Q3 2023 Progress Software Corporation Earnings Call

Speaker 1: All right.

Why.

Speaker 2: Good day and welcome to the Progress Software Corporation Q3 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. To ask a question during the session you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question please press star one one again.

Good day and welcome to the progress Software Corporation Q3, 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 to ask a question. During the session you will need to press star one one on your telephone you will then hear an automated message advising your hand as rate. So withdraw your question. Please press star one again.

Speaker 2: Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Michael Mitcheke, Vice President of Investor Relations. Please go ahead, sir.

Be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker Mr. Michael.

Vice President of Investor Relations. Please go ahead Sir.

Speaker 3: Okay, great. Thank you, Shree. Good afternoon, everybody, and thanks for joining us for Progress Software's third quarter 2023 Financial Results Conference call.

Okay, great. Thank you Sherry good afternoon, everybody and thanks for joining us for progress Software's third quarter 2023 financial results Conference call.

Speaker 3: On the line with me this afternoon are Yogesh Gupta, President and Chief Executive Officer, and Anthony Folger, our Chief Finance Officer.

On the line with me. This afternoon are Yogesh Gupta, President and Chief Executive Officer, and Anthony Folger, Our Chief Financial Officer.

Speaker 3: Before we get started, let's 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.

Before we get started let's 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 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 it's subject to risks and <unk>.

Speaker 3: 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 it's subject to risks and uncertainties.

Certainties for a description of the risk factors that may affect our results. Please refer to the risk factors section in our most recent Form 10-K and 10-Q for the quarter ended May 31 2023.

Speaker 3: Please refer to the risk factors section in our most recent Form 10-K and 10-Q for the quarter ended.

Speaker 3: Progress software assumes no obligation to update the forward looking statements included in this call. And additionally, please note that all the financial figures that we're going to reference on this call today are non-GAAP measures unless otherwise.

Software assumes no obligation to update the forward looking statements included in this call and Additionally, please note that all the financial figures that we are going to reference on this call today 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.

Speaker 3: You can find a reconciliation on these non-GAAP financial measures to the most directly comparable GAAP.

Speaker 3: In our financial results press release, which was issued after the market closed today, the document contains additional information related to our financial results for the third quarter of 2020.

In our financial results press release, which was issued after the market close today. The document contains additional information related to our financial results for the third quarter of 2023, and I recommend you reference that for specific details. We have also prepared a presentation that contains supplemental data for our third quarter 2020 year results, providing highlights of additional finance.

Speaker 3: We've also prepared a presentation that contains supplemental data for our third quarter 2023 results, providing highlights and additional

Speaker 3: Both the earnings release and the supplemental presentation are available on the investor relations section of our website.

Metrics, both the earnings release and the supplemental presentation are available on the Investor Relations section of our website and he addresses investors dot progress dot com.

Speaker 3: As Shree mentioned, today's conference call will be recorded in its entirety and will be available via replay on the investor relations section of our website. And so with that out of the way...

As we mentioned in today's conference call will be recorded in its entirety and will be available via replay on the Investor Relations section of our web site and so what that out of the way I'll turn it to you.

Speaker 4: Thank you, Mike. Good afternoon, everyone. Thank you for joining us.

Thank you Mike and good.

Good afternoon, everyone. Thank you for joining us.

Speaker 4: We're delighted to have a chance to discuss our fiscal third quarter 23 results, share some details about our business and provide our outlook for the remainder of fiscal year 23.

We're delighted to have a chance to discuss our fiscal third quarter 'twenty three results share some details about our business and provide our outlook for the remainder of fiscal year 'twenty three.

Speaker 4: As you've probably seen progress delivered another excellent performance in our 3rd quarter during which we hit or exceeded all of our targets. And we have raised our guidance for.

As you've probably seen progress delivered another excellent performance and I'll talk quarter during which we hit or exceeded all of our targets.

And we have raised our guidance for FY2023.

Speaker 4: Our strong performance in Q3 was driven once again by sustained demand for our products across all geographies and solid execution.

Jump right in.

Our strong performance in Q3 was driven once again by sustained demand for all products across all geographies and solid execution from all of our teams.

Speaker 4: Billing attention to expenses and product management of our cost structure in an environment of pervasive inflation allowed us to meet our operating margin.

Diligent attention to expenses and total management of our cost structure in an environment of pervasive inflation allowed us to meet our operating margin parts.

Speaker 4: Open Edge continued to provide significant strength as our workhorse product, while our digital experience products also performed extremely well.

<unk> continues to provide significant strength as a workhorse product, while our digital experience products also performed extremely well.

Speaker 4: In addition, our digital experience products received Gartner's highest customer choice distinction in the 2023 Voice of the Customer report evaluating digital experience platforms, which was published at the end of August .

In addition, our digital experience products received gardeners highest customer choice distinction in the 2020, while you have the customer report evaluating digital experience platforms, which was published at the end of August .

Speaker 4: MarkLogic is performing in line with our expectations, integration of the businesses on plan, and going forward, we expect MarkLogic to meet the timeline we laid out.

Mark logic is performing in line with our expectations integration of the business is on plan and going forward, we expect mark logic to meet the timeline we laid out.

When the deal closed.

Speaker 4: This quarter's outperformance again demonstrates that our customers continue to rely on progress technology to run their mission-critical businesses, especially as the level of economic uncertainty increases. Our employees with FamilyRead Pepsi has always been something of a surprise, andpiring for the?"light," our employees.

This quarter's outperformance again demonstrates that our customers continue to rely on progress technology to lung damage from critical businesses.

Especially as the level of economic uncertainty increases.

Our employees remain highly engaged and motivated our ability to attract and retain top talent remains at industry, leading levels and during this quarter, our employee retention rate improved even further.

Speaker 4: Our ability to attract and retain top talent remains at industry-leading levels. And during this quarter, our employee retention rate improved even further.

Speaker 4: Anthony will break out all the numbers for you in a minute, but I'm very pleased with our execution on the top and the bottom line, as well as the growth in ARR and our net retention rates, which once again came above 100.

Anthony will break out all the numbers for you in a minute, but I'm very pleased without execution on the top and bottom line.

As well as the goal.

And our net retention rates, which once again came above a 100%.

Speaker 4: Now if you recall back to January of 22 on our Q4 21 earnings call, we listed several ways in which progress would show strength to what was then becoming a much different environment than the prior two years, which were broadly dominated by super low interest rates, non-existent inflation and pandemic driven spending.

Well, if you recall back to January of 'twenty, two on our Q4 'twenty one earnings call. We list it sounds little ways in which progress would show strength through what was then becoming a much different environment than the prior two years, which were broadly dominated by super low interest rates nonexistent inflation and pandemic driven.

Speaker 4: We discussed the reliability and cost-effectiveness of our products and the value they deliver to our customers, especially in more difficult times.

Pending.

We discussed the reliability and cost effectiveness of our products and the value they deliver to our customers, especially in more difficult economic circumstances.

Speaker 4: We also talked how the culture at Progress enables market-leading employee retention, which helps us keep our high-quality, highly skilled and experienced people who focus intensely on customer success and drive our customer retention.

We also talked how the cultural progress enables market, leading employee retention, which helps us keep our high quality highly skilled and experienced people who focus intensely on customer success and drive our high customer retention rates.

Speaker 4: Because of our continued focus on our employees, Progress once again received numerous awards in Q3, including another's TV for our achievements in corporate social responsibility and recognition by B2B Media Business Awards for equality and employee care.

Because of our continued focus on unemployment.

Once again received numerous awards in Q3, including another Stevie for our achievements and corporate social responsibility and recognition by B to B Media business Awards.

Quality and employee care.

Speaker 4: Given by employees' efforts, our business has remained largely remarkably steady while the overall economy and market has changed significantly.

Driven by employees effort, our business has remained largely remarkably steady while the overall economy and market has changed significantly.

Speaker 4: We will continue to stay focused on our execution and remain extremely vigilant in managing expenses in every part of our business.

We will continue to stay focused on our execution and remain extremely vigilant in managing expenses in every part of our business.

Speaker 4: As for M&A, we still believe that the market for great acquisitions is favorable and improving for us. And we're as busy as ever sourcing and assessing potential acquisitions.

As for M&A, we still believe that the market for great acquisitions is favorable and improving for us and we're as busy as that we're sourcing in assessing potential acquisitions.

Speaker 4: Among the trends in the M&A market, the number of private equity deals continue to fall in the quarter, along with the valuations of the companies acquired.

Among the funds in the M&A market the number of private equity deals continue to fall in the quarter, along with the valuations of the companies acquired.

Speaker 4: And with VC-backed companies, down rounds are becoming more common. Capital investment is shrinking, and leverage is becoming scarce.

And with VC backed companies down rounds are becoming more common capital invested is shrinking and leverages becoming scarce.

