Progress Software Corporation

Good day, and welcome to the Progress Software Corporation Q4 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 of Investor Relations. Please go ahead.

Thank you, Cherie. It's always great to be in your capable hands. Thank you. Before we get started here, we're going to 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 acquisition of share file, which closed on October 31st, 2024, 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 in 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 fourth quarter and full fiscal year 2024, and I recommend that you reference it for specific details. We've also provided a Presentation that contains supplemental data for our fourth quarter and full fiscal year 2024 results provides highlights and additional financial metrics. Both the earnings release and the supplemental presentation are all available on 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, I'll turn it over to Yogesh.

Thank you, Mike. Good afternoon, everyone, and thank you for joining our Q4 2024 Financial Results Conference Call. Fiscal 24 was another outstanding year for Progress, as you can see from our published results. We registered another strong performance in Q4, marked by continued demand across our product portfolio, especially for our data platform products, MarkLogic, OpenEdge, and DataDirect, and our AIOps network management products. Our data platform products are the foundation for mission-critical applications at over 100,000 businesses, and we are living in a world where business data is increasingly important for responsible AI applications. We exceeded the high end of guidance on earnings and free cash flow, and ARR grew by 46% in constant currency. Our net retention rates came in above 100%, which holds true even when you completely exclude share files from our results. We generated $238 million in unlevered free cash flow on revenues of $753 million, close to the high-end guidance of $755 million. As a reminder, Sharephile contributed only one month of revenues in Q4. Our strong top-line performance, coupled with excellent expense management, led to the significant outperformance in earnings and free cash flow. I'm extremely proud of our team for their dedication and their relentless commitment to excellence. Anthony will go through our excellent results in more detail and provide FY25 guidance shortly. But in the meantime, I'd like to share some highlights of FY24. As you might recall, we received good news in August from the SEC, which concluded its investigation into the MOVID vulnerability with no actions recommended. Earlier in the year, several international data privacy regulators also closed their investigations without action. We are heartened by these confirmations that Progress did the right thing in addressing the attack on Moovit and are happy to focus on the business of our business. The biggest highlight of the year, of course, was that we closed the acquisition of Sharefile on October 31st, and we've had an excellent start to our integration process. Because ShareFile was a carve-out and not a standalone company, you will recall that we're operating under a transition services agreement with Cloud Software Group, or CSG. We're working diligently towards ending our reliance on the transition services from CSG in a rapid and timely manner. We've already completed or are well into some of the more immediate synergies, such as eliminating duplicate infrastructure transitioning ShareFile employees to our collaboration and HR systems, working with customers and partners to ensure a smooth transition, and all the other activities we customarily initiate upon closing. While it's still very early, the integration is on track, and we expect to complete the full integration of ShareFile within the 12-month timeframe we provided when we announced our Q3 results. And as we indicated when we announced the deal, We believe our 40% threshold for operating margins for the acquired business is attainable by the end of FY25. We expect ShareFile to add about $250 million to the top line in FY25, which will be 100% SaaS recurring revenue. This meaningfully increases the percentage of Proxys total SaaS revenue, getting it close to 30%. It also adds excellent stability and visibility to our top line by significantly raising the share of recurring revenue to well over 85% of our overall revenue. Anthony will share more on this. Perhaps more importantly, Sharefile is a native SaaS platform with gross margins in excess of 80% and will benefit our own SaaS journey. Sharefile's proven at scale SaaS platform combined with the expertise of the technologists that joined us with this acquisition, provide us the foundation to accelerate our own SaaS product deliveries. It will also make it easier for us to integrate any additional SaaS companies that we may acquire in the future. What's more, with this demonstrable proof point of evaluating, buying, and integrating a large SaaS business into our company, the universe of potential acquisition now expands to include other SaaS businesses as well. Our approach to M&A, which is one of the three pillars of our total growth strategy, continues to be disciplined. Our M&A discipline is simple. Acquire great businesses at the right price, integrate rapidly, and have a laser-like focus on improving customer retention. Let me define what we mean by great businesses. A great business to us is one with exceptional products, that have future relevance, an impressive customer base that loves those products and relies heavily on them to run their business, and has excellent, talented employees and a culture that fit well with our own. Acquiring such businesses strengthens progress today and will keep us relevant well into the future. For example, Chef made us a meaningful provider in the DevSecOps market as the shift left trend continues to gain momentum. Ipswich and Kemp brought us observability and AIOps capabilities, while MarkLogic has enabled us to enter the GenAI application market with a business-centric, reliable, and secure offering. And our latest acquisition, ShareFile, is an at-scale SaaS AI-powered platform for content-centric collaboration. All these modern offerings enable us to address a broader set of our customers' needs. And the skills and expertise brought to progress by the employees of these acquired companies accelerate the technological evolution of all our products. Importantly, my acquisitions have also broadened our go-to-market channels. Ipswich and Kemp with their respective two-tier channels, Chef with open source, and MarkLogic with U.S. federal government contractors. And ShareFile at scale, and ShareFile's