PROGRESS SOFTWARE CORP /MA (PRGS) stock intrinsic value fair value estimate & owner earnings analysis

Progress Software owns a portfolio of mature infrastructure software products that businesses rarely rip out once installed: the OpenEdge application platform, the Telerik and Kendo UI developer tools, Chef, the MOVEit file-transfer products, Kemp load balancers, the MarkLogic data platform, and since October 2024 the ShareFile document-sharing service. Customers pay mostly through maintenance and subscriptions, so cash comes in steadily and capital spending is tiny (about 1% of revenue). How the business has grown. Almost all growth for a decade has been bought. Revenue was $405 million in fiscal 2016 and fell to $379 million by 2018 before a string of acquisitions lifted it to $978 million in fiscal 2025; ShareFile alone contributed $262 million of that last year. Excluding acquisitions the products are flat to slightly shrinking: in the first nine months of fiscal 2026 revenue rose only 3%, and the August 2026 quarter was 1.5% below a year earlier. Roughly $2.0 billion has gone into acquisitions since 2016, funded largely with borrowing. What the business earns. We measure cash earnings after stock-based pay (a real cost here: $65 million in fiscal 2025) and after strip-out of working-capital swings. On that basis owner earnings were $1.53 per share in 2016, $3.08 in 2021, $3.68 in 2024 and $4.72 in fiscal 2025. Large charges for amortizing acquired intangibles ($145 million in 2025) are added back because they are non-cash, but those acquired products are wasting assets, so the decay is built into the forecast paths below rather than ignored. Before interest, the business produced about $271 million of cash in fiscal 2025, the first full year including ShareFile, and nine-month 2026 operating cash flow ($265 million versus $172 million a year earlier) shows that level holding. We use about $270 million as the starting level; earlier years describe a smaller, different business. Fiscal 2025 owner earnings rose 28%, but that was bought with ShareFile; our first forecast year assumes a 1% decline, in line with the flat-to-shrinking organic record. What it owes. At August 31, 2026 Progress owed about $1.23 billion: roughly $790 million drawn on a $1.5 billion revolving credit facility at about 6% (maturing July 2030, or earlier if the 2030 notes are not dealt with) and $450 million of 3.5% convertible notes due March 2030, convertible at $67.74 per share. The April 2026 convertible notes ($360 million) were repaid. Against cash of $114 million, and giving credit for the cheap 3.5% coupon, we count net debt of about $1.15 billion, or roughly $28 per share. Both the notes and the credit line come due in 2030, so the company will need to refinance about $1.2 billion that year; with cash flow before interest around five times the current interest bill, that looks achievable on current numbers but it is the key date. Base case ($53.53 per share). No further acquisitions are assumed, because each deal is a new bet, not a repeatable increment. The existing products, which have shown no organic growth, slowly erode: cash flow before interest slips about 1% a year from $270 million for ten years, then fades about 3% a year thereafter as older products like OpenEdge and MOVEit lose customers and nothing in the current portfolio is replacing them. That values the business at about $3.4 billion; less about $1.15 billion of net debt and a $25 million allowance for MOVEit litigation, about $2.2 billion is left for shareholders. Bear case ($24.12 per share). The portfolio erodes faster, about 4% a year, as AI-assisted development and cloud platforms from much larger rivals (Microsoft, Box, Dropbox, MongoDB) pull customers away, and an enterprise IT-spending downturn of the kind seen in 2001-2002 and 2008-2009 cuts cash flow by 12% and then 8% for two years. The 2023 MOVEit breach litigation, consolidated in federal court in Massachusetts and which the company says it cannot yet estimate, costs about $150 million beyond the $4.5 million of insurance left, and the 2030 refinancing comes at a higher price, about $40 million in extra cost. The business is worth about $2.3 billion against roughly $1.34 billion of debt and claims, leaving about $1.0 billion for shareholders. Even in this case cash flow before interest stays well above the interest bill. Bull case ($80.82 per share). ShareFile and the other products hold cash flow before interest at about $295 million (roughly where the first nine months of fiscal 2026 point) for ten years with no decline, then a slow 1% annual fade. The business is worth about $4.5 billion against $1.15 billion of debt. We do not credit any new acquisitions or AI product launches, because none can yet be evidenced. Previous estimates. Our earlier figures were built on a different basis and are not comparable. What has changed in the business since then is favourable: fiscal 2026 cash flow is running well ahead of last year and the April 2026 notes were repaid without new equity. Margin-of-safety price ($26). We are fairly confident in the earnings level: it comes from a full year of audited results, recurring revenue and nine more months that confirm it. We are much less confident in the direction, because the products are not growing and the company's habit is to borrow for acquisitions whose success we cannot predict. The worst plausible outcomes are a large MOVEit judgment or settlement, a further serious breach in a file-sharing product, or a debt-financed acquisition that goes wrong ahead of the 2030 refinancing; the business is asset-light with about $1.2 billion of debt, so a hit of several hundred million dollars would leave shareholders with little. If we are wrong on erosion speed and the MOVEit cost together, the shares are worth around $20-25. The company pays almost no dividend (it stopped in 2024), so returns depend on cash going to debt reduction and buybacks, which at roughly $5 per share of owner earnings a year is meaningful. The $26 margin-of-safety price is about the bear-case value, and the business generates owner earnings of about 18% of that price each year; even with modest erosion, that cash applied to debt and buybacks implies close to 20% a year over an assumed three-to-five-year holding period, and the base case implies more if the products simply hold steady. Above that price the return depends on the portfolio not shrinking, which the record does not support.