Good day, and thank you for standing by. Welcome to the Progress Software Corporation First Quarter 2025 Earnings Call. [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. Mike Micciche, Senior Vice President of Investor Relations. Please go ahead.

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 will 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, our acquisition 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 in our filings with the Securities and Exchange Commission. Progress Software 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 first fiscal 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 ShareFile 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 ShareFile 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 de lever 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…

All right. Thanks, Yogesh. Good afternoon, everyone, and thanks for joining our call. As Yogesh mentioned, we're very pleased with our Q1 results and especially with the pace of the ShareFile integration. I'll talk more about ShareFile later on, so let's begin with our results for the quarter. Starting on the top line, we closed Q1 with ARR of $836 dollars representing 48% year-over-year growth and 3.4% pro forma growth on a year-over-year basis. For clarity, the pro forma results include ShareFile's ARR in both periods. Our growth in ARR was driven by multiple products, including ShareFile, but also OpenEdge, our DevTools products, Sitefinity, Kemp LoadMaster and WhatsUp Gold. We view this broad-based growth across our product portfolio as a clear indicator of our effective execution and a steady demand environment. As a reminder, our calculation of ARR is presented in constant currency with all periods presented at our current year budgeted exchange rates. Consistent with past practice, we've updated ARR using our 2025 budgeted exchange rates. And as a result, ARR that was reported in prior periods has changed slightly. The change isn't material and doesn't alter the trend in ARR growth or the net retention rates that we've been reporting over the past several quarters. We've included the details of this calculation in the supplemental financial presentation filed with our press release. Also worth highlighting is our strong net retention rate, which again came in at over 100%, reflecting resiliency in our top line. As we've mentioned several times before, we believe that investments in our product portfolio and good customer relationship management both contribute to our consistently strong net retention rates. In addition to solid ARR growth and a net retention rate more than 100%, revenue for the quarter of $238 million came in at the high…

Thank you. [Operator Instructions] Our first question coming from the line of Fatima Boolani with Citi. Your line is now open.

Good afternoon. Thank you for taking my questions. Yogesh, I wanted to direct this one to you first. You gave us a good picture of the macro health and some of the commentary there. But if I were to ask you to double click on just the ShareFile business, we understand that of the 86,000-ish customers in that base, the vast majority I think you characterized as being SMB. So I'm wondering if there are any observations that are worthwhile sharing from an SMB or mid-sized company health behavior perspective, just kind of given the domestic policy whiplashing that's going on. Just any high level or broad commentary in terms of how some of these customers might be behaving in the cross section of this customer size? And then I have a follow-up for Anthony, please.

Thank you, Fatima. So, you know, it's interesting -- I'll give you, of course, our perspective, but I want to also preface that by pointing out that ShareFile is really the mission critical workflow management solution for the customers that use it, right? So I want to make sure people understand that what applies to it may or may not apply to other things that those businesses spend money on. So when you think about, for example, a legal business, a law firm, an accounting firm, a firm that is basically interacting with its doctor's office, small physician's office, you name it. When they are interacting with patients or pharmacies or clients, and trying to share securely their documents, making sure that there's document tracking, change management, versioning, compliance, regulatory compliance. These things are required. And so we haven't really seen anything in the market to date. We are keeping a very close eye on what's going on. But so far, business has been very healthy. So Fatima, I wouldn't want to speak more broadly for other things, but at least for progress for ShareFile specifically, business continues to be very healthy.

I appreciate that. Anthony, for you, you guys reiterated, I guess the increased proclivity to look at more SaaS native assets as you think about your M&A strategy as part of the total growth strategy. And so when we think about gross margins and gross margins trajectory, how should that tactically play out for gross margins in the near term and then medium term as you onboard and scale more SaaS oriented assets? Thank you.