Speaker 4: VCU sizes have tended down hard in 2023, especially for late stage rounds.

The deal sizes have trended down hard in 2020, especially for late stage rounds.

Speaker 4: and deal counts are even lower than they were in 2017.

And deal counts are even lower than they were in 2017.

Speaker 4: So while infrastructure software valuations remain somewhat high, which speaks to the value of the sticky install base and high recurring revenue that comes with good infrastructure products.

So while infrastructure software valuations remain somewhat high which speaks to the value of the sticky installed base and high recurring revenue that comes with good infrastructure products.

Speaker 4: Our corporate development team continues to vet a very encouraging pipeline of talks.

Our corporate development team continues to back a very encouraging pipeline of targets.

Speaker 4: In the meantime, we continue to focus on integrating market logic, paying down debt, and maintaining adequate financing as we look for the next deal.

In the meantime, we continue to focus on integrating <unk>.

Down debt and maintaining adequate financing as we look for the next deal.

Speaker 4: We've been very active and aggressive throughout the year, and we're ready to pull the trigger again, operationally and financially, when we find the right answer.

We've been very active and aggressive throughout the year and we're ready to pull the trigger again operationally and financially when we find the right asset.

Speaker 4: As previously mentioned, for MachLogic specifically, the integration remains on track and is nearing completion on our planned time.

As previously mentioned pharmacologic, specifically the integration remains on track and is nearing completion on our planned timeline.

Speaker 4: As in every other acquisition we've done so far, we've learned some new things and had some new challenges to overcome with my logic. And we're extremely satisfied with the progress we've...

As in every other acquisition, we have done so far we've learned some new things and have some new challenges to overcome with Mark logic and we're extremely satisfied with the progress we've made.

Speaker 4: So all in all, the third quarter was right where it should be, and we continue to execute on our total growth stat.

So all in all the third quarter was right, where it should be and we continue to execute on our total growth strategy.

Speaker 4: While we aren't in tune to the effects of the current environment, that the companies have felt more acutely, we are pleased once again to beat numbers and great our guidance, even in the face of growing macroeconomic concepts.

While we arent immune to the effects of the current environment that the companies have felt more acutely.

We're pleased once again to beat numbers and our guidance even in the face of growing macroeconomic uncertainty.

Speaker 4: Switching gears, after we reported our second quarter back in June , we received a number of questions on how we were using AI, which at that time was making daily headlines.

Switching gears after we reported our second quarter back in June we received a number of questions on how we were using AI, which at that time, so making daily headlines.

Speaker 4: As we know, AI and generative AI are technologies that capture many people's imaginations because they offer real potential for operational efficiency gains as well as opportunities for product advance.

As we know AI and <unk> are technologies that capture many people's imagination, because they offer real potential for operational efficiency gains as well as opportunities for product advancement.

Speaker 4: We at Progress have been working pragmatically to use AI, where we see potential tangible benefits to others.

We have progress have been working pragmatically to use AI, where we see potential tangible benefits to our business.

Speaker 4: AI has been actually near and dear to my own heart for decades. And I came to the US many years ago to do a PhD in AI. I hold a patent in the field of neural networks. And while I was CTO at CA, we devoted significant energy to researching AI and used it in a network management.

Yeah. It has been actually a near and Dear to my own heart for decades, and I came to the U S. Many years ago to do a ph D in AI or the patent to the field of neural networks and while I was CTO SBA, we devoted significant energy to researching AI and used it in our network management product.

Speaker 4: Many Progress products have been using AI long before AI became the lead story on CNBC every morning.

Many progress products have been using Gi long before I became the lead story on CNBC every morning.

Speaker 4: For example, Flowmon uses analytic AI to detect and predict network anomalies before they negatively impact the business of our customers.

For example flow model uses analytics AI to detect them predict macroeconomic please before that negatively impact the business of our customers.

Speaker 4: Our Sitefinity product, a key component of our digital experience offering, offers AI-driven customer engagement and personalization of digital content that drives engagement and conversion.

Our site Trinity product, a key component of our digital experience offering offers AI driven customer engagement and personalization of digital content to drive engagement and conversions.

Speaker 4: And smart logic, which we recently acquired in our smart logic acquisition, performs semantic AI analysis of data.

And smart logic, which we recently acquired <unk> acquisition performed semantic AI analysis of data.

Speaker 4: What is new is generative AI or Gen AI and larger language models or LLMs as they are called. We view the Gen AI opportunity.

What is new.

Generally <unk> and.

And largely our language models, our LLS as they're.

They are called.

We view the <unk> opportunity in two broad categories first we're developing ways to use gen AI to make progress more efficient and to be able to grow our top line while controlling costs.

Speaker 4: First, we're developing ways to use Gen AI to make progress more efficient and to be able to grow our top line while controlling costs.

Speaker 4: We started using Gen AI to help our people do their jobs more efficiently in many phones.

We started using Jennie O I to help our people do their jobs more efficiently in many functions such as finding new customers, providing support benefits administration and talent management recruiting legal and contract management just to name a few.

Speaker 4: such as finding new customers, providing support, benefits administration, talent management and recruiting, legal and contract management, just to name a few.

Speaker 4: Second, we're leveraging market opportunities created by Genia.

Second we're leveraging market opportunities created by Gen AI.

Speaker 4: For example, one of the challenges facing businesses when using Gen AI is to augment the large language models with proprietary data in a secure manner to make the output of Gen AI

For example, one of the challenges facing businesses when using Jennie Tsai.

Is to augment the language collage language models with proprietary data in a secure manner to make the output of journey II.

So that business.

Speaker 4: our data platforms combined with MarkLogic products directly address this challenge.

Archrock, our data platforms combined with Mark logic products directly address this challenge.

Speaker 4: Our products make it possible for businesses to augment the generic LLMs with their own information so the output is contextual and relevant to their specific business, while keeping their proprietary information secure.

Our products make it possible for businesses to augment the genetic llm's or their own information. So the output is contextual and relevant to their specific business, while keeping their proprietary information secure.

Speaker 4: Another example is to help application developers build applications more easily. Developers in our digital experience business have been recently working on building a conversational interface tool that uses Gen AI to automatically generate forms, such as a mortgage application, say, from extra problems.

Another example is to help application developers build applications more easily.

Developers in our digital experience business have been recently working on building a.

Conversational interface tool that uses gen AI to automatically generate forms such as the mortgage applications.

<unk> XR problems.

In both the operational and product categories.

Speaker 4: Our efforts in AI are fueled by the excitement and creativity of our teams, but we will only invest where we believe we can drive real tangible benefits for our business, whether it is product innovation or efficiency improvement.

Our efforts in AI fueled by the excitement and creativity of our teams, but we will only invest where we believe we can drive real tangible benefits for our business, whether it is product innovation or efficiency improvement.

Speaker 4: Lastly, let me take a moment to discuss the current status of Moovit.

Lastly, let me take a moment to discuss the current status of move it.

As we detailed in our last earnings call.

Speaker 4: At the end of May, threat actors exploited a zero day, which is a previously unknown vulnerability, in Moovit to attack the Moovit environment of our customers.

At the end of May create actress exploited a zero day, which is a previously unknown vulnerability in move it to attack the move it environments of our customers.

Speaker 4: Upon learning of the attack, we quickly patched MoveIt Cloud and created a patch for our on-prem MoveIt transfer custom.

Upon learning of the attack, we quickly patch will be cloud and created a patch for our on Prem move it transfer customers.

Speaker 4: Several third party organizations, including cybersecurity experts and industry publications, have given progress high marks for our rapid...

Several third party organizations, including cyber security experts in industrial and industry publications.

Given progress high marks for our rapid response.

Speaker 4: As we indicated in our 8K filing, Moovit Transfer and Moovit Cloud represent less than 4% aboutfakeets.net

As we indicated in our 8-K filing move a transfer and move it cloud represents less than 4% deferred revenue.

Speaker 4: And while we're incurring expenses related to legal responses and the investigation of this attack, there was minimal impact to our business in the third quarter.

And while we are incurring expenses related to legal responses in the investigation of this attack there was minimal impact to our business in the third quarter.

It is too early to assess the impact of any litigation.

Speaker 4: We will continue to provide updates in our Form 10Q filing as we did last quarter.

We will continue to provide updates.

Our Form 10-Q filing as we did last quarter.

Speaker 4: I am very proud of our teams for all their efforts in responding to the vulnerability and helping our customers while still delivering great results across the business.

I am very proud of our teams for all their efforts in responding to the vulnerability and helping our customers while still delivering great results across the business.

Speaker 4: Going forward, as always, we will continue to focus on our customers and keep taking steps to help mitigate risks throughout.

Going forward as always we will continue to focus on our customers and keep taking steps to help mitigate risks throughout the company.

