Progress Software (PRGS) 29 Jun 232023 Q2 Earnings call transcript

Good day and welcome to the Progress Software Corporation Q2 2023 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. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker Mr. of President Vice Micciche, Investor Relations. Mike ahead. go Please

Yogesh and Great, us joining financial and conference today Anthony everyone, Executive Chief and fiscal Thank Sherry. Good results is us With Officer. you, Folger, thanks call. our for Officer; XXXX President Chief for quarter afternoon, Gupta, Financial Progress our second Software's

Before we over go let's our Safe get started, Harbor statement.

strategies, other integration will future considered financial that performance, corporate During of be for and our initiatives, and outlook this product discuss call, forward-looking. cost our information we might MarkLogic, plans, reporting

Such guidance forward-looking uncertainties. and to outlook information represents Progress and only is Software's and risks today as of subject

Software a description update the no statements results, Factors our the obligation included For affect forward-looking Risk call. in the Progress of section in that recent assumes may refer most to factors to please our this risk XX-K. Form

on discuss call, we Additionally, indicated. are non-GAAP the figures all unless otherwise this financial measures

those directly release, in measures a You financial to non-GAAP find issued was which financial most the close our the after reconciliation today. can market numbers GAAP results of comparable press

This information specific to results related details. our it and second you of the XXXX for additional quarter I for document recommend financial contains reference

prepared results, for supplemental that presentation second quarter metrics. our XXXX We contains also providing have financial a and highlights data

recorded Both Investor be the section in in the of on its of be the earnings and via Today's supplemental section Relations replay will release entirety available the our our investors.progress.com. Investor and presentation are conference website available Relations at website. will

the to Yogesh. out that over of with I'll way, it turn And

call. to quarter good Welcome earnings our conference Mike, and you, Thank second afternoon, everyone. XXXX

ahead estimates. and great our had operating in Progress margins, saw another you quarter with As release, earnings, revenues of all press

Anthony for we XXXX outlook, result, in few will full year a a have our minutes. As detail you raised which

our Thanks strong performance from to In year-over-year revenues for $XXX and products fantastic up XX% demand again in continued a the teams our were million. to the quarter, field.

these more run products success. ensuring we And their challenging them remain remain in businesses, to economic providing using and committed their partners especially and customers value Progress to times. committed to Our great with

came by management revenue per teams. MarkLogic helps on $X.XX, all well at expense prudent ahead of well line execution by top the our estimates excellent driven Earnings as and from share integration in of as strong

a talk Operating the versus grew and year-over-year driven XX%. to in from net geographies product quarter ending the These margins XX% exceeded of of and $XXX by virtually more rate targets, around XX% second were an I'll consensus all MarkLogic outstanding and at retention acquisition achieved the increase MarkLogic, in ARR of XXX%. million, quarter lines which about a above contribution strong a was across that minute. again results with was

as broad OpenEdge, offerings. saw MarkLogic this provides once need well their Loadmaster, by Strength applications quarter applications, Sitefinity customer Cloud, their driven win-backs portfolio strength product for as in value modernize the Chef, to future. and demonstrating again led platform the was this of OpenEdge the Our by that mission-critical

Loadmaster, cloud because which see through bolsters continues new Dell's Channel wins Kemp the Dell offerings. to acquired our customer storage we through product

Chef product our as benefits reap saw DevSecOps DevOps as greater line and products. with well our as continued also wins customers We expansions new to from

marketing our realize our customer industries delivers use our least, with share to to Cloud the customers it and customers through we strength existing by Sitefinity the well customers. with Cloud last them. continues new as MarkLogic saw business expansions engage value engagement also ease improved as And as but as not And wins Sitefinity vision began grow the across and of We offering effectiveness. saw

company of integrating our our Since fiscal globe significant into made customers you weeks on personally of around then, the the MarkLogic connected As acquisition few welcomed colleagues, quarter. the on the we've closed progress prior to February with know and Xth, Progress. MarkLogic a first all end facets

the acquisition every playbook track done, is new we we've we've us keeping our combine and the companies. on a as integration learned with along As two things way few

to year. synergy expect fiscal achieve We all our goals of end the by this

FY'XX evident And a as impact strong XXXX. the in will with on meaningful recent MarkLogic's in in earnings our year quarter. full ARR revenue most financial contribution contribution the we QX next been our year hit from has MarkLogic in call, shared fiscal

with that to as to So performance our these as to our updated the we excellent roll And be QX remainder in for the this integration operations thrilled QX, year. couldn't up of the well of we're sum strong able of field happier MarkLogic. results guidance the continued we're

the Investor Day and financial in in held results seven early years MarkLogic QX, with In we to also addition in progress we've made first excellent our April.

