Progress Software Corporation

Good day and welcome to the Progress Software Corporation Q4 2023 earnings call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Mike Michike, Senior Vice President of Investor Relations. Please go ahead, sir.

Okay. Thank you, Sherry. It's nice to have you with us again. Good afternoon, everybody, and thanks for joining us for Progress Software's fourth fiscal quarter 2023 financial results conference call. On the line with me this afternoon are Yogesh Gupta, President and CEO, and Anthony Folger, our Chief Financial Officer. Before we get started, let's go over our safe harbor statement. During this call, we will discuss our outlook for future financial and operating performance, corporate strategies, product plans, cost initiatives, and other information that might be considered forward-looking. Such 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 risk factors in our filings with the Securities and Exchange Commission. Progress Software assumes no obligation to update the forward-looking statement included in this call. And additionally, please note that all the financial figures referenced on this call are non-GAAP measures, unless otherwise indicated. You can find a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP figures in our financial results press release, which was issued after the market closed today and is on our website. This document contains additional information related to our financial results for the fourth quarter of fiscal 2023, and I recommend that you reference it for specific details. We've also prepared a presentation that contains supplemental data for our fourth quarter 2023 results, providing highlights and additional financial metrics. As I mentioned, both the earnings release and the supplemental presentation are available on 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. So with that out of the way, Yogesh, I'll turn it over to you.

