Progress Software Corporation

Good day, and thank you for standing by. Welcome to Progress Software Corporation first quarter 2025 earnings conference call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. Please note that today's conference is being recorded. I will now hand the conference over to your speaker host, Michael Michike, SVP of Investor Relations. Please go ahead.

Okay. Thank you, Olivia. Thanks for your help today. Good afternoon, everyone, and thanks for joining us for Progress Software's first fiscal quarter 2025 financial results conference call. On the line with me this afternoon are Yogesh Gupta, President and Chief Executive Officer, and Anthony Folger, our CFO. As always, we'll begin the call with our safe harbor statement. During this call, we will discuss our outlook for future financial and operating performance, corporate strategies, product plans, cost initiatives, the integration of ShareFile, which closed on October 31, 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 sections in our filings with the SEC. Progress Software assumes no obligation to update the forward-looking statements included in this call. Additionally, please note that all the financial figures referenced in this call are non-GAAP unless otherwise indicated. You can find a reconciliation of our 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 first fiscal quarter of 2025, and I recommend that you reference it for specific details. We've also provided a PowerPoint presentation that contains supplemental data for the first quarter, and that slide deck provides highlights and additional financial metrics. Both the earnings release and the supplemental presentation are available on the investor relations section of our website at investors.progress.com. under the Investor Events and Presentations tab. Today's call is being recorded in its entirety and will be available for replay on the Investor Relations section of our website shortly after we finish. And with all that out of the way, Yogesh, I'll turn it over to you.