Speaker 4: So to wrap it up, our third quarter was an excellent quarter for progress. We're moving ahead with our total growth strategy, meeting our goals in the overall business while nearing the full integration of Marklogic.

So to wrap it up.

Our third quarter was an excellent quarter for progress. We're moving ahead with our total growth strategy meeting our goals in the overall business why is nearing the full integration of Mark logic.

Speaker 4: We remain well capitalized and continue to hunt aggressively for the next right M&A deal.

We remain well capitalized.

Need to hunt aggressively for the next right M&A deals.

Speaker 4: With that, let me turn it over to Anthony for details on financial review and outlook.

With that let me turn it over to Anthony for detailed financial review and outlook.

Anthony.

Speaker 3: Thanks, Yogesh. Good afternoon, everyone. And thanks for joining our...

Thank you Yogesh and good afternoon, everyone and thanks for joining our call.

Speaker 3: As Yogesh mentioned, the third quarter was another strong one for progress, further demonstrating the strength and

As Yogesh mentioned, the third quarter was another strong one for progress further demonstrating the strength and durability of our business.

Speaker 3: Jumping right into the numbers. I'd like to start with ARR, which we believe provides the best view into our underlying.

Jumping right into the numbers I'd like to start with IRR, which.

Which we believe provides the best view into our underlying performance.

Speaker 3: We closed Q3 with ARR of $577 million.

We closed Q3 with IRR of $577 million.

Speaker 3: which represents approximately 18% growth on a year-over-year basis and 2% pro forma growth on a year-over-year basis.

Which represents approximately 18% growth on a year over year basis.

And 2% pro forma growth on a year over year basis to be clear the pro forma results include Mark logic in both periods.

Speaker 3: To be clear, the pro forma results include MARC logic in both periods.

Speaker 3: The growth in ARR was driven by multiple products and was again bolstered by strong net retention rates just under 101%.

The growth in IRR was driven by multiple products and was again bolstered by strong net retention rates just under 101%.

Speaker 3: In the past, we've talked about our R&D investments, our focus on customer success, and the strength and stability of customer demand for our products.

In the past we've talked about our R&D investments are focused on customer success, and the strength and stability of customer demand customer demand for our products.

Speaker 3: We believe our Q3 net retention rates reflect a healthy mix of all these factors.

We believe our Q3 net retention rates reflect a healthy mix of all these factors.

Speaker 3: In addition to our solid ARR performance for the quarter, revenue for the quarter of $176 million was at the high end of the Q3 guidance range we provided back in June and represents approximately 15% growth on a year-over-year basis.

In addition to our solid performance for the quarter.

Revenue for the quarter of $176 million was at the high end of the Q3 guidance range. We provided back in June and represents.

Approximately 15% growth on a year over year basis.

Speaker 3: Our strong revenue performance in the quarter was driven by multiple products, including open edge, which continues to perform.

Our strong revenue performance in the quarter was driven by multiple products, including open edge.

Which continues to perform ahead of our expectations.

Speaker 3: On a year-over-year basis, our revenue growth was driven by the addition of MarkLogic and stability in the rest of our business, which again, this quarter, showed slight growth on a year-over-year basis.

On a year over year basis, our revenue growth was driven by the addition of Mark logic and stability in the rest of our business, which again this quarter showed slight growth on a year over year basis.

Turning now to expenses.

Speaker 3: Our total cost and operating expenses were $107 million for the quarter, an increase of $14 million compared to Q3 of 2022. The year-over-year increase was driven entirely by the addition of MarkLogic to our business.

Our total costs and operating expenses were $107 million for the quarter, an increase of $14 million compared to Q3 of 2020 to the.

The year over year increase was driven entirely by the addition of Mark logic to our business.

Speaker 3: Operating income was 68 million dollars for the quarter, up 8 million compared to the year ago quarter.

Operating income was $68 million for the quarter.

Up $8 million compared to the year ago quarter.

Speaker 3: and our operating margin was 39%, the same as in the year ago quarter.

And our operating margin was 39%.

Same as in the year ago quarter.

Speaker 3: On the bottom line, our earnings per share of $1.08 for the quarter were $0.06 above the high end of our guidance range. This over performance...

On the bottom line our earnings per share of $1.08 for the quarter were six cents above the high end of our guidance range.

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

Speaker 3: was driven by strong top line performance, coupled with solid cost management across the business.

Speaker 3: Our outlook for the MarkLogic integration remains unchanged, and we continue to expect it will achieve all our synergy targets by the end of this fiscal year. Moving on

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

Moving on to a few balance sheet and cash flow metrics.

Speaker 3: We ended the quarter with cash, cash equivalents, and short-term investments of $138 million.

We ended the quarter with cash cash equivalents and short term investments of $138 million.

Speaker 3: and debt of $763 million for a net debt position of 625 million.

And debt of $763 million.

Net debt position of $625 million.

Speaker 3: This represents net leverage of approximately 2.3 times.

This represents net leverage of approximately two three times.

Speaker 3: Using our forecasted fiscal year, 2023 adjusted.

Using our forecasted fiscal year 2023 adjusted EBITDA.

Speaker 3: I'd also like to mention that during the third quarter, we paid down

Okay.

I'd also like to mention that during the third quarter, we paid down $30 million against the revolving line of credit that we used to partially fund the acquisition of Mark logic.

Speaker 3: $30 million against the revolving line of credit that we use to partially fund the acquisition of Mark Loggia.

Speaker 3: bringing the outstanding balance on our revolving line of credit to $140 million at the end of the quarter.

Bringing the outstanding balance on our revolving line of credit to $140 million at the end of the quarter.

Speaker 3: Our DSO for the quarter was 49 days or approximately flat compared to the year ago quarter.

Our DSO for the quarter was 49 days or approximately flat compared to the year ago quarter.

Speaker 3: Deferred revenue was $280 million at the end of the third quarter down slightly from the second quarter, reflecting normal seasonality in our business.

Deferred revenue was $280 million at the end of the third quarter down slightly from the second quarter, reflecting normal seasonality in our business.

Speaker 3: Adjusted free cash flow was 48 million dollars for the quarter, an increase of over 8 million dollars or 21 percent from the year ago quarter.

Free cash flow was $48 million for the quarter, an increase of over $8 million or 21% from the year ago quarter.

Speaker 3: During the third quarter, we did not repurchase any shares of progress.

During the third quarter, we did not repurchase any shares of progress stock.

Speaker 3: So at the end of Q3, we had $198 million remaining under our current share repurchase authorization.

So at the end of Q3, we had $198 million remaining under our current share repurchase authorization.

1.

Okay, now I'll turn to our outlook.

Speaker 3: Despite news of a more challenging macro environment, we continue to see strength in the demand for our solutions.

Despite news of a more challenging macro environment, we continue to see strength in the demand for our solutions with that.

Speaker 3: With that, starting with the full year, 2023,

Starting with the full year 2023.

Speaker 3: We are increasing our revenue guidance by $1 million at the mid.

We are increasing our revenue guidance by $1 million at the midpoint.

Speaker 3: and expect revenue to be between $692 and $698 million.

And expect revenue to be between 692% and $698 million.

Speaker 3: We're maintaining our outlook for operating margin for the year of approximately 38 to 39 percent.

We're maintaining our outlook for operating margin for the year of approximately 38% to 39%.

Speaker 3: We're maintaining our outlook for adjusted free cash flow and are tightening the range to be between 177 and 183 million.

We're maintaining our outlook for adjusted free cash flow and are tightening the range to be between 177 and $183 million.

Speaker 3: And we are increasing our outlook for earnings per share to be between $4.20 and $4.26, an increase of $0.03 at the mid-term.

Operator: Good day, and welcome to the Progress Software Corporation, Q3, 2000 and 23 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. 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. Please be advised that today's conference is being recorded.

And we are increasing our outlook for earnings per share to be between $4 20, and $4 26.

Michael Miturk: I would now like to hand the conference over to your speaker, Mr. Michael Miturk, Vice President of Investor Relations. Please go ahead, sir. Okay, great. Thank you, Shuri. Good afternoon, everybody, and thanks for joining us for Progress Software's third quarter, 2023 Financial Results Conference call. On the line with me this afternoon, are Yogesh Gupta, President and Chief Executive Officer and Anthony Folger, our Chief Financial Officer.

An increase of <unk> at the midpoint.

Speaker 3: Our guidance for full year EPS assumes a tax rate of approximately 20% and approximately 45 million.

Our guidance for full year, EPS assumes a tax rate of approximately 20%.

Yogesh Gupta: Before we get started, let's 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, 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 it's subject to risks and uncertainties. For a description of the risk factors that may affect our results, please refer to the risk factors section in our most recent form, 10K and 10Q for the quarter ended May 31, 2023.

And approximately 45 million shares outstanding.

Speaker 3: For the fourth quarter of 2023, we expect revenue between $171 and $177 million and earnings per share between $0.87 and $0.93.

