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Progress Software (PRGS -10%) is sharply lower today after reporting its Q2 (May) results last night. While there are some positives for this software provider, including a beat on EPS and raised FY25 guidance, investor reaction is negative as expectations were high following a strong Q1 (Feb). PRGS typically issues conservative guidance, so its 7% beat on EPS, its smallest in seven quarters, and its first revenue miss in 19 quarters, disappointed investors.

• Top-line performance was still strong for PRGS. While the EPS beat was smaller than in recent quarters, it still came in $0.06 above the upper end of guidance. Revenue landed at $237.36 mln, which was basically in line with expectations. That said, revenue grew 35.6% yr/yr, its strongest in 15 quarters and up nicely from 28.9% in Q4 (Nov).
• Furthermore, ARR grew 46% yr/yr to $838 mln, which management feels is the best barometer of top-line performance. Net retention rate again came in at 100%, reflecting predictability and resilience in PRGS's top line.
• Guidance for Q3 (Aug) is roughly in line with analyst expectations, with expectations at the lower end of the midpoint of guidance. PRGS modestly raised its FY25 EPS guidance despite the $0.10 Q2 beat. In fact, it didn't raise it enough to account for the beat.
• Regarding PRGS's acquisition of ShareFile, integration remains ahead of schedule, with most key operational synergies completed. ShareFile adds a high-quality SaaS component that now accounts for over a quarter of total revenue. Building on that, PRGS announced the acquisition of Nuclia last night.
• The acquisition of Nuclia is not like some of PRGS's most recent acquisitions in that it is primarily driven as an investment in its product portfolio with benefits to its data platform business. That said, it's a relatively small acquisition and is not expected to have a material impact on FY25 results, potentially falling short of investor expectations.

Overall, the performance this quarter did not exceed investor expectations enough to warrant a positive reaction. The smaller-than-usual EPS beat and the modest bump in FY25 EPS guidance fed into the disappointment. Additionally, while the Nuclia acquisition adds to the product portfolio, its limited near-term impact likely fell short of investor expectations, contributing to the underwhelming reaction in the stock.