Progress Software (NASDAQ:PRGS) boosted its full-year 2026 outlook after reporting a strong first quarter, with revenue and earnings per share surpassing analyst expectations thanks to robust demand for AI-driven products and stable customer retention.
The company posted revenue of approximately $248 million for the quarter ended February 28, representing a 4% increase year-over-year and slightly above consensus estimates.
Adjusted earnings per share came in at $1.60, ahead of the $1.57 estimate and up 22% from the prior year. On a GAAP basis, diluted EPS was $0.53, compared with $0.24 a year earlier.
Performance was supported by continued demand for AI-enabled offerings and stable customer metrics. Annual recurring revenue (ARR) reached about $863 million, reflecting 2% pro forma growth, while the net retention rate held at 99%.
The company also reported a non-GAAP operating margin of roughly 41% and adjusted free cash flow of $99 million, up 35% year over year.
Progress Software raised its full-year 2026 guidance, projecting revenue between $988 million and $1.01 billion and adjusted EPS of $5.91 to $6.03.
For the second quarter, the company expects revenue between $240 million and $246 million and adjusted EPS in the range of $1.47 to $1.53.
The company continued capital allocation efforts during the quarter, including approximately $60 million in debt repayment and $20 million in share repurchases.
Wedbush analysts described the quarter as solid, citing beats on both revenue and earnings and a modest increase to the lower end of full-year guidance. However, they noted that a challenging broader software-as-a-service (SaaS) environment could overshadow the results.
Wedbush maintained an ‘Outperform’ rating on the stock but lowered its price target to $45 from $65, reflecting a reduced valuation multiple. The firm highlighted that ARR of $863 million was slightly below the prior quarter, while revenue growth benefited from AI-driven product enhancements and customer demand for workflow automation and productivity tools.
The analysts also pointed to continued margin strength, with non-GAAP operating margin exceeding expectations, and strong cash flow generation supported by solid collections. At the same time, they noted that AI investments are still in early stages and may take time to translate into accelerated growth.
Looking ahead, Wedbush said the company’s updated guidance reflects cautious optimism, with expectations for modest ARR and revenue growth of 1% to 2% on a pro forma basis. While demand remains stable and customer retention strong, the firm indicated that broader SaaS sector conditions may continue to influence investor sentiment.
"We continue to believe PRGS remains an under the radar software play that is still in the early stages of integrating AI capabilities into its high-demand and sticky product portfolio while focused on expanding its margin profile and drive cash flow over time," they wrote.
The analysts appeared to be correct, as shares of Progress Software fell about 7% to about $26 in early trade on Tuesday.