For the fourth quarter of 2023, we expect revenue between 171 and 177 million.

And earnings per share between <unk> 87.

93.

Speaker 3: In closing, we're excited to deliver another strong quarter of financial results across the board, a continuation of the trend that we saw for much of 2022 and the first half of 2023.

In closing, we're excited to deliver another strong quarter of financial results across the board.

<unk> of the trend that we saw for much of 2022 and the first half of 2023.

Yogesh Gupta: Progress Software assumes no obligation to update the forward-looking statements included in this call. And additionally, please note that all the financial figures that we're going to reference on this call today are non-GAP measures unless otherwise indicated. You can find a reconciliation on these non-GAP financial measures to the most directly comparable GAP figures in our financial results press release, which was issued after the market closed today. The document contains additional information related to our financial results for the third quarter of 2023, and I recommend you reference that for specific details.

Speaker 3: We're thrilled to see the MarkLogic integration progressing, and we believe we're on track to deliver a strong Q4 and position ourselves well for our fiscal 2024. With that, I'd like to thank you for joining us today.

We're thrilled to see the market logic integration progressing.

And we believe we're on track to deliver a strong Q4 and position ourselves well for our fiscal 2024.

With that I'd like to open the call for questions.

Speaker 2: As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, press star 11 again. Due to time restraints, we ask you please limit yourself to one question and one follow-up question. Please stand by while we compile the Q&A roster.

Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw your question Press Star One again due to time Ms. James We ask you. Please limit yourself to one question and one follow up question. Please standby, while we compile the Q&A roster.

Yogesh Gupta: We've also prepared a presentation that contains supplemental data for our third quarter, 2023 results providing highlights of additional financial metrics. Both the earnings release and the supplemental presentation are available on the Investor Relations section of our website and the addresses investors.progress.com. As Shari mentioned, today's conference call will be recorded in its entirety and will be available via replay on the Investor Relations section of our website. And so with that, out of the way, your guess I'll turn it to you.

Speaker 2: Our first question will come from the line of Ray McDonough with Guggenheim Securities. Your line is open.

Our first question will come from the line of Ryan Macdonald with Guggenheim Securities. Your line is open.

Great. Thanks for taking the questions.

Speaker 5: Maybe you'll guess for you, given the nature of solutions that you guys provide, that Progress provides, it's not surprising that Open Edge has exhibited strength throughout the weak macro environment, but it seems like the whole business, as you highlighted, has been stable. And in MarkLogic, again, it makes sense, some of the other products make sense, but is there any area of your portfolio where you're actually seeing a macro-related impact? And if so, how might that be manifesting, and how should we think about the difference in buying behavior, maybe between some of your more stable install-based...

Maybe you get for you given the nature of solutions that you guys provide the progress provides it's not surprising that open edge has exhibited strength throughout the weak macro environment, but it seems like the whole business as you highlighted has been stable.

Yogesh Gupta: And thank you, Mike. Good afternoon, everyone. Thank you for joining us. We're delighted to have a chance to discuss our fiscal third quarter, 23 results. Share some details about our business and provide our outlook for the remainder of fiscal year 23. As you've probably seen, progress delivered another excellent performance in our third quarter during which we hit or exceeded all of our targets. And we have raised our guidance for FY 2023.

And then Mark logic again, it makes sense some of the other products makes sense, but is there any area of your portfolio, where you're actually seeing a macro related impact and if so how might that be manifesting and how should we think about the difference in buying behavior, maybe between some of your more stable install basis.

Speaker 4: Anyway, thanks. Good question.

Hey, great. Thanks, good question.

Speaker 4: not seeing challenges in any aspect of our business on the product lines, to be honest. We are hearing from our field organization that they're noticing that large projects that maybe customers were looking at, they might be looking at them more closely. But really, from our perspective, our business continues to be strong. We're seeing strength across the board. And that is really...

We are actually not seeing chat.

Challenges in any aspect of our business on the product lines to be honest.

Yogesh Gupta: So let's jump right in. Our strong performance in Q3 was driven once again by sustained demand for our products across all geographies and solid execution from all of our teams. Builded attention to expenses and photo management of our cost structure in an environment of pervasive inflation allowed us to meet our operating margin. Card. Open Edge continued to provide significant strength as our course product, while our digital experience products also performed extremely well.

We are hearing from our field organization that.

They are noticing that large projects that maybe customers are looking at they might be looking at them more closely.

But really from from our perspective, our business continues to be strong we're seeing strength across the board and that is really.

Speaker 4: delightful and wonderful to see. As you know, Ray, our products are truly about making organizations more effective, more efficient, run their business better, they underpin mission-critical environments.

Delightful and wonderful to see as you know rate right up products are truly about making organizations more effective more efficient run their business better underpin mission critical environments. So it just it is it is a wonderful business to be in.

Yogesh Gupta: In addition, our digital experience products received gardeners' highest customer choice distinction in the 2020 Voice of the Customer Report, evaluating digital experience platforms, which was published at the end of August. Mark logic is performing in line with our expectations, integration of the businesses on plan, and going forward, we expect Mark logic to meet the timeline we laid out when the deal closed. This quarter-south performance again demonstrates that our customers continue to rely on progress technology to run their mission-critical businesses, especially as the level of economic uncertainty increases.

Speaker 4: So it is a wonderful business to be in. And I think the strength of the progress business comes true in our results.

And I think the strength of the product as business comes through in our results.

Speaker 5: That all makes sense and I guess you were pretty clear, Yogesh, that you're...

That all makes sense and I guess, you were pretty clear that you're kind of on the hunt for your next acquisition or your next target.

Speaker 5: kind of on the hunt for your next acquisition or your next target, you know, if we kind of think through the size of targets or the size of an acquisition that you might be willing to do, should we be thinking that

Kind of think through the size of targets or the size of an acquisition that you might be willing to do should we be thinking that.

Speaker 5: you know, there's probably room to do a larger acquisition, maybe like MarkLogic or a couple more smaller acquisitions. I guess the question is, how should we be thinking about the size of future acquisitions and then

There is there's probably room to do a larger acquisition may be like Mark logic or a couple of more smaller.

Acquisitions I guess the question is how should we be thinking about the size of future acquisitions and then.

Yogesh Gupta: Our employees remain highly engaged and motivated, our ability to attract and retain top talent remains at industry-leading levels, and during this quarter, our employee retention rates improved even further. Anthony will break out all the numbers for you in a minute, but I'm very pleased with the execution on the top and bottom line, as well as the growth in ARR, and our net retention rates, which once again came above 100%. Now, if you call back to January of 2002 on our Q421 earnings call, we listed several ways in which progress would show strength through what was then becoming a much different environment than the prior two years, which were broadly dominated by super low interest rates, non-existent inflation, and pandemic driven spending.

Speaker 5: You know, in light of the increasing cost of capital, just with interest rates rising, how do you think about the hurdle rate for a future acquisition in terms of the returns? I know you guys are very focused on return on invested capital. So, I'm assuming your weighted average cost of capital is changing a little bit as interest rates rise, but just wondering how you're thinking about those two things together.

In light of the increasing cost of capital just with interest rates rising how do you think about the hurdle rate for a future acquisition in terms of the returns I know you guys are very focused on return on invested capital. So I must say I'm.

Im assuming your weighted average cost of capital is changing a little bit as interest rates rise, but just wondering how are you thinking about those two things together.

Speaker 4: Absolutely happy to answer those and maybe Anthony can help with the second part of the second aspect of the question with respect to hurdle rates. On the first part, Ray, as we have said, our ideal sweet spot is to buy companies that are, let's say, in the 10 to 20, 25% of our revenue size. And that goes up every time we buy another company because overall our base...

Absolutely happy to happy to answer those and maybe Anthony can help with the second part of the second aspect of the question with respect to hurdle rates.

On the first part.

I mean, as we just said right.

Ideal sweet spot is to buy companies that are let's say in the 10 to 20, 25% of our revenue size.

And that goes up every time, we buy another company because overall our base goes up right. So our goal is over.

Speaker 4: So, you know, our goal is over the long haul, you know, is to double our business in five years. And so effectively, you know, we might find a business that is 10%, in which case we might find two of them, or maybe even slightly less than 10%, and we might find two of them. You know, we might find something that is, you know, closer to 20 or even 25%. Some of it is, in fact, a lot of it depends on, you know, what comes to market.

Yogesh Gupta: We discussed the reliability and cost-effectiveness of our products and the value they deliver to our customers, especially in more difficult economic circumstances. We also talked how the cultural progress enables market-leading employee retention, which helps us keep our high quality, highly skilled and experienced people who focus intensely on customer success and drive our high customer retention rates. Because of our continued focus on our employees, progress once again received numerous awards in Q3, including another Stevie for our achievements in corporate social responsibility, and recognition by B2B Media Business Awards for equality and employee care.