at-scale high-velocity sales model significantly complements our own. These channels, combined with our existing enterprise and ISV and OEM go-to-market strengths, enable us to efficiently serve large and small businesses around the world. Acquiring such excellent businesses for the right price requires us to be patient and disciplined, which we have demonstrated in each of the five acquisitions we have completed to date, as well as in all the deals we have walked away from. We will continue our track record of such discipline and patience when it comes to doing deals. The other two equally important pillars in our total growth strategy are to innovate and to focus on customer success. We invest in innovation to ensure that our products, both the market efforts, people, and systems continue to deliver increasing value to our customers. In FY24, we delivered several innovative solutions within our product portfolio that enable our customers to develop, deploy, and manage responsible AI-powered applications and digital experiences. For example, our data platform products, MarkLogic and Semaphore, now use retrieval-augmented generation and vector capabilities to enable our customers to securely leverage proprietary data and content to augment the GenAI capabilities of large language models. This leads to accurate and contextually relevant GenAI responses based on a business's own proprietary data, and these responses are supplemented with traceability and links to the original source material so that users can easily verify the results. Businesses need such accuracy, reliability, and verifiability to use GenAI effectively and confidently. which is why a large US government agency that serves tens of millions of citizens recently decided to extend their use of our data platform with its new capabilities to meet their Gen AI needs. In another example, our digital experience products now leverage AI to simplify the job of marketers by automating content creation and personalization, enabling conversion rate optimizations. And our UI developer tools are AI-powered to make it easier for developers to embed Gen AI in applications and deliver AI-powered experiences to end users. Our core infrastructure management products have always incorporated some level of AI in their architecture, but we are now leveraging advanced AI technology to make our products even more productive and easier to use and to enhance their predictive analytics capabilities. For example, in FY24, we launched FlowMon with advanced AI-powered threat detection that distills thousands of network events into specific actionable intelligence, drastically reducing the time and effort spent by cybersecurity experts to pinpoint threats. Our share file acquisition also brings new AI capabilities to our portfolio, which include automated document summarization and automated guidance on user workflows. It also leverages AI to protect sensitive information. For example, if a user tries to share a document that contains sensitive information, ShareFile's AI-powered security detects the sensitive information, alerts the user, and suggests more secure ways for the user to share that document within their workflow. In addition to innovation, we also have an unrelenting focus on customer success to ensure that they stay with us, which leads to a high net retention rate. It is this focus on customer success that resulted in a net retention rate in FY24 of over 100% despite, as you might recall, a few large customers churning in late 23 and early FY24. Keeping our customers happy and NRR high also enables us to be highly efficient with our sales and marketing efforts and allows us to continue to deliver high operating margins and generate cash. Speaking of cash, I'd like to briefly talk about our capital allocation strategy. As a reminder, we strengthened our balance sheet in Q2 of 2024 when we issued a new $450 million convertible bond and consolidated our prior credit facilities, ending up with a single $900 million revolving facility. We used $730 million of that credit facility to finance the share file deal. With our strong recurring revenues, and cash generation, we expect to pay down our outstanding debt quickly and prepare for our next acquisition. Our goal is to allocate capital in the most effective and efficient way to create greater shareholder value over time. And we want to consistently generate a return on invested capital that exceeds our cost of capital. I want to reiterate what we said in our Q3 earnings call. Our corporate development efforts are ongoing. We continue to look for great businesses, and if the right one comes along at the right price, we will not hesitate to act. We are confident that we can integrate more than one acquisition in Paddler. Lastly, as the final highlight of the year, we continue to make progress an even better place to work for our employees. In addition to the numerous awards progress earned for our exceptional work related to the environment and to employee culture, we were again selected a best place to work by Boston Globe and the Boston Business Journal. These awards reflect the strength and engagement of our employees, which is a key to our success. Our low employee turnover and our outstanding employee net promoter scores continue to show that we are one of the best technology companies to work for. We have great people who get better at what they do each year, and we benefit from their expertise, experience, and institutional knowledge. Because of this low turnover, we have a significantly lower hiring and training expenses. We strongly believe that having highly talented and engaged employees is one of our strategic differentiators and a competitive advantage in an industry where high turnover is the norm. I can't thank the progress team enough for their commitment to our success and for their hard work. So to wrap up, We are thrilled with our execution in FY24 and excited about FY25. Just a few weeks ago, we got our field organization off to a quick start to FY25. We held our global kickoff in early December, where more than 500 of our people gathered in person to learn about our new offerings, sales plays, and their targets. The teams returned energized and ready to hit the ground running. In FY25, we expect continued solid demand for our products to drive meaningful ARR growth. We also expect continued improvement in the share file operating margin throughout the year, resulting in significant growth in the unlevered free cash flow, which we will use to aggressively pay down debt while we look for the next business to acquire. Let me now turn it over to Anthony to provide additional details around our results and guidance. Anthony?