Hello, and thank you for standing by. Welcome to Progress Software Corporation Third Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. There will be a question and answer session. To ask a 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 Micciche. You may begin.

Thank you, Towanda. Good afternoon, everyone, and thanks for joining us for Progress Software Corporation'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 ShareFile, and other information that might be considered forward-looking. Such forward-looking information represents Progress Software Corporation'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-Ks 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 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. 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 in controlling expenses, and our extensive and detail-oriented integration of ShareFile 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 installed base, the continued relevance and value of our products, and the strength of our customer relationships.…

Alright. Thanks, Yogesh. Good afternoon, everyone, and thanks for joining our call. As Yogesh mentioned, we're thrilled with our third quarter results and the underlying momentum in our business that allows us to raise our full-year outlook yet again. With that, let's jump right into the numbers. I'll start with ARR, which is our key metric for assessing top-line performance. We closed Q3 with ARR of $849 million, representing approximately 47% growth on a year-over-year basis and 3% pro forma growth on a year-over-year basis. To be clear, the 3% pro forma growth includes ShareFile in all periods, and the growth was driven by multiple products across our portfolio, including ShareFile, OpenEdge, DevTools, MarkLogic, WhatsUp Gold, Sitefinity, and Coricon. Quite a list. We also had another strong quarter of customer retention, with Q3 net retention rates coming in at 100%. In addition to solid ARR growth, Q3 revenue of $250 million meaningfully exceeded the high end of the guidance range we provided in June and represents approximately 40% year-over-year growth. Our strong revenue performance in the quarter was driven by stronger than expected demand from multiple products in our portfolio, most notably ShareFile and OpenEdge. Turning now to expenses, our total costs and operating expenses were $150 million for the quarter, an increase of $46 million compared to Q3 of last year. This year-over-year increase was largely driven by the addition of ShareFile to our business. Operating income for the quarter was $99 million, an increase of $25 million compared to the same quarter last year, and our operating margin was 40% in Q3 compared to 41% in the year-ago quarter. Earnings per share for Q3 were $1.50, which also meaningfully exceeded the high end of the guidance range that we provided in June. Compared to the prior year quarter,…

Thank you. Ladies and gentlemen, as a reminder, to ask a question, please press 11 on your telephone, then wait for your name to be announced. To withdraw your question, please press 11 again. Our first question comes from the line of Fatima Boolani with Citi. Your line is open.

Good afternoon, everyone. Thanks so much for taking my question. Yogesh, I wanted to ask you at a very, very high level about the AI strategy. So the mandate to me is very clear in that there is an aspiration to infuse AI as well as Agentic RAG across the portfolio. And I think in your prepared remarks, you did talk to multiple streams of value creation and helping your customers drive ROI. But I was hoping you can talk to us and give us a flavor of how some of these initiatives, from an AI investment perspective, are going to manifest or show up in the external benchmarks that you share, and specifically around if there is going to be more torque on the net retention rate side or if there is an opportunity to drive more pricing power. I'd love for you to flesh out some of the implications of an AI infusion. Thank you. And I have a follow-up for Anthony, please.

Yeah. Thanks, Fatima. And so I think that's a really good question. Right? Fundamentally, I think the first place it shows up is in NRR, net retention rate. Because as we've talked about before, if we don't innovate and if we don't bring our product along and if we don't make our customers successful in their journey towards whatever is new, in this case, it happens to be AI, they would decide to move to somebody else. And so we have actually seen that. I mentioned earlier that the combination of the AI capabilities as well as, of course, the team's effort to make sure that we improve our customer relationships by helping us with our ShareFile net retention rate, which has picked up. So I think to me, NRR is the first place we are going to see it. I think that as you are also fully aware, we don't really put a lot of wood behind the new customer acquisition effort at Progress. That is part of our overall strategy. So therefore, yes, we will probably see more new customers who do AI work with us. I think it's too early to say whether that will be something that we will see in the near term. I think if we start seeing some momentum there, Fatima, we'll come back to you and share that with you. But again, to us, it's a combination of retaining customers and then, of course, finding additional customers. Expansion is the middle part, which is also key. And you mentioned pricing as a lever. One of the interesting things that we do in a variety of our products, especially the ones that sell to the smaller market segment, is that we have multiple editions of those products. And we often add these new capabilities to the higher-end editions of those products, which leads those customers to upgrade from the lower-end to the higher-end versions. And as they do, obviously, they pay more to us. So it's an indirect pricing opportunity. It isn't a, "Hey, you know what? We're going to increase your price because it's here." It is, "If you want to use this, here it is in the higher edition version of the product, and, of course, you pay more for it." So it's a combination of things. I think NRR is where it'll show up first, which is a combination of gross retention and expansions. And then over time, we're looking forward to sharing what happens on the new side.