and I session, products, employees, growth customers described company our shareholder talked discussed successes overview the our total and plan an to great my with about had provided our I create the strategy. longer-term of our value also culture. we've During and

longer-term on the covered the followed Anthony methodology. he extensive integration how we Corporate Jeremy a metrics to was top our who from gave and financial of and details deals everything Head our of model. then the Segal, gave funnel provided an source full which by strategies, review and Development, M&A And of details our integration review of at

an of success our efficient; and great slide on retention was section relevant integrate our to haven't great theme in two, our focus processes key rates. us acquire to Investor products available are drive customer and Progress the be unrelenting website our you three, to it strategy, comments stronger and and shareholder and is sustained to create invest that total keep make The and the operationally businesses seen product, to yet, system value; decks If -- commitment the the number one; website. growth all which on our in Relations webcast

supported shareholder prudent by a allocation strategy All of is maximizing on this focused capital returns.

infrastructure yet to recurring is than our ensure an complementary Our customer companies highly retention excellent We solid return our high the rates, with on achievable is WACC. synergies and scale revenues capital acquisition model and size that base, greater great technology, find disciplined right simple. with strong and invested

reasonable retention, a and it, value. to improve customer cash flows pay margins then price deliver maximize for shareholder sustained and We

this while criteria will ability following We to execute repeatedly we to so. disciplined have do demonstrated M&A and our continue

broader M&A discussed in the true. a perspective, favor. still moving our this we From previously We how M&A is believe is market believe that we've

the strategies and more scarcer continues As economic the will unfavorable get capital to be many alternatives private conditions companies cyclical in years, exit attractive market to in prevail go looking over for coming public. and

targets are as us. continues a team and of deal his the busy be constructive has and dynamics to the for for Jeremy competitive more number while healthy, become potential ever completing

companies are compounding institutionalize make that we better our process continued to learning and to at help comes success we have Further, the integrating each us time. with it acquiring and

we more and we remain to a about While one and since acquisitions very been disciplined includes our the doing patient strategy our we excited in if source and total year opportunity optimistic in as we as deal embarked growth that than future on intend have arises, remain and ability to complete XXXX.

has moment issue last over weeks. I our to focused to team an address very been want the on Finally, a that take few

MOVEit As a many products. identified X-K the and Cloud of June we in you are exploit on aware patched filed and the MOVEit Transfer Xth, that zero-day from have Progress

We've issue this been taking seriously. very

experts this supporting been and cybersecurity their process engaged in securing And customers on focus our researchers. has have environment. with We together, industry-leading our throughout

can our task to an broadly against speculate working protect at rather focus through what on the we doing While important or of of prematurely it's threat to ongoing hand, issue not this cybercriminals. but customers nature,

performance entire As the to and most on past led success you is pillar our has customer quarter. of over focus know, strategy a strong a an unrelenting across years, product foundational the few including portfolio our recent

than financial MarkLogic MarkLogic board the is guidance integration better rest and summary, results proceeding are plan and our the profitability. already expected the the year. of in to raise on we of delivered strength confident ARR revenue, of across contributions making about to The meaningful and is So business for

for market Lastly, to we integrate, we still us capabilities and our for deals. while improving improve continue believe M&A source, is that to internal complete the

work very always, and for our of excellent for dedication teams thank their As them towards commitment proud success. and I'm their our

guidance. Anthony? Anthony financial that, it With provide the to to I'll details over turn and

