Progress Software Corporation

Welcome to the Progress Software Corporation Q3 2021 earnings call. My name is Daryl, and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. During the question-and-answer session, if you have a question, please press star then 1 on your touchtone phone. I will now turn the call over to Mike Michike. Mike, you may begin.

Great. Thank you, Daryl. Good afternoon, everyone, and thanks for joining us for Progress Software's third quarter fiscal 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 acquisition of KEMP, 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 only as of today and is subject to risks and uncertainties. For a description of the risk factors that may affect our results, please refer to the recent SEC filings, in particular, the section captioned Risk Factors in our most recent form 10-K. 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, all the financial figures we discuss are in non-GAAP measures unless otherwise indicated. You can find a reconciliation of these non-GAAP financial measures to the most directly compatible 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 third quarter of 2021, and I recommend you reference it for specific details. We've also prepared a presentation that contains supplemental data for our third 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. Today's conference call will be recorded in its entirety and will be available via replay on the investor relations section of our website. So with that, I'll now turn it over to Yogesh.

Thank you, Mike. Hello, everyone, and welcome. I'm delighted to announce two very positive news items today. First, we delivered yet another outstanding quarter, driven by strong demand across the board for our products, combined with excellent execution by our teams. which resulted in significant outperformance on both the top and the bottom line. We see the current demand environment for our products continuing, which is why, for the third time this year, we are again raising guidance for the full year. More on this later. The second bit of exciting news is our acquisition of Kemp Technologies, which extends our total growth strategy. With this acquisition, which is our third in as many years, We will be that much closer to meeting our goal of doubling our size in five years. Most importantly, this deal checks all the boxes of our disciplined acquisition criteria, as Anthony will detail later. And we will accomplish it in the most competitive environment I have seen in many years as a software executives. As you are aware, Our mission is to be the provider of the best products to develop, deploy, and manage high-impact business applications. And a key aspect of managing these applications is to ensure high performance and always-on availability for an amazing end-user experience. Kemp is a leading provider of products that address this need. Kemp products monitor application performance and optimize workloads across servers in the cloud and on-prem. to ensure high performance and availability. These products leverage machine learning to look for anomalies and detect IT professionals before end users are impacted. These capabilities complement progress offerings, such as WhatsApp Gold, a market leader in easy-to-use network management, which we acquired with Ipswich. Together, we will offer the best application experience solutions to our customers. Kemp has a strong two-tier go-to-market channel that provides global reach to tens of thousands of SMBs, and Progress will nurture and leverage this channel for some of our other products as well. This focus on two-tier go-to-market channels has enabled Kemp to win a large and growing set of customers, ranging from midsize to some of the largest enterprises in the world, who rely on its products to deliver great application experiences. Our broader product portfolio and financial strength will enable us to serve these channel partners better. The cultures of Progress and Kemp are also very aligned. Both organizations have a strong focus on the success of our customers, and we dare to innovate and solve the pressing needs of the market. I look forward to bringing the Kemp team on board once the acquisition completes and together driving to even greater success. Financially, this acquisition meets all our discipline criteria and will again result in meaningful value creation for our shareholders. Despite the hyper-competitive M&A landscape, we have demonstrated that we can execute our total growth strategy without compromising our disciplined approach. For the third year in a row, we will have completed an acquisition that adds significant revenue, earnings, and cash flow. When this $70-plus million revenue deal closes, progress revenue run rates will be over $600 million, with excellent operating margins well over our baseline of 35 percent, and will continue to generate cash flow margins over 30 percent. This places us well on our five-year goal to double the size of our business, with an even greater increase in EPS and cash flow. We expect this transaction to close around the end of October. once the regulatory and customary closing conditions are satisfied. We also see other M&A opportunities in our pipeline that can further advance our total growth strategy. While our focus for the immediate future will be on the closing and integration of KEMP, our ongoing efforts to enhance our sourcing capabilities and to strengthen the depth of our M&A readiness have positioned us well to tackle the next opportunities. We will remain disciplined in our approach as KEMP is further evidence that our total growth strategy is succeeding in building sustainable long-term shareholder value. As you may recall, disciplined, accretive M&A is the first of three pillars of our total growth strategy. The second pillar is to keep our core business strong and increase customer retention. We achieved this by continuing to innovate, keeping our product portfolio current by investing in R&D, and by focusing on customer relationship management. And the third pillar is operational excellence. We're proud that we've also continued to execute on these two pillars as evidenced by the ongoing strength of our business. So let's talk a bit about our Q3 results and the market for our products and our expectations. We have an outstanding third quarter where our business outperformed on every metric, including revenue, operating income, earnings per share, and cash flow. Our recurring revenue continues to steadily grow and is organically 4% higher than last year. And our overall net retention rate, again, exceeded 100%. This outperformance is being driven by two important factors. With the continuing emergence of the global economy from COVID, the demand for our products across the board continues to be strong. As a leader in the overall DevOps cycle, with the best products to develop, deploy, and manage high-impact business applications, we are winning new customers. Seeing existing customers, we commit to our offerings and expand their usage. Based on our performance in the first three quarters and the continuing strong appetite for our solutions, Across our product portfolio, we are very confident in raising our full year guidance yet again. The second factor driving our results is the performance of our teams. Our investments in R&D, our sales, marketing, and relationship management efforts, our ability to address customer needs, and our efficient operational execution make for a potent combination. We greatly exceeded our revenue expectations. and we did so while operating more efficiently than expected as well, leading to a very impressive outperformance of our bottom line. We now expect our full-year EPS to be over 20 cents higher. Our significant increases in the top line and bottom line expectations reflect our confidence in the ongoing market demand and our team. We continue to demonstrate that we can execute well on our business source and execute acquisitions in a tough and extremely competitive acquisition market, and integrate efficiently to create great value for our shareholders through our total growth strategy. When I joined Progress nearly five years ago, I could not have imagined that we would be as strong as we are today, and I'm excited about our prospects ahead. Now I'd like to turn this over to Anthony to take you through the details of our performance, our guidance, as well as details on our camp acquisition. Anthony?