Thank you, Mike. Good afternoon, and thank you for joining us today as we announce the results from our first quarter of fiscal 2025. We're extremely pleased with our solid start to the year, as you can see from the numbers and the updated guidance in our earnings release. Our annualized recurring revenue, or ARR, increased 48% over last year in constant currency, predominantly driven by sharefile with additional contribution from the rest of our business. And our net retention rate again surpassed 100%. For the quarter, Revenues came in at the high end of our guidance at $238 million, up 30% in constant currency, showing steady continuous demand for our solutions. Earnings per share of $1.31 significantly exceeded the upper end of the range we provided at the end of Q4, which illustrates that our whole team is executing well while also keeping expenses in check. Our operating margins of 39% this quarter are indicative of our company-wide focus on expense management and execution, as well as faster share file integration. So at a high level, our results show several positives, and Anthony will take you through the details of the quarter later. Perhaps most important, the integration of share file is going very well. As you can see from its significant contribution to ARR, revenues, as well as expense savings. Each of the milestones and key areas of integration we anticipated are either on track or ahead of plan. During the quarter, we paid down $30 million on our revolver ahead of our original plan to start paying down debt in second quarter and in line with our intent to deliver rapidly so that we can be ready for the next deal. We remain very focused on prudent capital allocation and on using all facets of our capital allocation strategy to provide solid returns on invested capital. To that end, we also repurchased $30 million of our stock, consistent with our goal of returning capital directly to shareholders in the form of opportunistic buybacks. From a macro perspective, we have seen no disruption stemming from the uncertainty in the environment thus far, particularly as it pertains to our relatively modest federal government business. And we continue to monitor the developments closely. So all in, our first quarter of 2025 was very solid across the board, and our teams are once again showing their excellence in running the business efficiently while meeting and exceeding our operational targets. Let me now provide a little more detail on ShareFile and revisit a couple of highlights of the deal. We ended Q1 about four months into the integration and with everything proceeding as expected and probably a bit better in many ways. Our transition services agreement with CSG is working out well. While we still have more steps to complete, our progress has been faster than anticipated and we continue to believe that we can complete the integration and reach our 40% operating margin target for the acquired business by the end of this fiscal year. The people integration efforts with our ShareFile colleagues have gone extremely well as the collective teams have embraced our common culture and are moving forward as one. The hiring and integration of teams in locations such as India, Costa Rica, and Bulgaria has been rapid and we're excited about the progress on the people front. As a reminder, ShareFile is a native SaaS platform with 100% recurring revenue and solid net retention rates. In addition to the robust durable revenues and cash flow that ShareFile will generate, we now have extensive expertise running a significant SaaS business at scale with excellent gross margins. Before we acquired ShareFile, our SaaS platforms only accounted for around 3% of our total revenues. And now SaaS is nearly 30% of our revenue. The addition of ShareFile is helping us in a number of ways. For example, the strong cloud operations platform and significant cash flows from an optimized SaaS business opens up a larger segment of potential M&A candidates. We looked at many SaaS businesses and were hesitant because their gross margins and operational capabilities were unappealing to us. By the time we are ready to take on another deal, we will have cloud operational capability at scale, as well as the additional strong cash flow and balance sheet to seriously consider deals we may have been hesitant about before. I'm incredibly excited about the possibilities. But I also want to make sure that we remain disciplined, focused, and operationally competent in every regard when it comes to M&A and the execution of that part of our strategy. In fact, to further enable the execution of our strategy, we are also filing a universal shelf registration statement, which will allow us to access the capital markets with greater agility. While we currently do not have any plans to offer securities under the shelf, it does provide us with additional flexibility to carry out our total growth strategy. And we do see significant opportunities in the M&A market. There are a multitude of good companies and products that we believe will be coming to the market, and continued higher interest rates have made us meaningfully more competitive for deals when competing against strategic and financial buyers. As I mentioned earlier, ShareFile gives us ready-made SaaS experience and expertise. And our reputation as the buyer of choice in infrastructure software positions us extremely well in the minds of company founders, management, and investors. All of this creates a competitive differentiation for progress. Having a shelf ready to go adds to our advantages and will increase our ability to make acquisitions. Let me now highlight a few of our customer wins from the first quarter. Several leading commercial lenders and banks expanded their use of ShareFile in the first quarter. The wins highlight how financial service organizations are benefiting from purpose-built AI capabilities in the ShareFile product to securely share large documents with their clients, detect when the document contains sensitive information, verify recipients' identity upon access and integrate e-signature into their workflows. The customer feedback we continue to hear is that ShareFile is directly contributing to their revenue streams, workforce efficiency, and risk mitigation. Also in Q1, to AI-powered its content recommendations for their customers, one of the world's leading streaming entertainment providers turned to our data platform products for semantic analysis capabilities. Demonstrating our continued impact on shaping our customers' digital experiences, a global leader in industrial machinery manufacturing expanded its use of our DevTools products to provide touchscreen user experiences for the industrial machines to drive easier, accessible, and more efficient workflows for operators. Two states in the U.S. reaffirmed their commitment to use Progress's intelligent decisioning product to automate policy-driven decisions that are part of their digital government infrastructure. And we also saw several global financial, automotive, and retail customers significantly expand their use of our DevOps products to optimize, secure, and assure compliance of their application infrastructures. In addition, Our infrastructure and network management offerings grow strong new wins across Europe and Asia, including one of India's newest airports. The common thread behind all these wins, expansions, and renewals is our focus on enabling our customers to develop, deploy, and manage verifiable and trustworthy AI-powered applications and digital experiences. More and more of our customers are leveraging progress to deliver reliable outcomes from often massive unstructured data sets in ways that can dramatically improve work productivity, customer service, and ultimately revenue, while increasing compliance and reducing risk. Let me provide a quick update on our AI efforts, as it's a major force driving change in almost every industry. AI has been part of our strategy and product roadmap for many years and is core to the ongoing value we're providing our customers. Those of you who have tracked our company over the years would have seen our early assessment and focus on how data would be critical to delivering AI-driven applications. The concept of AI has certainly come a long way since then. Today, as our customers continue to rely on progress to power and solve mission-critical parts of their business, we have stayed ahead of this transformative technology evolution by ensuring our customers have the tools, processes, and expertise to fully leverage AI's potential. Our AI efforts continue to be focused on three areas. Number one, help our customers build great agent-taken AI-powered applications and experiences that automate workflows and generate accurate, valid, and verifiable answers that are in context, relevant to the audience, and leverage data in a secure and trustworthy manner. Number two, offer agentic and AI capabilities within our own products to make them much easier to use and to deliver greater value to the users. And three, use AI internally to be operationally more efficient, managing costs while investing in areas where we need to invest. To accelerate these efforts, one of our engineering leaders recently stepped up to spearhead our AI efforts across the company as Progress' Chief AI Officer. Ed Kiesling has been part of Progress as Engine leadership for many years, during which he has to help transform that organization. And we knew the importance of appointing someone who can drive such transformation again. In this new role, which reports directly to me, Ed is helping us innovate and invest in AI while also maximizing cost efficiency benefits through AI. In many ways, these efforts are balancing each other out as we continue to focus on retaining, supporting, and innovating for our customers. In summary, the first quarter of 2025 was a great quarter financially and operationally. I want to thank all our employees for all their hard work. We are delighted that we have such a strong employee base, and the addition of ShareFile further strengthens our organization and culture. We expect to have ShareFile fully integrated by end of the fiscal year, and we will continue pay down our debt aggressively. At the same time, we're keeping our seat at the table in the M&A market and always looking for great acquisitions. We're also keeping our eyes on a larger global macro environment and remain confident that our customers trust progress to continue to deliver in an ever-changing world. Thank you again for joining us this evening. And now let me pass it over to Anthony for more details around our results and the guidance.