thanks joining afternoon, our Good everyone, and Yogesh. Thanks, call. for

Yogesh pleased some from also very which this revenue of see a our per MarkLogic, better our share. earnings range performing which mentioned, high and end QX exceeded of coming with is As pleased than thus our to results, bit We're the we're far. upside very guidance again on expectations

on the represents start the a line a forma X% ARR. and basis closed second on the numbers. pro quarter XX% approximately with top growth which We'll basis. to year-over-year with on million, Turning We of $XXX year-over-year growth ARR

the clear, periods. be results in both pro To MarkLogic include forma

at just was growth to net products by mentioned, driven XXX%. MarkLogic, portfolio fuel DataDirect. strong A Yogesh our again growth ARR and the QX including in across with retention rates As is OpenEdge, trend that continues ARR Sitefinity our over multiple

well addition than $XXX expected above in for driven to XX% expected Sitefinity. OpenEdge, a represents the ARR Loadmaster, of year-over-year our March growth strong performance back than approximately quarter was Chef, provided revenue the from by better quarter products end revenue high stronger in guidance was on the MarkLogic, of In demand and The growth, including basis. multiple range we the million

XXXX. performance of those slightly In call, For the our quarter QX, a came recognize to line by and this was very first was mentioned punctuated earnings top first that, half only revenue QX timing. exceptional who I you you'll to strong some in in the quarter. of actually recognized aided our expected in listened early recall second in we highlight that to performance QX which our

to now Turning expenses.

we've up operating compensation and of lesser previous of The to in business, and expected which were benefit MarkLogic on in the the prior our across the was expenses increase detailed line million, costs by XX% acquisition quarter with rest driven for $XXX costs calls. expectations. year to extent year-over-year an the increase total our Our compared and and a

in quarter quarter XXXX. $X $XX the XX% compared operating second was income prior year million million, margin to our up the and to XX% compared was Operating of

guidance quarter $X.XX the of end share $X.XX our range. high above On per earnings the line, of for the is bottom

management overperformance This expectations business. solid outstanding line to the top relative with coupled driven cost across our by performance was

the fiscal synergy all targets integration year. to we remains of will and unchanged by Our we MarkLogic outlook that continue this for end achieve the expect our

$XXX $XXX of represents now $XXX adjusted XXXX net the on to EBITDA. a our million and flow for ended of of roughly quarter balance debt a of leverage equivalents cash using metrics. times Moving investments net cash year and forecasted position fiscal million We and This short-term million. X.X debt cash, few with sheet

mention credit our of synergies, net leverage pro even quarter, end I'd consider the acquisition And down if EBITDA the of forma drew of to the MarkLogic, of $XX that our to on second we paid against the to further. down line million also we MarkLogic million the bringing that like quarter. line fund revolving at outstanding $XXX credit revolving partially balance the to that during drops we

quarter generally line of for from is XX cash QX quarter with our $XX in generally and million for in million and DSO $X was with days, Adjusted with the an line was which expectations. expectations. the last our free consistent increase flow quarter,

During $XX the remaining stock. the under our And repurchased the quarter, second repurchase we million of had of $XXX current million share quarter, end Progress authorization. we at

Okay.

Now demand despite environment for I'd QX the year like continue outlook macro more become outlook, our full strength the considering we and our for our solutions to that turn the to When potential see environment to may challenging. XXXX. in

and the share for quarter between $XXX of expect we million $X.XX. revenue $XXX that, third per and million earnings of and $X.XX between With XXXX,

our million, full million prior from and we $XXX between $XXX $XX XXXX, year the expect million guidance. an revenue increase of For

increase between of from consistent between of We consistent our million our adjusted and flow guidance, again expect earnings prior between per margin $XXX with share $XXX operating cash XX%, of prior and and million, guidance, $X.XX and an XX% free with an $X.XX generally guidance. prior $X.XX, our

rate million estimate $XX annual paydown of Our outstanding, XX%, end million on revolving we the of of contemplates XX.X of $XX a million impact can by repurchases the share line our of complete to approximately credit, EPS which and tax shares the XX% we believe of XXXX.

