Progress Software Corporation

Today, ladies and gentlemen, and welcome to the Progress Software Corporation Q2 2021 Investor Relations Call. At this time, I'd like to turn the conference over to Michael Pichike, Vice President of Investor Relations. Please go ahead.

Thank you, Keith. Good afternoon, everyone, and thanks for joining us for Progress Software's second quarter 2021 Financial Results Conference Call. With us today is Yogesh Gupta, President and Chief Executive Officer, and Anthony Folger, Chief Financial Officer. Before we get started, I'd like to remind you that during this call, we will discuss our outlook for future financial operating performance, corporate strategies, product plans, cost initiatives, our integration of Chef, the impact of the COVID-19 pandemic on our business, and other information that might be considered forward-looking. This forward-looking information represents Progress Software's outlook and guidance as of today only and is subject to risks and uncertainty. For a description of risk factors that may affect our results, please refer to our recent SEC filings, in particular the section captioned risk factors in our most recent form 10K. Progress software assumes no obligation to update the forward looking statements included in this call, whether a result of new developments or otherwise. Additionally, on this call, the financial figures we discuss are non-GAAP measures unless otherwise indicated. You can find a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP numbers in our financial results press release, which was issued after the market closed today and is also available on our website. This document contains the full details of our financial results for the fiscal second quarter of 2021, and I recommend you reference it for specific detail. We also have prepared a presentation that contains supplemental data for our second quarter 2021 results, providing highlights and additional financial metrics. Both the earnings release and this presentation are available in the investor relations section of our website at investors.progress.com. Also, today's conference call will be recorded in its entirety and will be available via replay on the investor relations section of our website. With that, Yogesh, I'll turn it over to you.

Thank you, Mike. Welcome, everyone, and thank you all for joining our Q2 2021 financial results contest. We're very pleased with our second quarter performance, which exceeded our guidance across the board. We again benefited from increased demand and investment in IT and infrastructure software projects. The positive momentum we carried over from Q1 into Q2 is a validation of our strategy and confirmation of the strategic mission-critical nature of our comprehensive product portfolios. With growing confidence in the strength of our business and two consecutive quarters of strong results under our belt in fiscal 2021, we are again raising full year guidance for revenue, operating margin, EPS, and cash flow. I will provide a summary of the second quarter and some comments on how we're executing on our strategy, followed by an in-depth discussion of our results and outlook by Anthony. Demand for our solutions was again strong in Q2. We saw a continuation of improving demand in all markets in which we do business and across nearly every product line as our customers and partners continue to invest in systems built on progress technology to run their businesses. As more companies shift to cloud-first and mobile-first strategies for their applications, data, and content, our shift OpenEdge, Sitefinity, DataDirect, DevTools, and MoveIt products provide key technologies to address their challenges and support their efforts. What's more, the role of developers continues to grow in importance and complexity within the enterprise. Our applications development, DevOps, and data and infrastructure management products equip developers to develop, deploy, and manage mission-critical applications through their entire life cycle. We're proud to serve this critical ecosystem of over 3 million developers who rely on our products for their ongoing use. In terms of our top-line performance in Q2, OpenEdge once again led the way as the mainstay of our reps, driven by continued strength among our many ISD partners and direct sales efforts. Our other core products saw strength, as companies like news and data giant Thomson Reuters and global shipping company MSC made meaningful additional investments in our DevTools product. While our revenue performance for this quarter was again driven primarily by our core products, led by OpenEdge and the Ipswich products, MoveIt and WhatsApp Gold, our year-over-year top-line growth was driven primarily by the continued success we're seeing with Chef. With a tremendous growth in DevOps and DevSecOps spaces, Chef landed and expanded key relationships with more key customers. New customers for our Chef products include a competitive win at a major U.S. insurer and several significant renewals and expansions with customers in financial services and manufacturing industries, as well as cloud-native companies such as Yahoo! Japan, Rakuten, Etsy, and Pinterest. I'm very pleased that we've already reached the goals we set for expense synergies per share, several months ahead of the timeline we set for the integration when we announced the acquisition. Our progress to date validates our total growth strategy, which I will discuss in detail in a moment. Before doing so, I'd like to spend a moment talking about annual recurring revenue and net dollar retention rates. As you may recall, we introduced ARR, a net dollar retention rate metric, last quarter to provide investors better visibility into the recurring nature of our revenue and to provide more insight into our underlying performance. ARR of $437 million was up 23% year over year on a constant currency basis driven primarily by shares. Our net dollar retention rate exceeded 100% this quarter, driven again in large part by contributions from Chef, as well as DevTools and OpenEdge. These metrics highlight the strength, stability, and durability of our data. Turning to our total growth strategy, we're actively evaluating dozens of opportunities in the infrastructure software space. As we have discussed in other forums, Our deal pipeline is very strong, although we recognize that the market is competitive and valuations remain high. Despite these headwinds, we are pleased with the size, sourcing, and breadth of our pipeline, with the activity of our corporate development team, and with the activity our corporate development team is generating. We remain confident that our M&A strategy is the right strategy for us. I also want to mention that during Q2, we took an important step towards improving our competitive positioning in M&A. In April, we completed an offering of $360 million of senior unsecured convertible bonds, which further strengthened our balance sheet and made us even more competitive and nimble in our corporate development efforts, as it eliminates uncertainty around finance. I want to reiterate, though, that we remain committed to finding the right acquisition opportunity. Any target we consider must meet our strict financial criteria and include complementary products with a substantial mix of recurring revenue and high retention rates. We have demonstrated that when we deploy capital for an acquisition, we maximize city cash flows, optimize expenses and margins, and drive solid shareholder returns in excess of our cost of capital. We remain committed to this strategy because we believe it will allow us to compound shareholder returns well into the future. In addition to remaining patient and disciplined with our total growth strategy, we are committed to increasing shareholder value with focused capital allocation, which balances M&A with a shareholder-friendly capital allocation strategy. When we're not deploying capital for acquisitions, we use our significant free cash flow to return value directly to shareholders. For example, we're one of the few software companies who pays a dividend. We also have in place a meaningful share repurchase program. And, as Anthony will explain, upon the execution of the convert, we purchase capped calls to minimize the potential dilution to current shareholders. Consistent with our focus on shareholder value, our ESG efforts remain very important to asset progress. as we recognize their growing importance to our investors. We continue to monitor and evaluate new global standards for sustainability, metrics, measurement, and reporting, which enhance our already noteworthy corporate social responsibility program. In fact, two weeks ago, we announced the addition of our new Chief Inclusion and Diversity Officer, who will lead our inclusion and diversity efforts and programs around the globe. I'd like to close my formal comments by acknowledging the entire Progress team for their superb execution while at the same time preserving the inclusive culture and the positive environment that makes Progress a great place to work. And I'm so proud of the recognition we have received very recently. The Boston Business Journal highlighted Progress as one of the best places to work in Massachusetts. This came on the heel of Progress being named by Forbes magazine as one of America's best mid-sized employers. And for the second time in a row, Forbes chose Progress as the best employer in Bulgaria, where more than a quarter of our employees are based. We received numerous additional awards, which we've highlighted in the investor deck on our website. And we're immensely proud to have received a 2021 CV for our Progress for Tomorrow corporate social responsibility program. In all, It was an excellent second quarter, another proof point of the success of our total growth strategy. We're continuing to execute well and see strong demand across industries, product segments, and geographies as the world begins to move past COVID-19. With that, I will let Anthony provide the details of our Q2 financial performance, as well as our outlook for Q3 and the remainder of 2021. Anthony?