Progress Software Corporation (PRGS) Cash Flow Statement

The persistent gap between operating cash flow and net income, which averaged over 3x in the last two quarters, suggests that reported earnings understate the company's cash-generating ability. This is partly due to significant non-cash charges like D&A, which totaled $36.9M in 2026Q2, and favorable working capital dynamics. However, the near-equivalence of SBC to net income in 2026Q2 warrants monitoring, as it may indicate that a portion of cash flow is consumed by equity-based compensation.

The FCF margin trajectory shows a V-shaped recovery, with the 2025Q2 trough at 12.4% followed by sequential expansion to 38.7% in 2026Q1 and 30.4% in 2026Q2. This suggests that the earlier margin compression was likely due to acquisition-related costs or working capital swings, not a structural decline. The current FCF margin is well above the peer average, indicating superior cash conversion efficiency.

With CapEx/Revenue consistently below 1.5%, PRGS's capital expenditure is minimal, which is typical for software companies. This low capital intensity allows for high FCF conversion, but investors should note that growth investments are likely occurring through acquisitions rather than organic CapEx, as evidenced by the $852.7M acquisition outflow in 2024Q4. The lack of significant maintenance CapEx suggests that depreciation charges are not being fully reinvested, which could be a concern if the asset base ages.

The working capital line item shows high volatility, with negative changes in several quarters (e.g., -$31.8M in 2024Q4, -$42.0M in 2025Q2) and positive in others. This suggests that PRGS's cash flow is sensitive to the timing of customer payments and vendor obligations, which may be influenced by large contracts or acquisition integration. The positive working capital contribution in 2026Q1 and 2026Q2 helped boost OCF, but the sustainability of this trend is uncertain.

The company has consistently repurchased shares each quarter, with cumulative buybacks exceeding $200M over the last ten quarters, while dividends remain minimal. This suggests management views the stock as undervalued and prioritizes EPS accretion over income distribution. However, the $852.7M acquisition in 2024Q4 likely constrained buyback activity in that quarter, and the recent buyback pace may be funded by strong operating cash flow, which appears sustainable.

The cumulative gap between operating cash flow and net income is substantial, driven by large non-cash charges (D&A and SBC) and favorable working capital movements. This divergence suggests that PRGS's earnings quality is high, as cash generation is robust. However, the gap also implies that reported net income may not fully reflect the company's cash-generating potential, which could be relevant for valuation multiples.