Phase Space AI

Valuation

Progress Software [PRGS]

Progress Software [PRGS] — Valuation

As of 2026-07-30 · spot $40.01 · Company state: A (mature-stable)

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1. Base figures

TTM FCF margin is positive, so per DATA_DEFECTS.md the interim-FCF correction moves in the conservative direction; omitting it would have overstated required CAGR. --fcf-margin 0.3041 was passed explicitly. No forward-guidance basis exists that would flip the sign (capex is $8.5m/yr).

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2. Terminal margin — 18.0%

Basis: the company's own TTM demonstrated GAAP operating margin of 17.79%, rounded up to 18.0%.

Opex bridge from 10-K lines (FY2025, % of $977.831m revenue)

Ties to the filed OperatingIncomeLoss of $153,290,000 exactly. Constraint satisfied: m_EBIT,T 18.0% ≤ m_gross,T 80.8%.

Why 18.0% and not higher

The 22.4pp gap between the 80.8% gross margin and the 15.7% FY2025 operating margin is real operating cost, and 12.83pp of it (amortisation of acquired intangibles + acquisition costs) is structurally permanent for this business: PRGS's organic revenue declines, so it must keep acquiring, so the amortisation is replenished rather than run off. FY2024 amortisation was 12.5% of revenue; FY2025 was 14.88%. It is rising, not decaying.

A terminal margin built by adding back that amortisation — the non-GAAP ~40% — would assume PRGS stops acquiring and keeps growing. Those are mutually exclusive on this name's own numbers.

The four most recent quarters print 15.2%, 17.6%, 19.9%, 18.5%. 18.0% is the centre of that band and +2.3pp above the FY2025 annual actual — it is not below the trailing figure, which the brief flags as almost always an error.

steady_state_check.py --ticker PRGS --terminal-margin 0.18 --exit-multiple 15.85 --wacc 0.095

MARGIN RAMP
  2020-11-30 margin      24.4%
  latest margin          15.7%
  moved                  -8.7pp   latest is window peak: False
  terminal assumed       18.0%   (+2.3pp vs latest, -6.4pp vs peak)

RETURNS AND THE WARRANTED MULTIPLE
  ROIC measured                                   7.3%
  warranted multiple at steady ROIC               7.2x
  SCALING CONTAMINATION                           1.00x
  terminal reinvestment rate implied by g/ROIC   40.8%
  exit multiple used vs steady-state warranted    2.20x

FINDINGS
  • EXIT_MULTIPLE_UNWARRANTED_AT_STEADY_STATE: 15.8x is 2.2x the 7.2x warranted at a 7%
    steady-state ROIC.

What it flagged, and the response:

• No margin-ramp flag. PRGS's operating margin has fallen 8.7pp since FY2020 and the latest is not the window peak, so an 18.0% terminal is not a ramp endpoint extrapolated. This is the one input the check clears.
• EXIT_MULTIPLE_UNWARRANTED_AT_STEADY_STATE — and this one is the memo. At a measured ROIC of 7.3%, g = 3% and WACC = 9.5%, the identity EV_T/EBIT_T = (1−t)(1−g/ROIC)/(WACC−g) warrants 7.2x. The stock trades at 15.85x, which is 2.20x warranted. The exit multiple is not a free parameter and this is the proof: PRGS's price is justifiable only if the market continues to pay software multiples for a business earning 7.3% on invested capital. That is an assumption about market convention, not about the company.
• Terminal reinvestment implied by g/ROIC is 40.8% of NOPAT (~$58m/yr). PRGS spent $875m on ShareFile alone. The implied terminal behaviour is not the observed behaviour — but note the arithmetic is internally consistent at g = 3%, because 0.408 × 7.3% ≈ 3.0%. The inconsistency is that PRGS cannot reach 3% organic growth at all: ARR grows 2%.

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3. Implied-path test (primary output)

reverse_dcf.py --spot 40.01 --shares 41.012942 --net-cash -1189.169 --revenue 1003.725 --terminal-margin 0.18 --exit-multiple 15.85 --fcf-margin 0.3041 --wacc 0.095

THE MARKET REQUIRES: revenue CAGR of −1.3% Held fixed: terminal margin 18.0%, exit multiple 15.85x, WACC 9.5%, 5 years.

The margin depends entirely on which "demonstrated" you use

The honest number is +3.3pp, on ARR — the only measure that is both organic and forward-looking. The screen's +13.3pp is 10.0pp too generous because it counts a $875m acquisition as demonstrated growth.

Verdict: PASS WITH ARGUMENT. The required path (−1.3%) does sit below the organic demonstrated path (+2.0%). But it clears by 3.3pp, not 13.3pp, and it clears only at an exit multiple that steady_state_check says is 2.2x warranted.

Sensitivity over the exit multiple (the highest-variance parameter)

The flip point is ~13.4x. PRGS's post-2024 EV/EBIT low is 13.3x — the name has already traded through its own flip point inside the current regime. This is not a robust PASS.

Terminal value share of EV at the base case is well above 60%, so per criteria.md the reverse DCF is the primary output and the forward DCF is supporting evidence only.

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4. Twelve-month target — own multiple history, with the regime-overlap check

Regime overlap

Daily EV/Sales and EV/EBIT series built from Alpaca split-adjusted closes (2020-07-27 → 2026-07-29, n = 1,509), current share count and net debt held fixed so the series measures multiple movement, TTM revenue lagged 60 days to filing availability.

The EV/Sales long series is rejected. Only 32.2% of the current regime overlaps the 2020–23 regime, which never once traded below 4.78x. Quoting a 6.2nd-percentile EV/Sales reading against a series whose floor is 2.1x above today's price is the ZS failure mode (12.7% overlap) in a milder form.

EV/EBIT overlaps at 78.3% and is admissible. It is also the right instrument: gross margin 80.8% (nowhere near the <15% low-margin trigger), positive EBIT every year, State A.

The anchor

Base anchor: 15.85x — the current multiple, held flat, at the 10.1st percentile of the regime-valid window. No re-rating is assumed, and the reason is stated: every point in PRGS's own history, at every percentile, sits above the 7.2x its returns on capital warrant. A "reversion to the median" anchor here would be reverting to an unwarranted level. Under criteria.md the base may not sit below every stated anchor without argument — it does not; it sits at the current anchor.

Forward EBIT

1H FY2026 revenue $501.264m (+5%, +4% cc); 1H operating income $96.352m (19.22% margin). Full-year FY2026 at ~$1,020m revenue and an 18.0% margin gives EBIT ≈ $184m; the rolling 12-month figure one year out ≈ $190m.

Target

12-month target: $44 (+11%), at 15.85x EV/EBIT = the 10.1st percentile of the 2024–26 own-history window.

The spread from $4 to $103 across the multiple range is not a modelling failure; it is the finding. PRGS's equity is 42% geared, so it absorbs the entire multiple move, and the multiple is not anchored by the company's returns on capital. That is what a leveraged roll-up earning below its cost of capital looks like when you refuse to add back acquisition amortisation.

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5. Criteria scoring