Progress Software Corporation

Hello, and thank you for standing by. Welcome to Progress Software third quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask the 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. To withdraw your question, please press star 11 again I would now like to hand the conference over to Michael Michique. You may begin.

Okay, thank you, Tawanda. Good afternoon, everyone, and thanks for joining us for Progress Software's third fiscal quarter 2025 financial results conference call. With me this afternoon are our president and CEO Yogesh Gupta and our chief financial officer, Anthony Folger. Before we get started, let me 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 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, and our actual results may differ materially. For a description of the factors that may affect our future results and operations, please refer to the risk factors in our SEC filings, particularly the risk factor section of our most recent form 10-K and 10-Q. Progress assumes no obligation to update forward-looking statements included in this call. Additionally, please note that all financial figures referenced in the 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 earnings 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 2025, and I recommend that you reference it for specific details. We've also provided a slide presentation that contains supplemental data for our third 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 is being recorded in its entirety, and it will be available for replay on the investor relations section of our website shortly after we finish tonight. So let me turn it over to you, Yogesh. Go ahead, please.

Thank you, Mike. Good afternoon, everyone. We're glad you can join us for our third quarter earnings conference call today. As you saw from our press release earlier, we reported another outstanding quarter, during which we outperformed on every metric as our business benefited from our customers' investments in their AI initiatives. The revenues, earnings, cash flow, and margins were all ahead of our guidance. Net retention was solid at 100%, and ARR grew 47% year over year. Solid market demand was backed by outstanding execution from our team. Our sales efforts in the field, our organizational discipline and controlling expenses, and our extensive and detail-oriented integration of share files were all key to delivering these great results. Revenues of $250 million were well above our previous guidance and were again strong across products and geographies. Earnings, which came in at $1.50 per share, were well above the high end of our guidance, and operating margin was 40% above our expectations and reflective of ongoing excellence in execution and cost control. We also continued adding to the strength of our balance sheet by paying down $40 million of debt and increasing our revolver capacity from $900 million to $1.5 billion, providing increased flexibility. We also repurchased $15 million of our shares in Q3 for a total of $65 million so far this year. And just last week, our board of directors further increased our repurchase authorization by $200 million to $242 million. As always, we will continue to be disciplined in deploying our capital towards delivering the best returns for our shareholders. As Anthony will describe in detail, annualized recurring revenue, or ARR, continues to grow consistently. Our Q3 results show the durability of our install base, the continued relevance and value of our products, and the strength of our customer relationships. We remain confident that the strength in demand for our products, as well as our ability to execute well, will continue through the rest of fiscal 2025 and well beyond, because our customer CI initiatives are driving demand for our products. They look to us as a trusted partner to deliver the benefits of AI with clear ROI for their business. And we expect this demand to continue as businesses are still in the very early stages of AI adoption. Let me provide some color and detail around the quarter, starting with our ShareFile business, which is turning out to be the best acquisition we've done so far and was certainly the most intricate to integrate. We met every integration challenge, passed all major milestones on or before schedule, and overcame every obstacle we've encountered. The net retention rate, or NRR, of the ShareFile business continues to improve as customers increase their adoption of AI capabilities we've delivered in ShareFile. Currently, for example, over 3,000 customers have started using the new AI document assistant with over a third of those users already up and running and using it regularly. And the AI-powered secure share recommender has identified and protected nearly 15,000 files that contain PII, or personally identifiable information. The use of these AI capabilities, along with our focused customer success and account management efforts, is helping to improve ShareFi's net retention rates and has led to better than expected ARR and top line growth in the business. On the operational front, the team we acquired is completely on board and has become an integral part of progress. All vital systems are now integrated within progress and in the process of being fully optimized with no major issues so far. The ShareFile engineering team continues to deliver new capabilities. ShareFile web infrastructure is fully migrated and the transition to product progress branding is complete. As we have previously discussed, we measure the operational performance of our products by tracking ARR. This is key because the revenue recognition of on-prem subscriptions is lumpy and does not accurately reflect the underlying strength of the business. In addition to a meaningful portion of our strong ARR performance, both year-over-year and quarter-over-quarter being due to share file, I want to highlight the strength of our other products, such as OpenEdge, MarkLogic, Sitefinity, WhatsApp Go, DevTools, and Moveit, all of which continue to exceed our expectations. Innovation is a foundational pillar