Over the long haul.

To double our business in five years and so effectively.

We might find a business that is 10% in which case, we might buy two of them or maybe even slightly less than 10% and we might find two of them we might find something that is.

Closer to 20 or even 25%.

Some of it is in fact, a lot of it depends on what.

Speaker 4: So the size of assets coming to market, you know, often range from, you know, even sub 50 million, which we look at sometimes not as much as we used to, given our current size. But really the 50 to 150 right now is our sweet spot. So, so, in terms of revenue of the target.

What comes to market, so the size of assets coming to market.

Often range from.

Even sub $50 million, which when you look at sometimes not as not as much as we used to give.

Given our current size, but really the 50 to 150 right now is our sweet spot. So so in terms of revenue.

Speaker 4: But that doesn't mean that we don't look at somewhat smaller, that doesn't mean that we don't look at somewhat bigger. The goal there, Ray, is more operational rather than the financial side, from my perspective. Can we bring in a business and integrate it?

Target.

Yogesh Gupta: Driven by employees' efforts, our business has remained largely remarkably steady while the overall economy and market has changed significantly. We will continue to stay focused on our execution and remain extremely vigilant in managing expenses in every part of our business. As for M&A, we still believe that the market for great acquisitions is favorable and improving for us, and we're as busy as ever sourcing and assessing potential acquisitions. Among the times in the M&A market, the number of hybrid equity deals continue to fall in the quarter along with the valuations of the companies acquired.

But that doesn't mean that we don't look at somewhat smaller that doesn't mean that we don't look at somewhat bigger.

The goal there ray it's more operational rather than the financial side from my perspective can we bring in a business and integrate it.

Speaker 4: Uh, easily, can we do it in a way that our culture survives? Can we do it in a way that, you know, people realize that we're gonna do things the progress way going forward, which becomes really hard. If you do like a, you know, whatever it's called merger of equals or some nonsense like that. So, you know, to me, you know, acquisitions from my perspective, right? There has to be some go forward plan that that has been consistent before and companies to be consistent going forward. So so that's the rationale.

Easily can we do it in a way that our culture cell lives can we do it in a way that.

People realize that we're going to do things the progress way going forward, but it becomes really hard if you do like.

Whatever it is called margins equal or some nonsense like that so.

To me acquisitions from my perspective, there has to be some go forward plan that that has been consistent before and companies to be consistent going forward. So so that's the rationale for the size limitation, Anthony you want to speak to.

Speaker 4: for the size limitation. Now, Anthony, you wanna speak to, you know, financing constraints or return of investment.

Yogesh Gupta: And with VC-backed companies, downed rounds are becoming more common, capital invested in shrinking, and leverage is becoming VCDU sizes have tended down hard in 2023, especially for late stage rounds, and deal counts are even lower than they were in 2017. So while infrastructure software valuations remain somewhat high, which speaks to the value of the sticky install base and high recurring revenue that comes with good infrastructure products, our corporate development team continues to vet a very encouraging pipeline of targets.

Financing constraints or.

Last night.

Speaker 3: Yeah, sure. You know, in terms of the hurdle rate, yes, you know, as interest rates continue to move up, it will affect our weighted average cost capital a little bit. And it has, but it's, I think our WAC has stayed reasonably in check, probably 8.5%, somewhere in that range.

Yeah sure in terms of the hurdle rate, yes, as interest rates continue to move up.

It will affect our weighted average cost of capital a little bit and it has but I think our WAC has stayed reasonably and check probably eight 5% somewhere in that range.

Speaker 3: And I think we've been able to hit deals from a return perspective, solidly in double digits over the past several years. So

And I think we've been able to hit deals.

From a return perspective solidly in double digits over the past several years so.

Speaker 3: You know, it certainly it pushes the envelope a bit and I think as rates go up.

Yogesh Gupta: In the meantime, we continue to focus on integrating morphology, paying down debt, and maintaining adequate financing as we look for the next deal. We've been very active and aggressive throughout the year, and we're ready to pull the trigger again, operationally and financially, when we find the right asset. As previously mentioned, for morphology specifically, the integration remains on track and is nearing completion on our plan timeline. As in every other acquisition we've done so far, we've learned some new things and had some new challenges to overcome with my logic, and we're extremely satisfied with the progress we've made.

It certainly.

It pushes the envelope a bit and I think as rates go up.

Speaker 3: You know, the math will tell you that multiples are going to need to come down a little bit.

The math will tell you that multiples are going to need to come down a little bit.

Speaker 3: And that's the way our models work and probably a lot of other folks as well. So, yeah, I think the hurdle rates or the return rates may creep up and I think they're going to need to creep up as long as rates stay high and looks like that's where they're staying.

And that's the way our models work and probably a lot of other folks as well.

So, yes, I think the hurdle rates or the return rates may may creep up and I think theyre going to need to creep up as long as rates stay high and it looks like Thats, where they are saying.

All makes sense thanks, guys.

Speaker 2: Thank you. One moment for our next question.

Okay.

Thank you one moment for our next question.

Okay.

Speaker 2: And that will come from the line of Pendulum Bora with JP Morgan. Your line is open.

And that will come from the line of pendulum Boyle with J P. Morgan Your line is open.

Yogesh Gupta: So all in all, the third quarter was right where it should be, and we continue to execute on our total growth strategy. While we aren't in new to the effects of the current environment, that companies have felt more acutely, we are pleased once again to beat numbers and rate our guidance even in the face of growing macroeconomic uncertainty.

Speaker 6: Hi guys, this is Vachathan for Pangilam. Can you help us understand the gross retention dynamics in the quota?

Hi, guys. This is just unplug pendulum.

Can you help us understand the gross retention dynamics in the quarter.

Speaker 4: Oh, sorry. Were you asking about gross retention dynamics in what?

Oh, sorry.

Were you asking about gross retention dynamics in what.

In the quarter.

Speaker 4: So, you know, the overall ghost retention of our products has been strong and continue to stay strong. There was no real difference between the ghost retention in Q3 versus Q2 or Q1. You know, we continue to see.

Yogesh Gupta: Switching years, after we reported our second quarter back in June, we received a number of questions on how we were using AI, which at that time was making daily headlines. As we know, AI and generative AI are technologies that capture many people's imaginations, because they offer real potential for operational efficiency gains as well as opportunities for product advancement. We have progress have been working pragmatically to use AI, where we see potential tangible benefits to our business.

Yes, yes, yes.

The overall gross retention of our products.

Has been strong and continued to stay strong there was no <unk>.

Real difference.

Between the gross retention.

In Q3 versus Q2 or Q1.

We continue to see strong gross retention because without that it would be tough to have net retention above 100% right as I've said many times on many of these calls right.

Speaker 4: strong growth retention because without that, it would be tough to have net retention above 100%, right? As I've said many times on many of these calls, right? Our target is to sustain 100 plus percent net retention rate. And to do that, we need really solid growth retention rates. So we've had solid growth retention rates this quarter as well. No real news there to be honest. Thank you.

As to sustain 100 plus percent of the net retention rate and to do that we need really solid gross retention rate. So we've had solid gross retention rates this quarter as well.

Yogesh Gupta: AI has been actually near and dear to my own heart for decades. I came to the US many years ago to do a PhD in AI, and I hold a packing to the field of neural networks, and while I was CTO and CAA, we devoted significant energy to researching AI and used it in a network management product. Many progress products have been using AI long before AI became the lead story on CNBC every morning.

No real news there to be honest.

Thank you.

Thank you one moment for our next question.

Speaker 2: And that will come from the line of Brentsville with Jeffries. Your line is open.

And that will come from the line of Brent Thill with Jefferies. Your line is open.

Yogesh Gupta: For example, FlowMont uses analytic AI to detect and predict necropanamolies, before they negatively impact the business of our customers. Our site Trinity product, a key component of our digital experience offering offers AI driven customer engagement and personalization of digital content that drives engagement and conversions. And smart logic, which we recently acquired in our logic acquisition, performs semantic AI analysis of data. What is new is generative AI or gen AI and large language models or LLMs, as they are called.

Awesome. Thank you guys for taking the question.

Speaker 7: It's Antonio for Brentville. I had a quick question on on headcount on both the operational side and maybe the product development side. Can you just provide us with any color on plans for headcount growth this year and sort of where you're you've been focusing your investments in and then on the product side? Are there any particular ones you want to call out in terms of having a disproportionate amount of engineering resources?

Thanks, Antonio and Taiwan for Brett Belk, I had a quick question on head count of both the operational side and maybe the product development side can you just provide us with any color on plans for headcount growth this year and sort of where you've been focusing your investments in <unk> and then on the product side are there any particular ones you want to call out in terms.

Having.

Disproportionate amount of engineering resources.

