Progress Software Corporation

For your questions, simply press star one one again. Please note, this event is being recorded. Now it's my pleasure to turn the call over to Michael Michigai, SVP of Investor Relations. The floor is yours.

Thank you, Carmen. Good afternoon, everyone, and thanks for joining us for Progress Software's second fiscal quarter 2025 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 the safe harbor statement. During this call, we will discuss our outlook for future financial and operating performance, corporate strategies, product plans, cost initiatives, our integration of share file, 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 SEC filings. Progress 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 second quarter of fiscal year 2025, and I recommend that you reference it for specific details. We've also provided a presentation that contains supplemental data of our second quarter and 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. 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. So Yogesh, I'll turn it over to you now that we're done with that.

Thank you, Mike. Good afternoon, everyone, and thank you for joining our conference call to discuss the results. of our second fiscal quarter of 2025. We're extremely pleased with our solid second quarter results and the success of our ongoing integration of ShareFile. Before we get into the details of the quarter, let me begin with the news we just announced regarding the acquisition of Nuclea, for which we paid $20 million. Nuclea provides an easy-to-use, self-service SaaS product that democratizes the use of trustworthy and verifiable Gen AI. Small image-sized businesses, as well as large global corporations, can quickly and easily reap the benefits of sophisticated agentic RAG AI capabilities using Nuclea SaaS. While the deal does not have a material impact on our financials, we are very excited about Nuclea and the unique agentic RAG as a service AI capabilities it brings. As we have often discussed, the first pillar of our total growth strategy is to invest and innovate. We regularly update, modernize, and improve our products as an everyday part of our business, which is reflected in the R&D line of our income statement. For us, our R&D investment is an essential element of providing value to our customers, so they stay with us long into the future. With Nuclea, we have accelerated the R&D process by purchasing great technology that addresses an urgent market need and we will rapidly integrate it with our products. This will allow us to incorporate additional agentic RAG AI features that help our existing customers speed up their own gen AI initiatives, thereby enabling us to continue to drive strong customer retention. You'll hear more about Nuclea in the coming quarters as we integrate this cutting edge technology with our products. Turning to our second quarter results, Total revenue came in at $237 million, up 36% over last year, and was solid across geographies and product lines. AR grew 46% year-over-year, or 2% on a pro forma basis, to $838 million, and net retention was again 100%. Our operating margin was 40%, and earnings exceeded the high end of our guidance thanks to solid execution and expense control. Lastly, our balance sheet improved as well, with another $40 million paid down on our revolving credit line. Anthony will provide the rest of the financial details in a minute, but as you saw, we have raised guidance for the remainder of the year, reflecting our confidence in the continued strength of our business and solid expense control. Overall, the second quarter showed strong renewals, expansions, and new customer additions across all geographies. And we saw consistent performance across our product areas with significant strength coming from OpenEdge, as well as solid performance from ShareFile. Our data platform products, including OpenEdge, continue to generate major renewals and expansions in the quarter, including a world-class biotech company, a global pharmaceutical firm, a major European DIY retailer, and several open-edge independent software vendors. The growing importance of data in an AI-driven world, combined with the ongoing investments in our products, is the driving force behind these wins. Let me share an example of how one customer is benefiting from using our products in their generative AI efforts. The research and scientist teams numbering in the thousands at a global pharmaceutical company was struggling to find the correct information needed, which was buried in mountains of unstructured and structured data, such as research papers, emails, spreadsheets, files, et cetera. They tried using GenAI with vector support, which yielded rather poor results with only 44% accuracy of answers. This resulted in these highly skilled teams wasting their time and getting frustrated. So to reduce this incredible waste, the company partnered with Progress to strategically transform its information search capabilities using the progress data platform. By implementing our advanced WAG search solution integrated with semantic knowledge graphs, the company dramatically improved the precision and relevance of the search results. The accuracy of answers improved to 84%, delivering significant time savings and dramatically improving user satisfaction. During the quarter, we released new versions of Progress Galeric and Kendo UI, which introduced a series of groundbreaking AI capabilities, including AI coding assistants that significantly accelerate development workflows. These AI enhancements were key to a major customer expansion with one of the largest ports in the US. In addition to the developer productivity boost from AI, the customer determined that the AI coding assistant