Thank you, Yogesh. I appreciate that detail. Anthony, I wanted to ask you about the EBIT guidance for the year. So a nice outperformance this quarter, but you're only taking the midpoint of the full-year range up by about 10 bps by my calculation. So I wanted to really unpack the source of the conservatism there, by your telling and us watching you blow past all of the ShareFile integration milestones, above and beyond what you had committed to at the start of the year. So I just wanted to appreciate that. And also, that in the context of what Yogesh was mentioning was holding the line for R&D at 18% levels. Thank you.

Yeah. Sure, Fatima. I think, you know, looking at the beats we had in Q3, at every point in the range, low, mid, and high, I think we at least rolled everything through. And so, you know, I certainly don't view it as being conservative. I think the Q3 results on their own, I guess, I would say showed probably slightly better growth than we expected coming into the quarter, and maybe some incremental momentum there. I think they showed slightly better margin than what we expected coming into the quarter and certainly much better earnings per share as a result. And, you know, our expectation certainly is that we're going to be able to hold Q4 to where we were originally. You know, Q4, I think, generally speaking, is always kind of an exciting quarter for us. But, you know, our view was it was a strong quarter, and we felt very good about rolling through the entire beat that we have this quarter for our full-year results. So, you know, I'm not sure if that completely answers the question, but that was the thought process behind the guide.

I just I guess it's a notional versus percentage impact. Okay. Very clear. Thank you so much.

Thank you. Our next question comes from the line of John Stephen DiFucci with Guggenheim Securities. Your line is open.

Hey, guys. This is Lawrence on for John Stephen DiFucci. Thanks for taking our question. So it's great to hear the headway that you're making with the ShareFile integrations and that it was your largest acquisition with an especially different financial profile. You touched on it in your prepared remarks, but is there anything in that business that has surprised you, either positive or negative, that wasn't really expected prior to the acquisition? Any additional color would be really helpful on that. Thank you.

Hey. You're welcome, Lawrence, and thank you for your kind words. You know, with any acquisition, you always find something that you did not expect. Right? Being a carve-out out of another large entity, I think, created some challenges. Right? It created challenges in terms of figuring out how to move the systems over. That is like cutting over engines while you're flying, you know, while keeping the plane flying. Right? And then I think those kinds of challenges we sort of expected them. But at the same time, the nuance of those is always a little more challenging when it actually does happen, and we are trying to do it. But to me, the wonderful part was how well we were able to navigate that and how effectively we've been able to do the integration and so on. So that was on the challenge side. On the positive side, I would say there are a couple of them. One, I think the people culture has been really, really wonderful. Right? The acquired teams are very engaged. They have done a great job. You know, the folks that joined from ShareFile, they have just done such an amazing job of continuing to work on product and continuing to work on customers and helping the field be successful. All the things that we need to do to run our business. So that has been a really, really great positive. And then the second, I think, is also we are discovering that the customers, you know, we knew this to some degree, but we didn't realize how much the customers love the product. And how much really their businesses are just so reliant on those. Right? Most businesses that use this product, their workflows get completely intertwined into the document-centric workflows that they need to do. Because most of these customers are document-centric businesses, right? So that's the important part. So because they're document-centric businesses and their workflows around those documents become such an integral part of their day-to-day work, that ShareFile becomes sort of second nature to their internal systems. And so I think those two things have been really positive for us. So I'm really delighted with the way things have turned out, and we hope to continue the momentum.

Got it. Thank you. That's actually really helpful. Thanks, guys.