Speaker 4: Sure. So, you know, a couple of things, right? We, our headcount this year, of course, went up when we acquired MarkLogic, right? I mean, that's a, that was an acquisition. They came with a bunch of employees.

Sure. So a couple of things right. We are head count. This year of course went up when you acquired Mark logic right.

Yogesh Gupta: We view the gen AI opportunity in two broad categories. First, we're developing ways to use gen AI to make progress more efficient and to be able to grow our top line while controlling costs. We've started using gen AI to help people do their jobs more efficiently in many ways, such as finding new customers, providing support, benefits, administration, talent management and recruiting, legal and contract management, just to name a few. Second, we're leveraging market opportunities created by Gen AI.

That was an acquisition they came with a bunch of employees.

Speaker 4: We didn't, of course, bring everybody on board, but a significant number of employees joined in progress because of the MarkLogic acquisition.

We didn't of course being everybody onboard, but a significant number of employees joining progress because of the <unk> acquisition in jungle, our head count is flat and we were not really at all.

Speaker 4: In jungle, our headcount is flat and we are not really...

Speaker 4: you know, hiding aggressively except for, you know, replacing people that turn over, right? Fundamentally, we keep our head count approximately flat. And Anthony, if you want, you know, feel free to add to that.

Hiding aggressively except for.

Replacing people that turnover rate fundamentally we keep our head count approximately flat and Anthony if you want to feel free to.

Yogesh Gupta: For example, one of the challenges facing businesses when using Gen AI is to augment the language, large language models with proprietary data in a secure manner to make the output of Gen AI specific to that business. Our data platforms combined with my logic products directly address this challenge. Our products make it possible for businesses to augment the generic elements with their own information so they can output its contextual and relevant to their specific business while keeping their proprietary information secure.

Speaker 4: I don't think that from a product investment perspective in the R&D side and engineering side,

Add to that I don't think from a product investment perspective in the R&D side and entering side.

We run a.

Speaker 4: very lean organization overall. And one of the ways we...

<unk> organization overall and one of the ways we.

Speaker 4: the retention of our customers, whether it is gross retention as well as net retention, which is really remarkable.

Spain.

Retention of our customers whether it is gross retention as well as net retention, which is really remarkable.

Speaker 4: is by investing in the products so that the products continue to get better, continue to stay competitive and stay relevant.

Is by investing in the products. So that the products continue to get better continue to stay competitive and stay relevant and we don't but we will be careful.

Speaker 4: And we don't, you know, but we're very, very careful. It isn't as though we've got people sitting around and enjoying.

Yogesh Gupta: Another example is to help application developers build applications more easily. Developers in our digital experience business have been recently working on building a conversational interface tool that uses Gen AI to automatically generate forms, such as a mortgage application, say, from extra problems. In both the operational and product categories, our efforts in AI are fueled by the excitement and creativity of our teams. But we will only invest where we believe we can drive real tangible benefits for our business, whether it is product innovation or efficiency improvement.

It isn't as though we've got people sitting around and drinking.

Speaker 4: not doing real productive work that is helping move the needle on our retention and expansion efforts as well as winning some new customers.

No.

Not doing real productive work that is helping move the needle on our retention and expansion efforts as well as winning some new customers. So it is it is all.

Speaker 4: So it is all, you know, we measure it, we track it, we measure performance. And so, you know, we are continuing to invest appropriately for the profiles of those businesses. And, you know, just a little bit more color on that. You know, some people say, well, you know, what percentage of revenue you might invest on a particular product, right? It is a combination of things. If it's a very large revenue number.

We measure it we track it we measure performance.

And so we are continuing to invest appropriately for the profiles of those businesses.

And.

Yes.

More color on that.

Some people say well what percentage of revenue you might invest on a particular product. It is a combination of things if it's a very large revenue number right. The percentage of revenue invested in the engine side on the product is less.

Yogesh Gupta: Lastly, let me take a moment to discuss the current status of Move It. As we detailed in our last earnings call, at the end of May, threat actors exploited a zero day, which is a previously unknown vulnerability, in Move It to attack the move It environment of our customers. Upon learning of the attack, we quickly patched Move It Cloud and created a patch for our on-prem Move It transfer customers. Several third-party organizations, including cybersecurity experts, industry and industry publications, have given progress high marks for our rapid response.

Speaker 4: the percentage revenue invested in the engine size on the product is less because of the large denominator. But so the question really is, is what work do we need to do to keep our products competitive in the market, to make sure that they continue to be relevant, to make sure that our customers are happy? And that's what drives our engineering.

<unk> denominator, but so the question really is is what work do we need to do to keep our products.

Competitive in the market to make sure that they continue to be relevant to make sure that our customers are happy and Thats, what drives our engineering investment.

Speaker 7: Awesome. Great. Thanks for that. And then maybe just a quick follow up. I think you sort of alluded to it, but can you drill down on the go-to-market strategy with MarkLogic and how you're approaching that and sort of what the realignment of the go-to-market looks like?

Awesome great. Thanks, Thanks for that and then maybe just a quick follow up I think you sort of alluded to it but can you drill down on the go to market strategy with Mark logic, and how you're approaching that.

Yogesh Gupta: As we indicated in our 8K filing, Move It transfer and Move It Cloud represent less than 4% of our revenue. And while we're incurring expenses related to legal responses and the investigation of this attack, there was minimal impact to our business in the third quarter. It is too early to assess the impact of any litigation. We will continue to provide updates in our form 10Q filing as we did last quarter. I am very proud of our teams for all their efforts in responding to the vulnerability and helping our customers while still delivering great results across the business. Going forward, as always, we will continue to focus on our customers and keep taking steps to help mitigate risks throughout the company.

Sort of what the realignment of the go to market it looks like.

Speaker 4: Sure. So, you know, we, as you might be aware, we have...

Sure.

We.

As you might be aware, we have had a very strong internally portfolio of a relational database and data integration technologies between open edge data correct.

Speaker 4: had a very strong internally portfolio of a

Speaker 4: relational database and data integration technologies between open edge and data direct. And these two products are significant part of our business in terms of revenue.

These two products are a significant part of our business in terms of revenue and Mark logic is no sequel database. So it complements our open edge database and chemical product does semantic analysis of data across all types of data and so really the go to market is to bring efforts have been to bring together.

Speaker 4: And MarkLogic is a NoSQL database, so it complements our open edge database. And Semaphore product does semantic analysis of data across all types of data. And so really the go-to-market is to bring, you know, efforts have been to bring together these go-to-market organizations. So they are one organization now for all of our data platform.

Go to market organization. So they have one organization now for all of our data platform.

Speaker 4: So, for application and data platform business, which is

Business.

So our application and data platform business, which is which includes these products is all women together completely integrated it's under one general manager and.

Speaker 4: which includes these products is all one and together, it's completely integrated, it's under one general manager and

Yogesh Gupta: So to wrap it up, our third quarter was an excellent quarter for progress. We're moving ahead with our total growth strategy, meeting our goals in the overall business while nearing the full integration of metallurgic. We remain well-capitalized and continue to hunt aggressively for the next right M&A deals.

Speaker 4: And so that makes for opportunities to potentially, you know, if something arises to take products in from one portfolio to another.

And so that makes for opportunities to potentially.

Something arises to take products in from one portfolio to another.

Speaker 4: But it also means that we have strong relationships and relationship management skills at Progress, and we bring those to bear in terms of retention and expansion skills as well.

But it also means that we have strong relationships and relationship management skill set progress and we bring those to bear in terms of retention and expansion skills as well so I.

Anthony Folger: With that, let me turn it over to Anthony for detailed financial review and outlook. Anthony? Thanks, Yogesh.

Speaker 4: I hope that answers the question. It is now combined with our application and data management go-to-market efforts.

I hope that answers. Your question. It is now combined with our application and data management.

Anthony Folger: Good afternoon, everyone. Thanks for joining our call. As Yogesh mentioned, the third quarter was another strong one for progress, further demonstrating the strength and durability of our business. Jumping right into the numbers, I'd like to start with ARR, which we believe provides the best view into our underlying performance. We close Q3 with ARR of $577 million, which represents approximately 18% growth on a year-over-year basis, and 2% pro-former growth on a year-over-year basis.

Anthony Folger: To be clear, the pro-former results include mark logic in both periods. The growth in ARR was driven by multiple products and was again bolstered by strong net retention rates just under 101%. In the past, we've talked about our R&D investments, our focus on customer success, and the strength and stability of customer demand for our products. We believe our Q3 net retention rates work with a healthy mix of all these factors. In addition to our solid ARR performance for the quarter, revenue for the quarter of $176 million was at the high end of the Q3 guidance range we provided back in June, and represents approximately 15% growth on a year-over-year basis.

Go to market efforts.

Great. Thanks, Hey, guys.

Thank you.