also reduce business risk by producing higher quality code. Our infrastructure management products also continue to see success around the world. In Q2, one of the largest leading sustainability companies turned to our products to modernize the automation and deployment of their IT infrastructure, supporting their 6,500 locations around the world. And the European government selected our products to improve cybersecurity using AIOps. As organizations modernize the infrastructure, they continue to recommit to our products for their data, digital experience, and infrastructure management needs. Our ShareFile business also saw continued strong renewals and expansions, including a Fortune 500 global producer of oil and natural gas who uses ShareFile's AI-powered document insights and collaboration tools to share large, sensitive files with their customers and their global supply chain. Speaking of share file, let me provide you an update on the business. We reported at the end of Q1 that we were ahead of our integration plan. The same is true at the end of the second quarter. Most of the primary operational synergies are completed, and nearly all of the major milestones are now behind us. We've completed and terminated the transition services agreement with Cloud Software Group, Again, earlier than planned, and I'm really pleased with the progress we have made so far. In addition to our integration efforts, the ShareFile engineering team has continued to deliver new capabilities without missing a beat. For example, we announced powerful new ShareFile AI features for faster document collection, automating repetitive tasks and simplifying workflows, and generating AI-driven insight. With these new AI capabilities, Businesses can gather documents three and a half times faster and extract key insights they need up to 25 times faster. ShareFile is now also deeply integrated with Microsoft 365, allowing users to benefit from ShareFile's secure co-authoring and file collaboration seamlessly from within Microsoft 365. This helps organizations to streamline complex workflows and improve productivity as well. And we are delighted that Shefail was named a visionary in the latest Gartner Magic Quadrant for document management. I also want to briefly touch upon Progress's own use of AI to innovate and improve our operations. As you saw in our excellent bottom line results in Q2, we continue to maintain our expense discipline, which has always been central to our operating philosophy. And AI has begun to play an expanding role in helping us maintain our world-class operating margins. To that end, we are relentlessly pursuing ways to incorporate AI into any process that can be done more efficiently, which includes both off-the-shelf and our own AI products to drive productivity and produce strong results. Over the past year, we've embedded AI-driven automation and intelligence into a wide range of our business functions, from engineering and IT to customer support, marketing, and sales. For example, our engineering teams are leveraging AI-assisted coding tools to accelerate development cycles and improve code quality, while our IT operations teams have adopted predictive analytics to proactively manage our infrastructure and reduce downtime. In customer support, we have implemented AI-powered chat and case routing systems that significantly improve response times and customer satisfaction. We're also using generative AI to streamline certain content creation, and campaign execution within our marketing teams, enabling faster go-to-market strategies and a more personalized customer engagement. And we're using AI in sales to help nurture prospects before sales teams begin to interact with them. By integrating AI technologies into our workflows, we're not only increasing efficiency and managing costs, but also freeing up our teams to focus on high-value, strategic work. Lastly, I would like to briefly discuss the other key pillar of our strategy, discipline a creative M&A to drive sustained top-line growth. As you recall, we often discuss the overall size of our opportunity for M&A, which remains quite large. But before we acquired Sharefile, we saw many SaaS companies that were unattractive to us as potential targets because we lacked in-house expertise to run a highly profitable SaaS business. Today, with ShareFile, we have a high-quality SaaS business that contributes over a quarter of our revenues, and more importantly, we have an organization with the expertise and experience of running a highly efficient and profitable SaaS business at scale. So we are in a much better position today to evaluate almost any kind of business, SaaS or otherwise, as a possible acquisition target. Naturally, our success in executing our total growth strategy depends on maintaining our strict M&A discipline. We will continue to look for companies with excellent products, with great customer bases who love those products, significant recurring revenues, and high retention rates. And we will continue to be disciplined about what we pay for them. Our capital allocation priorities are unchanged. We believe M&A will produce the best returns on capital for shareholders. And between deals, we will focus on reducing our net leverage. Finally, and as always, I want to thank all of our progress teams around the world for their dedication and hard work that led to our great results in Q2. In addition to consistently performing at a high level, our employees also make progress a great place to work. Once again, Progress was named among the 2025 best places to work recently by the Boston Business Journal. I am so proud of the amazing culture we have and the recognition we continually receive for it. With that, I will turn it over to Anthony.