Good day, everyone, and welcome to today's Progress Software Corporation Quarter 4 2020 Investor Relations Call. At this time, I'd like to turn the floor over to Mr. Anthony Folger, Chief Financial Officer. Please go ahead, sir.

Thank you, Greg. Good afternoon, everyone, and thanks for joining us for Progress Software's Fiscal Fourth quarter 2020 Financial Results Conference Call. With me today is Yogesh Gupta, President and Chief Executive Officer. Before we get started, I'd like to remind you that during this call, we will discuss our outlook for future financial and operating performance, corporate strategies, product plans, cost initiatives, our integration of Chef, the impact of the COVID-19 crisis in our business and other information that might be considered forward-looking. This 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 our recent SEC filings, in particular, the section captioned Risk Factors in our most recent Form 10-Q. Progress Software assumes no obligation to update the forward-looking statements included in this call. Whether a result of new developments or otherwise. Additionally, on this call, all the financial figures we discuss are non-GAAP measures, unless otherwise indicated. You can find a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP numbers in our financial results press release, which was issued after the market closed today and is also published on our website. This document contains the full details of our financial results for the fiscal fourth quarter of 2020, and I recommend you reference it for specific details. We have also published a presentation that contain supplemental beta for our fourth quarter 2020 results, providing highlights and additional financial metrics. Both our earnings release and this presentation are available in the Investor Relations section of our website at investors.progress.com. Today's conference call will be recorded in its entirety and will be available via replay from the Investor Relations section of our website. With that, I'll now turn it over to Yogesh.

Thank you, Anthony, and good afternoon, everyone. As I'm sure you've all seen in today's press release, we finished the year on a very positive note with revenue and EPS both above our expectations. We also delivered strong year-over-year revenue and EPS growth for both Q4 and FY '20. Overall, I'm proud with our results, both for the fourth quarter and the full year 2020. These results reflect the durability of our business and our success in executing our total growth strategy. While the uncertainties and disruptions of the COVID-19 pandemic impacted the timing of our efforts to close new business. And upsell existing customers, we believe our strong execution and relentless commitment to ensuring customer success by delivering high-quality product offerings and support, enabled us to excel in 2020. This focus on customer success also helped us maintain our industry-leading customer retention rates. I'm also extremely pleased with the progress we are making in executing our total growth strategy. Our 2019 acquisition of Ipswitch has proven to be successful, both financially and operationally. And we remain bullish about our acquisition of Chef, who is a pioneer in DevOps and DevSecOps and extends our long-standing leadership position in the developer ecosystem. More on Chef in a few minutes. Anthony will provide more details during his comments, but revenue upside in the quarter came primarily from better-than-expected OpenEdge and data direct software license revenue, coupled with our consistently high customer retention rates. In addition, Chef contributed to our results for roughly 2 months in the fourth quarter and Chef's contribution was right in line with our expectations. For the full year, recurring revenue contribution continued to grow in 2020 and reached 80%, driven by strong net retention rates. As always, our employees' commitment to the success of our customers and partners…

Thanks, Yogesh. Good afternoon, everyone, and thanks for joining our call. As I'm sure you heard in Yogesh's remarks, we're very pleased with our results in the fourth quarter, with revenue, operating margin, EPS and free cash flow, all surpassing our expectations. We're also delighted with the acquisition of Chef and how the integration has progressed to date. Turning to the numbers. Our revenue for the quarter of $129.1 million represents 5% growth over the prior year quarter, and reflects stronger-than-anticipated sales of our OpenEdge and DCI products. Despite closing the Chef acquisition 5 days later than anticipated, we were still able to deliver these very strong results on the top line and our operating discipline through the COVID-19 pandemic resulted in continued margin expansion, a trend that we experienced throughout 2020. For the full year, revenue of $456.2 million represents 6% growth compared to fiscal 2019. The that growth largely driven by a full year revenue contribution from Ipswitch and a 2-month revenue contribution from Chef. With customer retention rates remaining consistently strong throughout the year, we're very pleased with our top line results and believe our business showed tremendous resiliency in fiscal 2020. Turning to expenses. Total costs and operating expenses were $81 million for the quarter, up 6% over the year ago quarter and $273.5 million for the full year up 1% compared to fiscal 2019. For the quarter, the increase in cost and operating expenses was driven by the acquisition of Chef, and partially offset by a reduction in costs and operating expenses across the rest of our business, largely driven by measures we've put in place to combat the spread of COVID-19. For the full year, the increase in cost and operating expenses reflected a full year of activity for Ipswitch and 2 months of…

[Operator Instructions] And first, we're going to hear from Dan Ives with Wedbush Securities.

This is Strecker on for Dan. In the integration process so far with Chef, can you just talk about maybe what has surprised you the most over the past 3 months? And then a follow-up. As we look into FY '21 with Chef and your guidance, what do you see as the biggest challenges for the team versus some of the low-hanging fruits out there?