the and the board integration a across XXXX. the saw very In continuation XXXX from MarkLogic that closing, of quarter, and deliver the financial gaining of results well believe first beyond. remainder the the we're momentum of see quarter strong trend second of we in strong deliver to thrilled to for to well-positioned XXXX We're much excited and results we're we

I'd call that for to Q&A. the like With open

come first you. Oppenheimer. the line Thank Ittai Instructions] will Our Kidron question [Operator with of from

open. is line Your

great and couple questions of Maybe guys, for you, Yogesh. Thanks, execution. a

risk here to to like something it's But find first standpoint? this situation? move product is MOVEit of what of off how been First feedback on road the is in line the trying from you, not customers has down for customers? easy issue I are the Can big that quantify quarter. this to And from you this what know past alternatives a all, the a revenue quickly. that

the MOVEit had that our product you, thank were MOVEit Hey, impacted MOVEit mentioned X-K nice filed Ittai file less revenue. that in feedback We the were of we the transfer transfer, are cloud our which quarter. for actually annual on and two overall that the than X% products

So it's rather limited impact speak. a to so

we far As engage continue customers to as concerned, are Ittai, them. with

making their is help Our secure focus they our is done. our get continue We to point about in putting to that sure feel customers. effort good really this at and the get environment team work

have they point, And about speculate too want we really this it's customers use else. of impact terms potentially saying to to something at an kind that might early what in of

applying to our their secured, patches that et sure making back So Ittai, feeling we've right to customers provided cetera. are now, that on just is back running, focused the environment we're them, that

whether pure from maybe follow-up forward specific activity you Last want or clearly, element do your third commentary. pull needs some Very the outperformance perhaps customers? make do the for what some degree understand this? expansion on, get I I sure just and Help is How understand products a given of visibility you this And me to you there good. pull-forward have the around was quarter, also hands a quarter to components. or quarter

Yeah.

So go ahead, ahead, Ittai. Anthony. Go

anticipated. just a think earlier and a in And maybe little to of deals there Yeah. we bit they yeah, earlier say, were came this going of I in I was came and in jump we Ittai did bigger. than that in year, have they couple QX

that In none of was QX, there really activity.

So been I material in because why remarks in don't have quarter. this think about least in I quarter, recognized QX. good And really performance think anything made should felt nothing at the something the we that's is in I my that the comment

light some think the the fact I in of revenue got that And QX. in of booked

-- case good on just QX it it makes was the stronger the it even think in I performance top line. for how

to expand to it's So existing continuing with renew, customers, new acquire to our continuing continuing customers.

areas I think performing of lot well. in a we're

much. Good it very Excellent. you stuff. up. Keep Thank

McDonough One Ray our That the line Thank come of moment with question. from Securities. will you. for Guggenheim next

Your line is open.

the questions. Great. for maybe Thanks you. taking for Yogesh,

Have I to wondering You mentioned of is Progress customer customers up of went? how statements products. to around customer MOVEit using you with base using conversations Or any the success that concern your base any regarding remaining how strategy opened core installed and outside the products? vulnerability. obviously customers in But Progress outside other indicated just general committed conversations regarding was have went those

raise Ray, So come really MOVEit, is the us not at have and issue this other limited we point, customers to the -- concerns. to had because

the industry state software show the of in vulnerabilities One is that the all up of the that time. things

that vendors more I have think alone. me telling by somebody than software months was highlighted six vulnerabilities this XX,XXX been last in

there cybercriminals some unfortunately, world the going in is have the is out they you do. basically it So doing way, and state that it of what

any have at So, other point. customers of raise this we not products issues had no,

for And follow-up sense. maybe makes then Anthony. you, That a

there guidance margin to here You in guys the guidance non-GAAP the And terms significant as terms of OpEx back spending? would margins. spending the to operating ramp for move you be Any instance needle color half by maintaining it helpful. and incremental expect margin your you're full beat we spending OpEx of in on Do about a thinking to in of cybersecurity should relates year year? be

year for think ongoing would years Yeah. into and cyber now. couple Ray. a we pretty investments say Sure, coming we had don't I that have significant in I the of

beat obviously, the would. the we are in there invest to costs so And more think an other line necessary, is if there But where opportunity with business. top I

and inflation Wage and we that from pretty talked to generally continues time-to-time persistent. about to be run inflation seems

as goes a so think are those around ourselves the to little of I we And continue margin latitude the some give operating escalate trying on costs year the bit margin, may as on. to of