Thank you, Mike. Good afternoon, everyone, and thank you for joining our Q4 23 financial results conference call. Fiscal 23 was another great year for progress. I'm extremely proud of everything we accomplished and how all our teams performed. I'll quickly take you through some highlights from the past year and then provide a look at the year to come. The fourth quarter was another strong one, marked by ongoing stable demand for many of our products, especially OpenEdge, DataDirect, and Sitefinity. Top-line revenues of $178 million remained robust. ARR grew 17% year over year. Our net retention rate was a solid 100%. and operating margins were well above our expectations. For the year, we generated over $175 million of adjusted free cash flow on revenue of $698 million and finished the full year with operating margins of 39%. As you recall, we began 2023 with the announcement in January of the MarkLogic acquisition. At that time, we said that the MarkLogic acquisition would add over $100 million in annual revenue and would take about a year to fully integrate. I'm delighted to share that virtually every milestone for the MarkLogic integration was completed before the end of fiscal 2023. This faster integration was a direct result of the continuous improvements we have made in our integration processes. As always, we gained new learnings from the MarkLogic acquisition that will help us further improve for the future. For instance, we had to maintain a separate entity to accommodate the unique requirements of the various U.S. federal agencies who are our customers. Now that we have this entity, we see it as a vehicle not only to serve these existing customers, but to expand our relationships by addressing a wider set of their needs through our broader product portfolios. In addition to our M&A efforts in FY23, we also executed well on the other two pillars of our total growth strategy, which are sustained innovation and an unrelenting focus on customer success. So turning to product innovation in FY23, we added AI capabilities to our products, improved the time to value for our customers, and made our products even more easy to use. For example, We incorporated generative AI into our Sitefinity product to enable content creators to rapidly scale content production and to improve targeted marketing by personalizing content to suit the needs of various personas. We delivered AI-powered contextual event analysis in the latest release of our Flowmon product, which provides our customers faster, automatic, meaningful insights into possible malicious network activity. We launched Chef SaaS, which enables DevOps and SecOps to rapidly realize value and will receive very positive reactions from our early customers. We launched Loadmaster 360, which provides administrators the ability to manage the performance and availability of their entire environment from a single user interface. And we released new and updated versions of our DevTools products with a whole host of new capabilities. These include new components to rapidly build embedded data-driven applications and the support for new accessibility standards, among other features. The Semaphore and NoSQL database products we acquired with MarkLogic are leading products for semantic metadata analysis and for making sense out of structured and unstructured data. As organizations embrace all kinds of AI, Exponentially expanding the sources and scale of data necessary, Progress is now better positioned to help them develop and deploy their mission-critical applications and experiences, as well as effectively manage their data platforms, cloud, and IT infrastructures. In addition to M&A and innovation, the third pillar of our total growth strategy is an unrelenting focus on customer success. In FY23, After a couple of years of slow in-person activities, we hosted numerous live in-person customer events. These included more than 20 local in-region events across the globe for our OpenEdge customers called the OpenEdge World Tour, where over 3,000 attendees joined us to hear what was new in our portfolio and how the OpenEdge platform and the broader progress portfolio is continuing to deliver increasing value to help propel their business forward. We also held well-attended conferences for our DevTools and Chef customers, where Progress and the user community shared innovative ideas and best practices in rapidly developing engaging digital experiences and efficiently scaling DevOps and SecOps efforts across on-prem, hybrid, and multi-cloud environments. In 2023, we also dealt with the sophisticated multi-stage attack on our customers' Movit environments by a cybercriminal group. We issued a patch within 48 hours of discovering the zero-day vulnerability in Movit and proactively engaged with our customers to help them harden their Movit environments. We continue to cooperate with regulatory authorities who are investigating the attack and will provide updates regarding the impact of the Movit incident on our business and operations in our upcoming Form 10-K. I want to thank the teams across our business for the amazing way they have come together to help our customers and to continue to move our business forward. Because of our employees' hard work and dedication, our customers have remained incredibly loyal and continue to work closely with us. Our employees are at the center of everything we do. They build our products, sell, service, and support our customers, and run our operations. we continue to sustain a thriving employee culture, evidenced by our Employee Net Promoter Score, or ENPS, which is in the mid-30s. Oh, by the way, this is in the same league as Microsoft and Google. Once again, employee turnover at Progress was at industry lows, hitting mid-single digits in the second half of the year. Our employees are energized by our mission, vision, and values. and they continue to share that with the world, helping us win numerous awards for being the best place to work. For example, the Boston Globe again selected Progress as one of the top places to work in Massachusetts, this time third year in a row. We ranked number six for 2023, moving up five spots from 22, and are the highest-ranking software company on the list. I am delighted that we accomplished all this continue to improve our internal processes and systems to become even more efficient, integrated our largest acquisition to date, and delivered outstanding results for 2023. Now, looking forward towards FY24, I'm incredibly excited about what Liza said. We foresee sustainable demand for our products in FY24. and it will be the first full fiscal year of revenue contribution from MarkLogic. As Anthony will explain in his guidance, we expect it to propel us to over $725 million in revenue and to also help expand our operating margin. We remain focused on a proven total growth strategy to create shareholder value the same way we have for the last several years. Our capital allocation policy continues to prioritize M&A because we see it as the best way to generate sustained shareholder return for our investors. We are therefore extremely active in the M&A market. And as we've previously noted, market factors continue to shift in our favor. Competitively and financially, we are as well positioned for M&A as we have ever been. And our reputation as an acquirer of choice among the sellers continues to grow. I also want to reiterate that we are unwavering in our strict discipline when it comes to M&A. First, we will continue to pursue companies that are a good fit in terms of technology, size, and culture. We're looking for companies with great products and customers, high recurring revenues, and retention rates. As I like to say, we're not looking for unicorns. We're looking to buy great workforces. Second, we will be extremely disciplined about what we pay for these businesses and how we finance it to ensure that we create meaningful shareholder value. And lastly, as we have repeatedly demonstrated, we will rapidly integrate acquired companies using the knowledge, experience, and best practices we have accumulated and drive higher margins. During the year, we expect to use excess cash flow to repay debt whenever possible, And we will continue to repurchase shares to offset dilution from our equity programs under our existing share repurchase authorization. In addition to our efforts around M&A, we will also continue to execute on the other two pillars of our total growth strategy, innovation and customer success. Through investment in innovation and customer success, we will continue to drive strong operating margins, higher ARR, and high retention rates. To conclude, I am extremely pleased with our FY23 performance, and I'm even more excited about what is to come in FY24. With that, I'll turn it over to Anthony to provide additional details around our results and guidance. Anthony?