Yes. Thanks Fatima. That's a good question. The ShareFile business when we acquired it had gross margin north of 80%, which we thought was outstanding, especially for sort of a document centric and SMB focused business. I would say they were in the low 80s%, 82%, 83%%. Opportunities that we had looked at previously, certainly especially subscale assets had gross margins at much lower levels than that. And we just hadn't we really didn't have the capability or the capacity to take those margins up in any meaningful way. To Yogesh's point, we now do have that competency internally. I would expect that anything we would buy, we'd look to get gross margins at least up to the ShareFile level. And so I don't think that, that has an enormously dilutive impact on our gross margin overall. Pure software is always going to be slightly higher margin, but we are very happy with low 80s% on SaaS based products. And I think this opens up the opportunity set pretty broadly for us.

Thank you.

Thank you. And our next question coming from the line of Pinjalim Bora with JPMorgan. Your line is now open.

Great. Thank you for taking the questions and congrats on the quarter. Staying on that same thread since you called out SaaS, should we expect basically progress to lean in on SaaS acquisitions? Obviously, it will provide you more visibility on kind of the revenue given the ratable rev rec and all that. Are you kind of making a concerted effort towards adding more SaaS going forward? And should we expect that SaaS mix to be more than 50% of the business over time?

Well, Pinjalim, thank you. It's actually interesting, right. As you know, usually we buy companies, I like to say we don't buy unicorns, we buy thoroughbreds, right? And thoroughbreds means that the company has been around 10 years or 15 years and really has built up a great customer base and has built up a reputation in the market. And when you start thinking now about companies that were started, let's say between 2005 and 2010, the vast majority of them are SaaS. So I think the market opportunities that will come up by definition will be more SaaS, Pinjalim, right? So it isn't just that we would necessarily focus primarily on SaaS. Yes, given two assets that are the same on every other front, we would prefer SaaS because I think like you said the revenue is much more ratable and predictable and also the business has longer legs for the future. And all of our acquisitions have had a strong eye towards improving the relevance of our product portfolio overall going forward, right So we continue to invest in our own product portfolio to keep it current and relevant, but we want to buy companies that have greater relevance going forward. So I think those kind of things will drive us to look at more SaaS. I don't think there's going to be a concerted thing that says let's not look at on prem. Yes, we have the ability to run SaaS businesses at excellent gross margins, which is the envy of almost any other SaaS software company out there. But at the same time, right, licensed businesses have even slightly better gross margin. So we're not necessarily going to just say let's go look only at SaaS, but yes, I think you can reliably expect that over time there'll be more SaaS acquisitions.

Got it. Thank you for that. And Anthony, one question for you on the guidance. You all performed on your Q1 guide. It seems like the FX headwind year-over-year annually has lowered versus what you baked in coming into the year. It still seems like you kind of maintained the full year guidance. I just want to be sure, I mean, it makes sense. There's a lot of uncertainty. So companies being prudent completely makes sense. But I want to just be sure is that just that, just you being prudent? Or are you actually seeing something in the pipeline that makes you being more conservative?

No. I think, Pinjalim, we came in I would say this -- we came in right at the high end of our range for the quarter. And to us, that means we hit an upside case. I think there's a little bit of FX benefit as we look at the full year results relative to where we were last quarter. But I think as we all know in this environment those FX movements can come and go. It's not really something we took a lot of consideration of when we set the guide. For us, it was more operational to say, okay, it's Q1. We hit an upside case for Q1, which is great, but it's still Q1. I think we're rarely going to raise our revenue outlook after Q1, but it certainly gives us a lot more confidence as we go into the remaining three quarters of the year.

Understood. Thank you very much.

Thank you. And our next question coming from the line of Lucky Schreiner with D. A. Davidson. Your line is now open.

Great. Thanks very much and congrats on the quarter. This is a bit of a nitpicky question, I know, but just can you help me understand the slight decline in ARR quarter over quarter? Is there anything to call out for that change, especially since it looks like ShareFile still grew decently well in the quarter?

Yes. Hey, Lucky. Good observation and yes, that's we've seen that before in fourth quarter to first quarter sort of transitions. Part of that is because we've got a lot of ARR in maintenance contracts. And as you might imagine, sort of the Q4 to Q1 to Q2 timeframe is one where there's a heavy concentration of those contracts, and sometimes they slip out of a quarter in terms of their renewal. If we don't have a contract in house and signed, we do not count the ARR. And so sometimes Q4 to Q1, we will see a slight, I'll call it, a seasonal dip in ARR. And then we generally see that bounce back in the second quarter. If you were to look back at some of our Q1 earnings calls, maybe '23 or '22, you'd probably see a similar trend line. So nothing out of the ordinary from our perspective.