I really think it. that's

taking for the Thanks Great. questions.

next of the Pinjalim with will One Thank and you. JPMorgan. question come for from that our line moment Bora

Your line is open.

rest taking Ipswitch on point any new product Great. steps those the great the any guess, much MOVEit those congrats I'm so take acquisitions you and issue, look can to you or Yogesh proactive or Thank if a wondering at quarter. actually the of on from you are portfolio, steps kind kind products? of the the customers proactive to of using mainly the I

that security the to We of is security Pinjalim, sure program of customers take seriously. are. question, being So, have can software a really, that you good a robust Progress. we, provider really wide had we a I'm product right? extremely very range So at of imagine course,

are we -- investigating. have basically We

first, So for it right has all in our four customers. way, now, been weeks, hands the deck on the last by

So imply we to do we there doing area of products to to want where areas I But of see are other sort just need going I in looking things. better that don't are security. other are of the around our we

We I around need are comment we part M&A And you process your made was the security improve came look us going that our acquire. think through XXXX. in at also of Ipswitch think that we to this whether to maybe of products to I

we want think are those along. I imply have not seriously but that We really actually important, I security taken all do. don't things So all to

-- code We to scanning industry-leading for vulnerabilities. code software scan we use have our

test our -- they We software find vulnerabilities if have hackers and come in for to can.

very approach multi-faceted a we case strong have team it's response does wrong. something mean a in and I go

think Pinjalim, other want to we don't security. think, you that about So will product I now

for also product an there where along, improve. taken this we things other opportunity ought to if security all actually have creates see We seriously to but very, us very

investments reprioritize exit the drag front. that as portfolio. could M&A you I'm be wondering maybe Could actually for kind generative the question down some of their one And multiples wave just if for of companies traditional assets? good VCs it. AI Got in on the

I moves shiny VC that the of about usually is next things who one The being this to we always, object. think right? fun Pinjalim, the world are,

the last become so over decade really And got workhorse created years strong. the businesses that really, or last that XX

basically happens, become VCs, They interesting And that not valuations change. that means to do that when then their right? that

And so, you're absolutely correct.

opportunity vendors it companies. other pick up us that will up create think pick to I just an for

software have very valuations I'll stuff. good really, cloud company software and companies interesting sure you gross even I'm that give margins are on-prem right? know noticed -- a we became you When Pinjalim, really better on-prem that exciting, though down, this, all came greater -- example,

of the of companies there. we from really I and good that there to kind generative money now we stuff other put business to let's so think, on And work which find our you with combination interesting going capital being scarcer companies some run, know are the what, less is will are might our industry, say, AI, who VCs in hot

So I a think really astute that's Pinjalim. observation,

it. Thank Got very much. you

from Thank with line our you. for that the Jefferies. question come Brent moment One will of and next Thill

Your line is open.

Thanks. into I you in drive the curious the could if was strength customer demand.

it strength, and strongest unpack your seeing just Maybe MarkLogic. mentioned like you could could from demand. signals if customers the it in excitement. I had where sounded little into And if was waiver You drill no you're a also

bit You what Thanks. can us that Can share? remind you mentioned recognized from you and this other any was quarter MarkLogic color that a better. revenue you

across use, actually on they part think and really demand, looking with wonderful it's mean, the Customers I the to how Brent, to come are do overall will terms in mentioned, see, will I let as been of a that I already I around share board. numbers Anthony right? to But know that. products things I MarkLogic -- in

you won't like expansions example of customer, you interesting give product a are are our of one sometimes part names reasons the business, it's an really it bit that's I'll right? but about why So where I sort big I'll OpenEdge know because And the name OpenEdge customers a an you give challenging, saying anyway. whether a is example of

with you're They be nicer, able saying, the if spent sold currently different have you they top something has hey, an so on the much application platform using The OpenEdge of by somebody application were years that to a find will thinking and use shinier, better, customer you that replaces to right? needed our platform. last greater, modernize five

just is a let's say The decided last what the $XX project enough spent many at progress right? terms they has have the that of They started, know forward. million as north made So similar this to time over enough. project they to going you still any anyway. they when they -- years So just line They is completion five now is years bizarre, of as haven't trying go right? in point which did and