of our total growth strategy, and it ensures that our products continue to deliver increasingly greater value to our customers, especially during times of rapid technology changes. Having successfully navigated multiple technology disruptions in the past, Progress' ability to rapidly evolve our products to meet the changing needs of the market is an integral part of our DNA. Over the past 12 months, we have delivered dozens of new AI capabilities across our products that are benefiting our customers and helping drive our success in the market. To that end, you may have seen a string of recent press releases showcasing the AI capabilities we have delivered within our products, some of which include the latest version of retrieval augmented generation or RAG-enabled MarkLogic called Progress MarkLogic 12, the availability of new product, Progress Agentech RAG, built on the technology we acquired last quarter with Nuclea, AI coding assistance in our developer tools that enable developers to use our products as part of their workflow driven from their AI code generator of choice, AI-powered insights and questions and answers from documents and share file that deliver new efficiencies to users in their document workflows, and the launch of GenAI capabilities within the OpenEdge platform to accelerate the development and modernization of OpenEdge applications. Our customers are extremely excited about the possibility of gaining valuable business insights from their existing data across Progress products using our GenAI-enabled technology. A couple of weeks ago, at our Progress Data Platform Summit in Washington, D.C., we brought together over 200 customers to share how advancements in agentic rag, semantic AI, and data integration can help organizations break down data silos and drive tangible business impact. At that event, the State of Mississippi Division of Medicaid, a new Progress customer, shared that when they needed a solution to meet federal compliance and internal business requirements for secure, responsible, and accelerated AI adoption, they chose Progress. They showcased their Progress operational data store initiative built on the Progress data platform to help the state's agency address these needs by integrating data from various different sources and harmonizing it to drive valid, verifiable responses to Gen AI queries. We launched new AI coding assistance in our DevTools products for Blazor and React in early third quarter, which we continue to extend and now being used by thousands of developers across the world. Delivering developer efficiency gains of over 30% while seamlessly integrating with coding tools such as Windsurf, Cloud Code, and GitHub Copilot, our products are leading the UI developer tools market with AI capabilities. Similarly, we announced today the OpenEdge MCP Connector for ABL, which brings the power of Gen AI coding tools, such as WinServe, Cursor, and VS Code, for the development, maintenance, and modernization of OpenEdge applications. The OpenEdge MCP Connector for ABL is purpose-built for our customers' workflows, enabling faster development, reduced risk, and smarter modernization strategy. and has been extremely well-received by the OpenEdge ISV partners and customers who are early testers of this product. And our Progress Agentech WAG offering, which was previously known as Nuclea, is delivering value to dozens of customers like SRS, which is a wholly owned subsidiary of Home Depot, by enabling them to unify their structured and unstructured data, power intelligent search and insights, and automation. By turning information into actionable intelligence, Progress Agent TechRack makes GenAI practical, verifiable, and reliable for customers of all sizes. We're also seeing the downstream benefits of the AI adoption wave as it drives demand for our infrastructure management products. For example, this quarter, a leading chip equipment manufacturer significantly expanded their relationship with us to meet the needs of managing the growing complexity of their own IT infrastructure. As IT environments continue to grow and scale, as well as increase in complexity due to the adoption of AI, we expect this trend to continue. I also want to touch upon the fact that our engineers across our products are using AI tools in their day-to-day tasks. This is accelerating the delivery of product capabilities without increasing our R&D expenses, which we continue to maintain at the 18% of revenue levels. As you know, M&A is another key pillar of our total growth strategy. And when it's done well, as we've consistently demonstrated, including most recently with Sharefile, it meaningfully drives our success. Our approach to M&A is highly selective and disciplined. So with that in mind, let me give a quick update on M&A before closing the discussion. Our corporate development efforts remain and we continue to evaluate a strong pipeline of deals. As I mentioned earlier, in the third quarter, we both aggressively paid down our outstanding debt to reduce capital constraints, and we refinanced and significantly expanded our revolver to give ourselves additional flexibility. We think the market for M&A is still a very favorable one for us, with many potential infrastructure software targets that would fit well in any of our three key areas, application and development platforms, digital experience, and infrastructure management. And we are encouraged by the potential to combine any potentially new acquisition with our expanded AI capabilities, in particular with the agentic rag technology we obtained with Nuclear. While valuations remain mixed across product, technology, and business types, and there's still some disparity between public and private markets, we intend to keep our focus in finding great companies with great technology and the potential for high margin synergies at a reasonable valuation. 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 Q3. I'm inspired every day by their commitment to excellence, and especially this quarter with the outcomes we have delivered across the board. With that, I'll turn it over to Anthony.