Got you. That's helpful. And then there was a lot of commentary around your positioning in AI. Can you maybe just help me understand how much of that is meaningful to the business today in terms of like revenue generation and customers building those AI powered applications? And a bit of a nuance one, any impact on M&A in terms of the companies available out there? I know that they're typically more expensive than you'd be willing to buy, but, bit of a two parter there.

So from my perspective, Lucky, the customers that we are winning on AI offerings are still anecdotal, right? And so I don't want us to think that there is a meaningful revenue that we are seeing, which is why we keep saying that we expect our NRR growth to be low single digits, right? By the way, just year-over-year this year, I think our NRR growth was 3.4%. But if you exclude ShareFile, it was 2.5%, right Anthony? So 2.5% if you exclude ShareFile from both those periods. So it's a we have a strong steady business. So we're not seeing enough traction to basically say, “oh, you know what, we think we have revenue upside that we can start talking about”. But if we do, we absolutely will share that. From an acquisition perspective, again, there are some companies that are completely priced at valuations that are not just out of our reach, but out of reach of almost practically everyone else as well. There are very few people who can buy them. But from our perspective, there are lots and lots of companies that offer capabilities that are essential in people's AI journey. And I go back to MarkLogic acquisition. Being able to do semantic analysis and leverage content and data, to bring it together and be able to make sense out of it, leverage a vector database and effectively create a VAG solution out of it, which we did at Progress after the acquisition, enabled us to now get into the market and talk about the stories we're talking about. So I think that we can find companies and assets that have those capabilities in your, ShareFile. It has more AI capabilities in its product than pretty much anyone else in the competitive landscape that it is in. And so I think that to us we are looking for those businesses that have significant go forward relevance including AI capabilities, including being possibly SaaS, including ability for us to help our customers with their AI journey. And I think that really is key. We will look at, for example, our Chef offering. As businesses deploy massive scale applications and massive infrastructures to go with it. They have to make sure that that deployment and changes and configurations and compliance and all that stuff is done the way they want it done, which is what something like Chef does. So I think that there are what I would call products that enable our customers to really help them build reliable responsible AI business applications and experiences and deploy them and run them well. And that's what we continue to look for.

Appreciate the answer. Thank you.

Thank you. [Operator Instructions] Our next question coming from the line of John DiFucci with Guggenheim Securities. Your line is now open.

Hi, this is Lawrence Vensko on for John DiFucci. Thanks for taking my question. So internationally, there are clearly many geopolitical forces at play. And we were wondering if you have seen any resulting changes in any of the major geographies that you operate in outside of the U.S. Has there been any uncharacteristic weakness or strength that's worth calling out? And are you expecting any in fiscal 2025? Thank you.

Hey, Lawrence, thanks for the question. Again, so far nothing, right, is the short answer. We keep watch. We are very careful. We are a global company. We as you said, we have businesses, customers around the world. We have employees around the world who serve them. We are monitoring whether there will be sentiment changes and so on. And if so, we will share. But at this point customers have trusted us for decades. We are embedded in their mission critical systems. We are being used by them to run things that are core to their business. And so really, I think, yes, maybe there's some sentiment out there that others are seeing, but we are at this point not seeing anything. Neither positive nor negative, I want to make sure that it's clear that isn't just negative sentiment I'm talking about. There's really for us it's been steady as she goes. Execution continues to be really going well. Our teams continue to execute. They are focused on serving our customers and our customers understand that. And they understand that we are a business that is dedicated to making them successful and innovating and investing towards their success. And I think that's why we are the trustworthy partner. So, so far so good.

Okay. That's clear. Thank you. And also thank you for that data.

You're welcome.

Thank you. And I'm not showing any further questions in the queue at this time. I will now turn the call back over to Mr. Yogesh Gupta for any closing remarks.

Thank you everyone for joining. We are delighted with our performance in Q1 and we look forward to speaking with you again at our Q2 results. Thanks again.

[Operator Closing Remarks]