So with deal with decided it. using to they expanded. basically, they modernize And could signed seven-figure do recommitted with a them We what to OpenEdge. us, we shared us. expansion They they they

runs something what saying, me, to So trend. I with that of these the also I am and money are it already? are I of do that's problems part the products because basically Cloud And People somewhere across board. new Loadmaster wasting We're of Sitefinity with think, network the can where seeing performance products like I should efficiency, wins availability. have cuts the and customer again, problems addressing

for mean, things And work. Sitefinity more a Loadmaster, I for Storage saves -- Dell to great reliable, It it at front sit sells Loadmaster. it a and it environment and great look resilient, OEMs do performance at is more you and always much and therefore product ends it it's they because makes their much do their growing Cloud much for easier it when makes better marketing on. value. just basically Dell a like Cloud us marketing channel it's folks It Loadmaster. dollars.

across you the And seeing geography. across selling every virtually I point you selling in So Do this product? we're that the job? a value the sells, board. do good market now think seeing right Are to? We're have things that you right? you customers can this Are

the It's It It application our infrastructure I products. Sitefinity further insight into It's digital board. across others. sort is development product. this. products It wish our SecOps IT experience just broad. management products. of an is and give truly could and I Brent, It's our is management, with DevOps

want question? you Anthony, the MarkLogic take to

Yeah, sure.

seasonally our Brent. Maybe of right for were quarter, was would a ahead the there is QX QX that to $XX bit call. so last might in I the top be we expectations. And this few dollars million seasonality. But for because it bucks step come and honest. that around bigger third year down and ahead expect we both slower And honestly, expect it a a be of overall would bit bottom just quarters. in business, to few this probably on bit line million be during a QX mentioned we quarter. seasonality to and higher a the But of expected than the million quarter a we So did line on lot MarkLogic

So that encouraging. was really

Great. Thank you.

Soderstrom Thank Sidoti. for from will our you. question and One line Anja that come moment of the next with

Your line is open.

Thank execution. for my and congratulations great taking another you and question on Hi. quarter

you question expenses to bit Is due there up that? inflation a anything in mentioned previous wage creep expect offset and that can to inflation. do You a you to

let really same really factors can opportunities want there I'll some control. Anja. for what But we control So, Anthony, like of expand? more to the we are I actually we look time, costs from expenses. at are to can talk reduce do about but do. looking perspective, mean to you spend, market you, and see thank Anthony around out our our continue that where are We this

assets leaner. our took example some Selling year past in of we a sheet the headquarters that's where on last in our corporate other good little right, No, and some bit years, where balance we off areas the steps the taken business have took And I down pretty could operating get capital spend. we Yogesh. balance put sheet, think was a Yeah.

and we're DNA part Progress There the just think are doing we're smaller opportunities that. constantly it's now that where I of pursuing

have long run the we improve the So I and maintain to think over slightly margins. our ability

We that about talked bit Day. little a sort of Investor during

seeing, bit think particular the inflation that's is the two something in a for stubborn I inflation past been years. maybe wage that we're

done I do good job point, think we'll continue think up I we've a that. to offsetting and it this to

lot we we the to of sort of need a through it -- But and be takes it as of the takes scrappy work year. back just work half

been that. I probably leave But, that's are look I think So I and into guess at can there we would it history. areas yeah, our

Great. for me. That's you. all Okay. Thank

you. Thank

showing no to the time, for like turn I'm in queue. over Mr. closing back Yogesh this questions Gupta I call further to As any remarks. At would the

Well, us. as about well have half. Once to we're Have We and look what to a second in we again good for joining first of thank delivered going again, you, night. in our everyone addition the year talking half you the we're forward excited soon. where to

Thank today's you all for participating. program. This concludes

disconnect. You may now