0000876167-26-000078
SEC filingRevenue rose 7% YoY to $253.5M in Q2 FY2026, driven by 36% license growth, but ARR growth slowed to 2%.
In Q2 FY2026, Progress Software reported total revenue of $253.5 million, a 7% increase year-over-year (6% constant currency). The growth was primarily driven by a 36% surge in software licenses revenue to $69.0 million, reflecting strong sales of DataDirect, Chef, and MarkLogic products. Maintenance revenue declined 2% to $101.2 million, while SaaS revenue was essentially flat at $73.0 million. Professional services fell 6% to $10.3 million. Gross margin improved as cost of software licenses rose only 23% versus a 36% revenue increase, and cost of maintenance/SaaS/professional services decreased 4%. Operating expenses increased across most categories: sales & marketing up 9%, product development up 5%, and G&A up 26% due to higher stock-based compensation and receivables reserves. Amortization of acquired intangibles decreased 15% in cost of revenue and was flat in operating expenses. Cyber vulnerability response expenses rose 73% to $1.3 million. The effective tax rate increased to 27% from 14% due to changes in jurisdictional mix and discrete items.
Software licenses revenue grew to 27% of total revenue (up from 21% a year ago), indicating a mix shift toward perpetual licenses. Maintenance and SaaS combined represented 69% of revenue versus 74% last year, reflecting the relative decline in recurring revenue. The company also reported annualized recurring revenue (ARR) of $868 million, up 2% year-over-year, with net retention rates stable around 99-100%. This suggests the core recurring base is holding but not accelerating. Cost of maintenance/SaaS decreased 4% due to lower contractor and headcount costs, helping to offset the slight revenue decline. Professional services struggled, down across multiple product lines.
Management did not provide specific financial guidance for upcoming quarters. The liquidity outlook is positive: cash from operations jumped to $177.5 million in the first six months, and the company believes existing cash, operations, and credit facility are sufficient for at least twelve months. Key risks include ongoing MOVEit litigation (class action with discovery extending into late 2026) and foreign exchange volatility. The company continues to evaluate acquisitions and share repurchases; $147.5 million remains under the buyback authorization. The new One Big Beautiful Bill Act (OBBBA) provides an immediate deduction for R&D expenditures, which should benefit future tax expense. Overall, Progress is relying on license sales momentum and cost management to drive earnings, while maintaining a stable recurring base.
As of May 31, 2026, Progress held $103.0M in cash and cash equivalents, up from $94.8M at November 30, 2025. Total debt stood at $1.292B, a decrease of $108M from $1.400B, driven by the redemption of the $360M 2026 Notes (funded via revolver and cash) and repayment of $110M on the revolver. Shareholders' equity rose to $506.1M from $478.3M, aided by net income and stock issuances partially offset by buybacks. Deferred revenue totaled $423.2M, while remaining performance obligations (RPO) were $518.9M, with 74% expected to be recognized within one year.
The notes do not disclose material purchase commitments or off-balance-sheet obligations. The only notable contractual obligation is the $850.0M revolving credit facility (drawn $850M at quarter-end) and the $450M 2030 Convertible Notes. The company maintains a remaining cybersecurity insurance coverage of $1.1M under a $15M policy related to the MOVEit incident.
During the six months ended May 31, 2026, the company repurchased $54.7M of common stock (1.7M shares) and had $147.5M remaining under its buyback authorization. No dividends were paid; only nominal dividend equivalent payments of $0.4M were made. Capital expenditures totaled $4.6M (0.9% of sales). Debt activity was significant: the company issued $360M under the revolver to redeem the 2026 Notes and repaid $110M on the revolver, resulting in a net debt reduction of $108M.
The company operates as a single reportable segment, with no discrete operating income data provided. Geographic revenue breakdown for the six months: North America $315.2M (62.9% of total), EMEA $149.0M (29.7%), Asia Pacific $25.7M (5.1%), and Latin America $11.3M (2.3%). No single customer exceeded 10% of revenue.
Operating cash flow (CFO) of $177.5M significantly outpaced net income of $43.9M, reflecting large non-cash charges (depreciation & amortization of $72.7M, stock-based compensation $39.0M) and favorable working capital changes. The primary driver was a $46.1M decrease in accounts receivable, indicating improved collections. Other current liabilities were a net use, with accounts payable and accrued liabilities decreasing $32.6M and deferred revenue declining $3.1M.
Capital expenditures of $4.6M remained modest (2.6% of CFO), underscoring low capital intensity. Free cash flow (CFO minus capex) was approximately $172.9M, though not explicitly stated. Financing activities consumed $164.0M, driven by $55.1M in share repurchases, $360M in convertible note repurchases funded by a line of credit draw, and $110M repayment on the line. Dividend payments were minimal at $0.4M.
Overall, the cash flow profile shows strong operational cash generation with ample coverage of capital returns despite the large financing outflows. The working capital improvement was a notable positive, but may not recur at the same magnitude.