Speaker 2: Thank you. I'm showing no further questions in the queue at this time. I'll turn the call back over to Mr. Yogesh Gupta for any closing remarks. Actually, we did have a question come from Itzhai Kidron with Oppenheimer. Just one moment, Itzhai.

Im showing no further questions in the queue at this time I will turn the call back over to Mr. Yogesh Gupta for any closing remarks actually we did have a question come from.

John with Oppenheimer, just one moment in time.

Speaker 8: Your line is open. Thank you. I thought I had my hand raised. Guys, thank you so much for the time. Two, three questions from me, Yogesh. First of all, can you comment and move it in a little bit more detail?

Your line is open. Thank you alright, I thought I had my hands raised.

Guys. Thank you so much for the time.

Perfect question is for me Yogesh first of all can you comment to move it in there a little bit more detail.

Speaker 8: More specifically, it seems like the impact of this continues to be unraveled almost on a weekly basis here. How many customers have already got off the platform? How many do you think more might be coming?

More specifically.

It seems like the impact from this continues to be unraveled almost on a weekly basis here.

How many customers have already.

Got off the platform.

How many do you think more might be coming.

And is there.

Speaker 8: I'm trying to think about the liability exposure here. Is there anything that can come back to you because of this? And is there, do you have cyber insurance for that? I don't know if I'm asking the right questions, but I'm trying to really understand the more, the lasting impact of this on your business.

<unk>.

I'm trying to think about their liability exposure here or is there anything that can come back to you.

Because of this.

Do you have cyber insurance broker.

For that I don't know if im asking the right question, but I'm trying to really understand our Nomura.

Tomorrow, the lasting impact of this on your business.

Speaker 4: So I think for thanks for questions and it I will try to answer as many of these as I can. As, you know, we do have an ongoing investigation.

So.

Anthony Folger: Our strong revenue performance in the quarter was driven by multiple products, including OpenEdge, which continues to perform ahead of our expectations. On a year-over-year basis, our revenue growth was driven by the addition of mark logic and stability in the rest of our business, which again, this quarter showed slight growth on a year-over-year basis. Turning that into expenses, our total costs and operating expenses were $107 million for the quarter and increase of $14 million compared to Q3 of 2022.

Hi, Thanks for thanks for the questions.

I'll try to answer as many of these as I can as you know we do have.

An ongoing investigation, we do have ongoing legal efforts around this so.

Speaker 4: have ongoing legal efforts around this. So, most of our communication happens through our filings, but let me share some of the things that you were asking. So, from the perspective of our customers, actually our customers have been extremely positive about what we've been doing for them. As we mentioned that on

Most of our communication happens through our filings, but but let me let me share some of the things that you were asking so from the perspective of our customers actually our customers have been extremely positive about.

What we have been doing for them.

As we mentioned that.

Speaker 4: there was minimal impact on our business in Q3.

There was minimal impact on our business in Q3.

Anthony Folger: The year-over-year increase was driven entirely by the addition of mark logic to our business. Operating income was $68 million for the quarter, up 8 million compared to the year-go quarter, and our operating margin was 39% the same as in the year-go quarter. On the bottom line, our earnings per share of $1.8 for the quarter were six cents above the high end of our guidance range. This overperformance relative to our expectations was driven by strong top-line performance, coupled with solid cost management across the business.

Speaker 4: As you notice that in Q4 and for the year, right, we are still confident about our outcomes. So we're not really seeing what I would be feeling for the fact from our customers at this point.

As you noticed that in Q4 and for the year right. We are still confident about her outcome. So we're not really seeing what I would call meaningful act from our customer at this point as far as litigation expense. It is way too early to try to do any kind of an estimate as to what it would be I think we had shared.

Speaker 4: As far as litigation expense, it is way too early to try to do any kind of an estimate as to what it would be. I think we have shared that we have

Speaker 4: a cyber insurance to the tune of $15 million. That's one five.

That we have.

A.

Cyber insurance to the tune of $15 million Thats one five.

Speaker 4: And we report, I mean, we reported in our press release, basically sort of the approximate expense in this area, and we will continue to report that in our 10-Q s.

And we.

We.

Port we reported in our.

Our press release.

Basically you sort of the approximate expense in this in this area and we will continue to report that in our 10-Qs and.

Anthony Folger: Our outlook for the mark logic integration remains unchanged and we continue to expect it will achieve all our synergy targets by the end of this fifth year. Moving on to a few balance sheet and cash flow metrics, we ended the quarter with cash, cash equivalents, and short-term investments of $138 million and debt of $763 million for a net debt position of $625 million. This represents net leverage of approximately 2.3 times. James, Using Our Forecasted, Fiscal Year 2023 Injustity Bedou.

Speaker 4: We just don't know what the future litigation impact might be because it is so early. But in general, you know, customers have been, to be honest, really happy with us.

We just don't know what the future litigation impact might be because it is so early but in general.

<unk> had been to be honest really happy with our response.

Speaker 8: Okay, Anthony, a couple financial questions. First of all, the US dollar is making a move. Can you remind us what, if anything, how this influences your financial statements?

Okay.

Anthony a couple of financial questions first of all the U S. Dollar is making a move can you remind us what is.

If anything goes.

How this influences your financial statements.

Speaker 3: Yeah, sure. I think we would say that we're north of 70% of our top line of our billings in revenue. We're down in dollars.

Yeah sure I think we would say that we're north of 70% of our top line of our billings and revenue were down $1.

Anthony Folger: I'd also like to mention that during the third quarter, we paid down $30 million against the revolving line of credit that we used to partially fund the acquisition of Mark Logic, bringing the outstanding balance on our revolving line of credit to 140 million at the end of the quarter. Our DSO for the quarter was 49 days or approximately flat compared to the year ago quarter. Deferred revenue was $280 million at the end of the third quarter, down slightly from the second quarter, reflecting normal seasonality in our business.

Speaker 3: And from an expense perspective, I think we're in the high 60s. And most of the foreign currency billings are sort of

And from an expense perspective, I think we are in the high <unk>.

And most of the foreign currency billings are sort of.

Speaker 3: I would say it's euro or pound or dollars that are closely, you know, move closely in concert with those 2. so, you know, I think, you know, to the extent that the dollar weekends, we may see a little bit of benefit from that. But there's a pretty decent natural hedge built in. So, it can move the top line a little bit, but generally speaking on the margin. We have a reason.

I would say its euro or pound.

Or dollars that are closely.

Move closely in concert with those two.

So I think.

To the extent that.

The dollar weakens, we may see a little bit of benefit from that but there is a pretty decent natural hedge built in.

Anthony Folger: Adjusted free cash flow was $48 million for the quarter, an increase of over $8 million or 21% from the year ago quarter. During the third quarter, we did not repurchase any shares of progress stock, so at the end of Q3, we had $198 million remaining under our current share repurchase authorization.

So it can move the top line, a little bit, but generally speaking on the margin.

<unk>.

We have a reasonable natural hedge in place got.

Speaker 8: Okay, and then lastly, on your guidance for the fourth quarter.

Got it.

And then lastly on.

On your guidance for the fourth quarter.

Speaker 8: You haven't really moved it at all. Whatever the upside was in the quarter, you kind of rolled it over.

You Havent really moved it all whatever the upside was in the quarter you kind of rolled it over.

Speaker 8: into your annual guide and you did not really change your fourth quarter number. And I'm just kind of wondering, your guide is short for consensus both on the top line and the bottom line.

The Knicks into your annual guide and you cannot really change your fourth quarter number and I'm just kind of wondering why.

Anthony Folger: Okay, now I'll turn to our outlook. Despite news of a more challenging macro environment, we continue to see strength in the demand for our solutions. With that, starting with the full year 2023, we are increasing our revenue guidance by $1 million at the midpoint and expect revenue to be between $692 and $698 million. We're maintaining our outlook for operating margin for the year of approximately 38 to 39 percent. We're maintaining our outlook for adjusted free cash flow and are tightening the range to be between $177 and $183 million.

Your guidance short of where consensus is both on the topline and Bottomline.

Speaker 8: Trying to think, you know, with the solid execution that you have, with the environment being stable, and with the fourth quarter being kind of year-end quarter, why aren't you a bit more upbeat and willing to commit to a higher set of numbers?

Trying to think whats the solid execution that you have with the environment being stable.

And was the fourth quarter being kind of a year end quarter why aren't you why aren't you a bit more.

Because I'm willing to commit to.

Set of numbers.

Speaker 3: Yeah, no, I think we're pretty upbeat at time. I think, you know, revenue is up a million dollars at the mid and I think EPS is up three pennies at the mid. And, you know, that's been a pretty consistent scene each quarter this year. So, you know, I think we feel

Yeah, No I think we're pretty upbeat Italian I think revenue was up $1 million at the mid and I think EPS was up three pennies at the mid.

And that's been a pretty consistent theme each quarter this year.