Strecker, this is Yogesh. The most impressive thing for me has been how wonderful the customers are. I mean we have amazing customers with Chef and they are truly excited about the fact that Progress acquired Chef, that Progress is now in the Chef product, therefore, is now part of a much stronger company with a much stronger global presence and that we are truly committed to delivering on the product road maps, on the future for the enhancements for the products, on making sure that the customers are successful as well as our strong commitment to the open source community that Chef had. So the fact that we're continuing the strategy that Chef had, but now with a stronger business behind it, I think is really the most exciting thing for me. And it has been truly amazing to how excited our customers are, the Chef customers about this acquisition. So that would be sort of the big positive that we take away. In terms of the next year, we are confident with respect to where we see the business going, we expect to continue our integration, which has started off really well. As I mentioned, we've actually completed some of the activities already, but there's more to be done in 2020 -- sorry, 2021. And continue to execute on those, making sure that we continue to get the synergies over time that we expect and exit the year at the right level of synergies from Chef. I think that would be an important thing for us to do. Continue to make sure that we on our overall product portfolio, not just with Chef, but everything that we have. Continue to focus on retention rates, customer satisfaction and along the way, also winning new customers and expand some existing customers. But really, sort of just -- I think it is really more of the same structure. I don't think there is anything unusual next year that we foresee at this point. Anthony, do you want to add anything to that?

No, Yogesh, I think that covers it.

Next, then we'll hear from Mark Schappel with Benchmark.

If I recall correctly, Yogesh, last year, I think you were stating you're looking at close to 200 companies a year from an M&A perspective. And given your enhanced M&A team now, would you say you're looking at a similar rate of companies or even more for that matter?

So I think that in some ways, the number of companies have gone up a little bit, but I think the other part really, Mark, I think we are doing the better job of honing and filtering and making sure we're looking at the right ones more, right? I think that the quality also matters, as I'm sure you can imagine. So no, I think we feel really confident about our ability to go out and identify assets and continue to execute on our total growth strategy. It's an interesting thing. We've built a strong team, not just on finding and sourcing these M&A deals and executing on them and making the deals happen, but also on integration and then systems and other aspects of our business over the last year. So those investments, I think, are we are seeing some of the fruits of that with our Chef integration that is ongoing. And I think we'll also get better on that front as well. So I think it's both sides. I actually am truly excited about the opportunity ahead.

Great. And could you remind us of the size of the companies that you're -- that are in your target zone?

Yes. So in general, we look for -- I think we've said before, the 10% to 20% revenue range is sort of the ideal one, but we will look at something smaller if it makes sense and something bigger if it makes sense, right? So sometimes it depends on the asset that comes up. So the sweet spot for us has been sort of the $40 million to $100 million revenue business. But if something came along, that was $20 million, that really was the right fit and the right type of company with the right retention rates, I think to us, that would be very attractive or if it will even over $100 million. So Mark, we feel that at this point, the team is ready to do deals at a faster pace than we did over the last 2 years and continue to integrate them. So -- and so the range is still -- the sweet spot range is still 10% to 20% approximately of our revenue.

Great. And then in your prepared remarks -- you had mentioned integration just a minute ago, but in your prepared remarks, you stated that the key elements of the CHEF integration are already complete. I was wondering if you could just fill in a few more details on what those key elements are?

Yes. So some of the key elements that are completed. I don't want to imply all key elements are done. So please, if I said that, I misspoke. Some of the key elements are already in place. And I'll give you an example, right? We closed the first month's books with -- on our financial systems. The people moved into our HR systems and we use Workday for that. So all the employees are in our Workday system. Everybody on day 1 had their e-mail set up, and they were on our domain and had log ins. Really, on the system side and on the integration of the financial processes and all that has been very rapid and remarkably good and smooth. We also continue to -- as it happens, Chef was using Salesforce for their sales automation, and so do we, on the CRM side. So we're bringing those together and so on. So I think to us, the key being, getting out of the gate, we were able to do that and do integrate those systems really well, bring people on board really well, put the functionals where they belong within the company on day 1 so that the people knew exactly which organization they were a part of on the very first day that they joined. To me, all these things, I can then be able to start interacting with customers on day 1. So the person who's leading this business for us, Sundar, who reports to me, he has personally spoken with nearly 50 customers, right, 50 enterprise customers. And the team has spoken to many more than that. And so it's all those things have gone really well, and that's what's exciting about it, Mark.

Great. And then, Anthony, did you state the Chef contribution in your prepared remarks in the quarter?

For the quarter, I did not, Mark, but it was on a non-GAAP basis, it was just over $9 million in revenue.

And then moving on to Sidoti, we have Anja Soderstrom.

Yogesh, Anthony, congratulations on the nice results. Hope you are off to a good start. So I just have a follow-up on the Chef and the acquisition and M&A. So first, I'm just curious how many did Chef employ? And was there any churn when you put them on?

