift more professional-services delivery toward partners, a move management said should be margin accretive. Gupta said the company’s focus initially will be integrating Domo, improving customer retention and delivering planned operating targets rather than incorporating cross-selling assumptions into its financial model.

Management expects Domo integration to be completed by the end of fiscal 2027. Gupta said Domo is expected to add more than $100 million of annual EBITDA once fully integrated. Folger said the acquisition was valued at roughly 1.44 times steady-state revenue and about 3.5 times pro forma EBITDA.

Margin effects and outlook

For fiscal 2027, Folger said Domo is expected to operate at slightly below a 30% margin for the full year as synergies ramp. That could reduce Progress’ consolidated operating margin by roughly 100 to 200 basis points, with a margin otherwise in the 38% to 39% range potentially falling to 36% to 37% during integration. Management said this pressure is related to integration timing and should reverse as synergies are realized, with Domo’s longer-term margin profile expected to resemble Progress’ historical levels.

The company also expects approximately $21 million of incremental interest expense in fiscal 2027 from the $390 million revolver draw, though Folger said Domo’s earnings contribution should exceed the financing cost. He said margin dilution and much of the interest burden should reverse further in fiscal 2028 as synergies are fully realized and debt is repaid.

For the fourth quarter of fiscal 2026, including roughly two months of Domo activity, Progress forecast revenue of $297 million to $305 million and earnings per share of $1.24 to $1.33. For the full year, the company raised its revenue outlook to $1.044 billion to $1.052 billion and projected a 38% operating margin, adjusted free cash flow of $275 million to $283 million, unlevered free cash flow of $330 million to $338 million, and earnings per share of $6.15 to $6.23.

Gupta said Progress also is evaluating whether Domo’s consumption-based pricing approach could be applied more broadly across its portfolio. He said demand for data, infrastructure capacity and AI-related workloads is increasing, while seat-based models face pressure as automated AI agents increasingly handle work traditionally performed by users.

About Progress Software (NASDAQ:PRGS)

Progress Software Corporation NASDAQ: PRGS develops enterprise software designed to help organizations build, deploy, manage and secure business applications and digital services. Its portfolio supports application development, data connectivity, integration, file transfer, application performance monitoring and network management across cloud, hybrid and on-premises environments.

The company's products and brands include OpenEdge for developing and deploying business applications; DataDirect for data connectivity; MOVEit for managed file transfer; WhatsUp Gold and Flowmon for network monitoring and visibility; Chef for infrastructure and application automation; Sitefinity for digital experience management; and Telerik and Kendo UI for user interface and development tools.

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