Progress Software Corporation

Good day, and welcome to the Progress Software Corporation Q3 2024 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 Michique, Senior Vice President, Investor Relations. Please go ahead, sir.

Okay, thank you, Shuri. It's always a pleasure to have you with us. Good afternoon, everybody. Thanks for joining us for Progress Software's third quarter 2024 Financial Results Conference call. On the line with me today 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, our proposed acquisition of Sharefile, which we announced on September 9th, 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 forward-looking statements included in this call. 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. This document contains additional information related to our financial results for the third quarter of fiscal year 2024. And I recommend that you reference it for specific details. We also have prepared a presentation that contains supplemental data for our third quarter 2024 results, provides highlights and additional financial metrics. Both the earnings release and the supplemental presentation, along with a copy of our press release and a supplemental slide presentation announcing the share file acquisition on September 9th, 2024, are all available in the investor relations section of our website at investors.progress.com. Today's call will be recorded in its entirety and should be available for replay on the investor relations section of our website shortly after we finish. With that, let me turn it over to Yogesh.

Thank you, Mike. Good afternoon, everyone, and thank you for joining us as we share the results of our third fiscal quarter. The last few months have been busy and exciting, and I'm glad to be here this afternoon to talk about all the great things happening here at Progress right now. To begin with, let's talk about the third quarter, which was ahead of the high end of our guidance on both the top and bottom lines. Revenue grew by 2% year-over-year to $179 million, and EPS grew 17% year-over-year, reflecting continued expense management. We ended the quarter with $582 million in ARR, up sequentially 1%, and net retention rate held steady at 99%, as some churn from late last year, which we've previously discussed, works through the trailing 12-month calculation. We generated excellent cash flows with DSOs at 45 days, and our balance sheet remained healthy and strong, ending the quarter with over $230 million in cash. So on just about every metric, we had a strong quarter. I'm very pleased with our Q3 results, and Anthony will provide more details on the financial metrics and dynamics in his remarks. In another important news, during the third quarter, the SEC notified us that it has concluded its investigation into the MOVID vulnerability with no enforcement action recommended. This news from the SEC in August was in addition to clearance decisions by data privacy regulators in the UK, Australia, and Spain over the past year. We view all these decisions as positive indicators of how we've handled the movement vulnerability from our rapid initial response and reporting transparency to our foresight cooperation with all regulatory inquiries and investigations. The third piece of exciting news, which we announced two weeks ago, is our signing of the agreement to acquire ShareFile, which is the latest step in our total growth strategy and our largest acquisition yet. We intend to make an all-cash purchase of ShareFile for $875 million and expect to close the transaction before the end of fiscal 2024, subject to regulatory approvals and customary closing conditions. Immediately after closing, we will begin the integration process, and we look forward to welcoming the ShareFile team to progress. We expect full integration to be completed within 12 months. I'm really excited about this acquisition, and let me share some of the reasons why. ShareFile, which we're acquiring from the Cloud Software Group, is a leading provider of collaboration software for document-centric use cases. It is a modern, SAS native platform with AI-powered document-centric collaboration and automated workflows, client portals, secure file sync and share, and e-signature capabilities. Any company whose business workflows are document-centric and compliance-heavy, where several internal and external parties collaborate on documents and require various levels of editing and approval, through a secure, auditable solution can benefit from using ShareFile. This is why ShareFile will complement and fit in perfectly with our existing digital experience offerings and will enable us to offer greater value to users. ShareFile's 86,000-strong customer base is large and loyal and spans industries such as accounting, financial and legal services, healthcare, construction, and real estate. 100% of its revenue is recurring with a net retention rate of over 100%. Integration with our existing digital experience sales, go-to-market, engineering, support, and operating infrastructure will provide us a clear path to our operating margin target for the acquired business of 40%. When the deal closes, we expect ShareFile to add over $240 million in both annual revenue and ARR, which will bring our total annual revenue to nearly a billion and our ARR to well over $800 million. In terms of financing deal, we will use a combination of cash on hand and our existing revolving credit facilities. We expect pro forma net leverage to be around 3.6 at the time of closing, and we intend to delever quickly as we have with our prior acquisitions. Speaking of delevering, let me spend a few minutes on why we also announced our intention to suspend our quarterly cash dividend once the deal closes. This decision was made with significant deliberations as part of our total growth strategy, so it's worth examining our commitment to executing our plan in a little more detail. Our goal with the total growth strategy is to make progress more valuable. while making us stronger and larger. Our goal is to provide more value to our customers and create more value for our shareholders. I'm extremely enthusiastic and passionate about our technology and our products and how they help our customers succeed and thrive in this ever-changing technology-driven world. Our fanatical focus on customer success is one of the three key pillars of our strategy. as is our commitment to investing in and innovating our products to grow and adapt to the needs of our customers. Updating and modernizing our offerings is essential for the continued success of our customers and for retaining them well into the future. This strong foundation of great technology and sustained customer success are the bedrock of our business and the reason why all products generate significant free cash flow. And that free cash flow, in turn, needs to be guided by a prudent capital allocation policy to continue driving the success of our total growth strategy. We've always placed the highest priority on M&A, followed by share buybacks. So a game plan for growing shareholder value is simple. First, achieve greater revenues, earnings, and cash flows by acquiring highly accretive businesses with characteristics similar to ours, businesses with excellent products and loyal customer bases. Second, pay the right price, integrate them quickly and efficiently while focusing on customer success and retention. And finally, aggressively reduce leverage to prime our liquidity for the next deal. In the meantime, we minimize dilution and return capital to shareholders in the form of well-timed buybacks. When it comes to executing on M&A, we will continue to remain disciplined and patient as we search for new opportunities and then act decisively. Oftentimes, as you've seen, acting decisively means walking away from a potential acquisition that we don't think will work. We are far more willing to say no than yes when it comes to finding the right fit and paying the right price. And we're very comfortable walking away because in the absence of an acquisition, we focus on continuously improving our processes and systems. We put great effort into upgrading and optimizing our internal technology and business practices to continue to make us more integration ready and efficient. And of course, we're always trying to incorporate the lessons learned from any mistakes we make. Just as important, we keep progress a great place to work for our employees. Our voluntary turnover remains well below that of the overall software industry and has hovered around 6% over the past two years. Keeping a talented, stable workforce is essential to the effective execution of our total growth strategy, from innovation and customer success to acquisition and integration. Our front office and back office teams all get better with each deal and its subsequent integration. I feel proud of how we have continued to mature and grow our ability to execute on our strategy and create more value for our customers, our shareholders, and of course, our employees. So to wrap up, the third quarter was excellent on several fronts. We had another great performance on the top and bottom lines. We received more good news about Moveit And we are getting ready to close on a meaningful acquisition that will provide us recurring revenues at scale. As always, I want to acknowledge all the people on the Progress team who worked hard to produce these great results. Their work is extraordinary, and I'm grateful for their talent, dedication, and desire to succeed. Now, let me turn it over to Anthony to provide more financial detail around our third quarter. Anthony?