Sure. Yes. So Chef employed over 200 people actually close to almost 250 people when we brought them on board. But of course, from a perspective of, as you know, to drive synergies and so on. We brought a slightly smaller number on board, and we have basically continued to work with the team. Obviously, Anja, when you have a company that was a start-up that was looking to grow rapidly and have a culture of of working in a startup and looking to be an IPO and so on, when there's an exit like this, there are some employees who kind of want to go and work at another start-up. So we've had some turnover like that. But it's all very much as we've expected, and we really find that to us, what has been key is that we continue to execute on our product road maps. We delivered new releases of the product in the fourth quarter. We continue to support customers and meet their needs and requirements, and that has continued to go really well. So -- and obviously, on the financial side, the business has, as Anthony said in his prepared remarks, that despite being 5 days into the second month of the quarter, so we got a little bit less than 2 months of contribution, we were still able to get the contribution on the top line that we expected for Chef. So business has been good. And really any employee turnover that has happened has really impacted our business in any way, shape or form.

I think you mentioned -- you said when you acquired Chef that you expect it to be accretive in the first quarter. Do you still think that? Or...

Anthony, I don't know. Can you speak to that?

Yes. I think our view on you was that in the -- as we entered fiscal '21, so the first quarter of '21, we would start to see accretion from Chef, and we still expect that. So our expectations are still in line. We expected that for Q4, because Chef was just sort of a breakeven business when we acquired it, it may not be accretive in the 2 month period. But certainly, as the calendar turns and then we get into Q1 of fiscal '21, we did say we expect it to be accretive, and we still do.

Okay. And then since you had such a successful integration with Ipswitch and so created playbook there. Do you see yourself being able to use that playbook for Chef? Or is there any other sort of learnings from Chef or hiccups or whatnot?

Anja, absolutely, yes, right? I mean, we are using that playbook, but we'll continue to improve the playbook, right? Every single time, we will do an acquisition, we'll probably learn something additional that adds to that playbook. But yes, we -- the playbook is -- we have used the playbook. We used to dominate due diligence. We used it post diligence for integration, and we will continue to define it and add to it as we do additional acquisitions. Because each acquisition has some subtle differences, and we need to make sure that whatever learnings we have, we add to that. So I'm actually very confident and comfortable with where the playbook is today and that then we can execute other M&A deals and apply that playbook to that.

Okay. And sort of what are you seeing in the M&A market? Has that changed in the last couple of months? And how has it changed, if at all?

We have not seen any kind of a significant change in the last couple of months, to be honest. It's -- I think it is a constant flow of deals. We are seeing a very, very robust set of deal flow. And as I said earlier, we are getting better, and I think we've gotten significantly better in terms of making sure that they are the right type of targets, and they continue to be so. So yes, I'm actually very confident that the deal flow is not an issue.

Okay. And how soon do you think you would be able to take on another acquisition, given you're still digesting Chef?

So from an ability to take on, we are comfortable taking on another deal now. Right. So it's not -- we're not slowing things down. We're not saying let's stop and pause. We feel very confident that where the right opportunities show up, we'll be able to execute on the next one. So after Ipswitch, as you know, we decided to pause for about 6 months, but we have not caused at all since Chef.

Okay. And just to switch gears, did you see any sort of impact on your business when sort of the following cyber attack happened?

We have not seen really any significant impact. We are seeing some interest in WhatsUp Gold, which is our network management product in the market and folks are asking and wondering whether they ought to switch from SolarWinds to our product, but it's really sort of low level of activity. So it's rather small and muted. So no meaningful business impact in terms of certainly a whole bunch of SolarWinds customers showing up at our doorstep. So -- but from our perspective, we continue to execute on our go-to-market efforts. And as I said, SolarWinds is not really not really creating any additional meaningful opportunity.

Okay. And then the last one. Is there anything that's still challenging food that you see might be a tailwind post-COVID?

Well, I think that we are still not done with COVID, even though we're all very hopeful and I'm really excited about the vaccine and the possibility of it being available globally, very rapidly, including places like Europe and India, where we have a large employee population. I think to me, post-COVID, I don't think there are additional other challenge. I mean, it's a normal operational things that we have to continue to do. And we will continue to do them. So nothing unusual. We do see that the COVID having, as Anthony said, some impact, some headwinds in the first half of the year as we get back closer to normal. But beyond that, I don't really see any additional significant challenges.

All right. And following Anja, it looks like there's no further questions. At this time, I'd like to turn the floor back over to Yogesh Gupta for any additional or closing remarks.

Thank you, Greg. Thank you all for joining our call today. We are truly excited about our performance in 2020. Our integration of Chef is well on track. And as we continue to execute on our total growth strategy in FY '21, we will further strengthen our position in the DevOps and DevSecOps market. And we look forward to talking to you soon. Thanks again, and stay healthy and safe. Bye-bye.

And once again, ladies and gentlemen, that concludes our call for today. We do appreciate you joining us. You may now disconnect.