Progress Software Corporation

Welcome to the Progress Software Corporation Q1 2022 earnings call. My name is Darrell, 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.

Okay, thank you, Daryl. Good afternoon, everyone, and thanks for joining us for Progress Software's first quarter fiscal 2022 financial results conference call. With us today is Yogesh Gupta, President and Chief Executive Officer, and Anthony Folger, our Chief Financial Officer. Before we get started, I'd like to remind you that during this call, we will discuss our future financial and 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 description of the 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 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 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 first quarter of 2022, and we recommend that you reference it for specific details. We also have prepared a presentation that contains supplemental data for our first quarter 2022 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 call will be recorded in its entirety and then will be available via replay on the investor relations section of our website. And so with that, Yogesh, I will now turn it over to you.

Thank you, Mike. Good afternoon, everyone, and thank you all for joining us. I'm pleased to be with you today to discuss Progress's first quarter fiscal 2022 earnings. We're extremely happy with our results, which continue to demonstrate the value-creating power of our total growth strategy. We have assembled an impressive product portfolio to develop, deploy, and manage high-impact applications, and to help accelerate the digital transformation efforts of organizations. We started off fiscal 2022, continuing the robust momentum from FY21, which was our best year ever. We experienced strong demand for our products across the board, and we had outstanding execution across all regions. As you will see from my increased guidance, we expect the positive momentum from last year to continue in fiscal 2022. In fact, excluding the impact of the Russia embargo and the FX headwinds, our increase in revenue guidance is greater than the beat in our first quarter. More details from Anthony in his remarks. We are now four months into the integration of Kemp, which continues to be on track and the business is performing very well. We remain confident about the synergies we expect to achieve and the resulting shareholder value this acquisition will create. Before I get into the details of the quarter, I think it's important to take a moment to talk about the situation in Ukraine. We are truly horrified by the humanitarian crisis caused by the Russian invasion. Thankfully, we have no employees in harm's way in the region. Our hearts and best wishes are with the friends and families of our employees particularly those in Bulgaria and the Czech Republic. And we hope for a quick and peaceful end to the suffering of the people of Ukraine. Many of our employees around the world are directly helping with the refugee crisis in many ways. I couldn't be more proud of our Progress team members for the speed and generosity of their response. And as a company, we recently pledged $100,000 to the World Health Organization Emergency Appeal for Ukraine. From a business perspective, progress has stopped doing business in Russia and Belarus in accordance with the US government sanctions, and the impact is not material to our overall results or our longer-term outlook. Turning back to our first quarter results, as you probably have seen already from our press release, we again beat top and bottom line expectations. Revenue of $147.5 million, exceeded our guidance of $139 to $142 million. Earnings per share were equally strong at $0.97 versus guidance of $0.83 to $0.85. Annual recurring revenue and net dollar retention rate improved once more, with ARR up over 12% year over year to $479 million, and our net dollar retention rate was again over 100%. The strength we saw in our first quarter was exhibited across products and geographies, driven by, one, the impact of the first full quarter of revenue from Kemp, two, sustained demand from the strong economy and fully funded IT budgets, and three, the ongoing trends towards digital transformation as companies and workers adapt to the new post-COVID paradigms. OpenEdge once again proved itself as the mainstay of our product revenues, while virtually all other products, in particular DataDirect, Flowmon, Corticon, our file transfer, and DevTools products contributed to the outperformance. In our OpenEdge ISV partner business, we saw several large deals around the world from our longtime partners, QAD in North America, Coins in EMEA, and Revolution in Asia Pacific. Our DevTools business continues to do well with increasing customer counts, strong retention rates, and increasing average deal sizes as customers deploy these products more broadly within their organizations. DevOps and DevSecOps remain a high priority among customers as they automate the deployment and management of cloud and on-prem infrastructures. And our Chef products continue to be the industry-leading choice to do so. What's of Gold and our most recent additions from Kemp, the Flowmon and Loadmaster offerings present a sought-after set of full-stack observability products that help our customers deliver high-quality application experience. We are very pleased with the way these products have added robust capabilities to our offerings and furthered our goals as we continue to be the trusted provider of the best products to develop, deploy, and manage business applications. We achieved strong operating margins in the first quarter, thanks again to good expense control, the temporary dampening effect of Omicron on travel and return to office at the very end of the year, and the timely and seamless integration of CHEMP. We expect that travel budgets and other expenses will not sustain the artificially favorable levels we saw over the last two years, as we again start seeing our customers, partners, and especially our employees face-to-face in the coming months. Closer to home, recent inflationary pressures present some new but so far manageable challenges. The biggest challenge all companies are seeing is employee recruitment and retention across all geographies. To date, the inflationary impact has been manageable. And while we anticipate seeing more in the coming months, we are prepared to adapt, which includes the potential to raise prices on select products. We expect strong margins to continue to be one of our hallmarks. Turning now to our total growth strategy and our outlook for M&A. M&A is another area where, for progress, the spike in inflation and recent pullback in the capital markets is an advantage. We have mentioned in the past that rising interest rates could put progress in a more competitive position in the market for deals, as other players are less likely to use leverage as heavily in a higher interest environment. We're seeing some signs of a more promising M&A environment. Infrastructure software companies in our target zone seek alternatives to public market exits or private funding strategies. At the same time, potential competitors who formerly were much more aggressive when money was cheaper are becoming more cautious. As a result, we expect our disciplined approach to bear more fruit in the future. Our radar scope remains dotted with many possible targets, and we are working daily to vet an increasing number of quality acquisition candidates. Progress remains well capitalized due to our strong and predictable cash flows, a sturdy balance sheet, and ample ability to finance possible transactions. As we announced in January, we refinanced our existing credit facilities at a very favorable rate, with over half of our current debt is fixed at 1%. Our disciplined model of buying the right kinds of companies at the right price and the right multiple has served us well so far. We believe that doing smart, accretive acquisitions has proven to be the best way to deploy our capital to create shareholder value. So no matter how much the market for deals changes one way or the other, we have no plans to deviate from our strict M&A criteria. We also see market pullbacks as an opportunity to buy back stock, as we did in our first fiscal quarter. All in all, I'm once again very proud of our results and grateful to the whole Progress team for another outstanding performance. We remain very positive about our outlook, even as we carefully watch the global events. As always, we thank our customers and investors for their continued loyalty. And I personally want to thank the whole progress team for their commitment and efforts. I will now turn it over to Anthony to provide more detail on our results and guidance. Anthony?