Thanks, Lawrence.

Our next question comes from the line of Ittai Kidron with Oppenheimer and Company.

Hi. This is Nolan Bruce Jenevein on for Ittai Kidron. Thanks for taking my question. I actually want to follow up a little bit on Fatima's first question about, you know, you guys are clearly using GenAI across the portfolio. You've infused existing products with new capabilities. You also explicitly mentioned the new Agentic RAG product built on top of Nuclea. Can you put maybe a finer point on how you're monetizing that specific product? Does this represent sort of an incremental cross-sell opportunity? I understand it's probably very, very small today. Just trying to get my sort of hands around, you know, finer points of how you're monetizing this. Thank you.

Absolutely. Yeah. So I think you're right. I think to us, the initial opportunity is primarily around integrating it with our existing other products and therefore creating cross-sell opportunities for ourselves. We are going out and also trying to sell new to brand new customers who are not our customers for any of our products. But I think the bigger opportunity for Progress is to bring this to market and bring this to bear as a cross-sell opportunity to our existing customers. And I think to that end, right, we are aggressively integrating the product across our portfolio as we speak.

Understood. Thank you. And then a quick follow-up. You had a nice pop in gross margins this quarter sequentially despite SaaS growing as a portion of revenue mix. Can you maybe talk about just the puts and takes on gross margin in the quarter? Thank you.

Yeah. So gross margin, I mean, if you look at it, right, our gross margin is a blend between the SaaS business gross margin, the ShareFile gross margin, which is, as you know, just ahead above eighty, in the low eighties, in our business, which was in the high eighties. Right? So as those things blend, you know, weighted average, thank you for the kind comment. But, you know, we are continuing to see, I think, ways of even running our own existing SaaS products a bit better. So I think those are little tweaks here and there. But I appreciate the positive commentary on the gross margin. Thank you.

Thank you so much.

Thank you. As a reminder, ladies and gentlemen, that's star one one to ask a question. Our next question comes from the line of Lucky Schreiner with D. A. Davidson. Your line is open.

Great. Thanks for taking my question. It was good to hear about the updated M&A environment. I guess I just wanted to ask a follow-up on that and hear if you felt like there were any of your three categories that really stand out as looking more attractive today, especially as AI starts to impact these markets? And a second question would be, after acquiring ShareFile, anything to call out between your SaaS opportunities for M&A and your propensity to acquire a SaaS company in the future? Thanks.

Absolutely, Lucky. On the first one, I think really what is happening with AI is that all three of our businesses are becoming the right companies and the right products in all three areas are becoming really interesting, even more interesting than they were before. I mean, think about it. Right? The one area which is around data platforms, obviously, for businesses and organizations that are trying to make sure that their GenAI efforts are based on true business data so that they can get verifiable, relevant, reliable answers from GenAI queries. Right? It requires them to bring that data into that game. And to us, therefore, data platform businesses continue to be a very interesting place. Similarly, when it comes to digital experiences, there you think of the end-user experience is completely dramatically changing. We have a very interesting vision of the no two visits to, for example, a website will be the same ever again. Right? And the web experience will be completely dynamically created by GenAI. But that requires again, a set of technologies and back-end platforms around that. That can manage content, that can manage the marketing, that can manage the web delivery, and so on. And similarly, in the digital experience space, the workflow. I mean, ShareFile is such a wonderful product in that portfolio. And what automation and leveraging AI for content within the ShareFile as well as leveraging content for any, sorry, leveraging AI for any content-centric application is going to be very interesting. So I believe that the digital experience aspect whose foundation lies on content, right, I think is going to be a very interesting space with the right type of companies. And last but not least, I mean, I mentioned in my prepared remarks, right, this GenAI, I think one…

Very helpful. Thanks for taking my question.

You're welcome, Lucky. And then that really expands our market opportunities quite, quite significantly. Makes sense.

Thank you. Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Yogesh for closing remarks.

Well, thank you, everyone, again for joining our call today. I'm really excited about our performance in the third quarter and pleased to share our confidence in the outlook for the rest of fiscal 2025. And we look forward to talking to you again soon. Thank you very much, and have a wonderful evening. Bye-bye.

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.