Anthony Folger: And we are increasing our outlook for earnings per share to be between $4.20 and $4.26 and increase of $3 cents at the midpoint. Our guidance for full year EPS assumes a tax rate of approximately 20 percent and approximately 45 million shares outstanding. For the fourth quarter of 2023, we expect revenue between $171 and $177 million and earnings per share between $0.87 and $0.93.

So I think we feel.

Speaker 3: pretty good in terms of the demand environment, in terms of our ability to manage costs, in terms of the integration of MARC logic. And so, we felt like going into Q4, taking numbers up a little bit was a pretty positive sign. I'm not sure what others are doing out there in this market, but certainly taking numbers up into Q4 felt like a pretty positive thing to do. And to the extent we can over-perform those numbers, I think even better.

Pretty good in terms of the demand environment in terms of our ability to manage costs.

In terms of the integration of Mark logic, and so we felt like going into Q4.

Taking numbers up a little bit.

It was a pretty positive sign them.

I'm not sure what what others are doing out there in this market, but certainly taking numbers up into Q4 felt like a pretty positive thing to do and.

To the extent, we can over perform those numbers I think even better.

Very good thank you very much.

Speaker 2: Thank you. And as I'm showing no further questions in the queue at this time, I'll turn the call back over to Mr. Yogesh Gupta for any closing remarks.

Thank you.

Anthony Folger: In closing, we're excited to deliver another strong quarter of financial results across the board, a continuation of the trend that we saw from much of 2022 and the first half of 2023. We're thrilled to see the mark logic integration progressing and we believe we're on track to deliver a strong Q4 and position ourselves well for our fiscal 2024.

Thank you and I'm showing no further questions in the queue at this time I'll turn the call back over to Mr. Yogesh Gupta for any closing remarks.

Speaker 4: Well, thank you, Sree, and thanks again, everyone, for joining us. We look forward to talking to you again soon. Have a good night.

Well, thank you Sherry and thanks again, everyone for joining us.

We look forward to talking to you again soon have a good night.

Speaker 2: Thank you all for participating. This concludes today's program. You may now disconnect.

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

Thank you Sherry.

Operator: With that, I'd like to open the call for questions. Thank you. As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, press star 11 again. Through the time restraints, we ask you please limit yourself to one question and one follow-up question. Please stand by while we compile the Q&A roster.

Okay.

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Okay.

Okay.

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Ray Mcdonough: Our first question will come from the line of Ray McDonough with Guggenheim Securities. Your line is open. Ben. Great, thanks for taking the questions. Maybe you'll guess for you, given the nature of solutions that you guys provide, that progress provides, it's not surprising that OpenEdge has exhibited strength throughout the weak macro environment, but it seems like the whole business as you highlighted has been stable. And in Mark Logic, again, it makes sense, some of the other products make sense, but is there any area of your portfolio where you're actually seeing a macro-related impact?

Yeah.

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Ray Mcdonough: And if so, how might that be manifesting and how should we think about the difference in buying behavior maybe between some of your more stable install basis? Hey, Ray, thanks. Good question. We're actually not seeing challenges in any aspect of our business on the product lines, to be honest. We are hearing from our field organization that they're noticing that large projects that maybe customers were looking at, they might be looking at them closer closely, but really from our perspective, our business company needs to be strong.

Ray Mcdonough: We see strength across the board. And that is really delightful and wonderful to see. As you know, right, our products are truly about making organizations more effective, more efficient, one that business better, the underpin mission-critical environments. So, it is a wonderful business to be in. And I think the strength of the progress business comes through in our results.

Yogesh Gupta: That all makes sense. I guess you were pretty clear, you guess, that you're kind of on the hunt for your next acquisition or your next target. If we kind of think through the size of targets or the size of an acquisition that you might be willing to do, should we be thinking that there's probably room to do a larger acquisition, maybe like Mark logic or a couple more smaller acquisitions? I guess the question is, how should we be thinking about the size of future acquisitions?

Yogesh Gupta: And then, in light of the increasing cost of capital, just with interest rates rising, how do you think about the hurdle rate for a future acquisition in terms of the returns? I know you guys are very focused on return on invested capital. So, I'm assuming your weighted average cost of capital is changing a little bit as interest rates rise, but just wondering how are you thinking about those two things together? Absolutely.

Yogesh Gupta: Happy to answer those. And maybe Anthony can help with the second part of the second aspect of the question, with respect to hurdle rates. On the first part, Ray, as we just said, our ideal sweet spot is to buy companies that are, let's say, in the 10 to 20, 25% of our revenue size. And that goes up every time we buy another company because our overall base goes up. So, our goal is, over the long haul, it's to double our business in five years.

Yogesh Gupta: And so, effectively, we might find a business that is 10%, in which case, we might find two of them, or maybe even slightly less than 10%, we might find two of them. We might find something that is closer to 20 or even 25%. Some of it is, in fact, a lot of it depends on what comes to market. So, the size of assets coming to market often range from even sub 50 million, which we look at sometimes not as much as we used to given our current size, but really the 50 to 150 right now is our sweet spot.

Yogesh Gupta: So, in terms of revenue of the target. But that doesn't mean that we don't look at somewhat smaller. That doesn't mean that we don't look at somewhat bigger. The goal there, Ray, is more operational, rather than the financial size for my perspective, can we bring in a business and integrate it easily? Can we do it in a way that our culture survives? Can we do it in a way that, you know, people realize that we're going to do things the progress way going forward, which becomes really hard if you do like a, you know, whatever it's called, merger of equals, or some nonsense like that.

Yogesh Gupta: So, you know, to me, you know, acquisitions from my perspective, like there has to be some go forward plan that has been consistent before and the company has to be consistent going forward. So, that's the rationale for the size limitation. Anthony, you want to speak to, you know, financing constraints, or we're talking about that in a minute. Yeah, sure. You know, in terms of the hurdle rate, yes, you know, as as interest rates continue to move up, it will affect our our weighted average cost capital a little bit and it has, but I think our whack has stayed, you know, reasonably in check, probably eight and a half percent somewhere in that range.

Yogesh Gupta: And I think we've been able to hit deals from a return perspective, following in double digits over the past several years. So, you know, it's certainly, it pushes the envelope a bit and I think as rates go up, you know, the math will tell you that multiples are going to need to come down a little bit. And, you know, that's the way our models work and probably a lot of other folks as well.

Yogesh Gupta: So yeah, I think the hurdle rates or the return rates may, may creep up and I think they're going to need to creep up as long as rates stay high and looks like that's where they're staying.

Ray Mcdonough: All my sense, thank you guys. Thank you. One moment for our next question.

Richard: And that will come from the line of pendulum board with JP Morgan, your line is open. Hi guys, this is Richard on for pendulum. Can you help us understand the growth retention dynamics in the quarter?

Yogesh Gupta: Oh, I'm sorry. Were you asking about growth retention dynamics in what? In the quarter. So, you know, the overall growth retention of our products has been strong and continue to stay strong. There was no real difference between the growth retention, you know, in Q three versus Q two or Q one. You know, we continue to see a strong growth retention because without that, it would be tough to have net retention above 100%.

Yogesh Gupta: Right. As I've said many times on many of these calls, right, our target is to sustain 100 plus percent net retention rates. And to do that, we need really solid growth retention rates. So we've had solid growth retention rates this quarter as well. Not that nobody of use there to be honest.

Operator: Thank you.

Antonio Menterron: One moment for our next question.

Yogesh Gupta: And that will come from the line of Brent fill with deaf freeze, your line is open. Awesome. Thank you guys for taking the question. It's Antonio Menterron on for Brent fill. I had a quick question on on head count on both the operational side and maybe the product development side. Can you just provide us with any color on plans for head count growth this year and sort of where you've been focusing your investments in? And then on the product side, are there any particular ones you want to call out in terms of having, you know, a disproportionate amount of engineering resources?

Yogesh Gupta: Sure. So, you know, a couple of things, right. We are headcount this year, of course, went up when you acquired mark logic. Right. I mean, that's a, that was an acquisition. They came with a bunch of employees. You know, we didn't of course bring everybody on board, but you know, a significant number of employees joined progress because of the mark logic acquisition. In general, our headcount is flat and we, you know, we are not really, you know, hiding aggressively, except for, you know, replacing people that turn over.

Yogesh Gupta: Right. Fundamentally, we keep our headcount approximately flat and Anthony, if you want, you know, feel free to add to that. I don't think that, you know, from a product investment perspective in the R&D side and entering side. You know, we run a, the lean organization overall. And one of the ways we stay in the retention of our customers, you know, whether it is growth retention as well as neck retention, which is really remarkable.

Yogesh Gupta: Is by investing in the products so that the products continue to get better, continue to stay competitive and stay relevant. And we don't, you know, but we're very, very careful. Right. We, it isn't as though we've got people sitting around and then drinking. You know, not doing real productive work that is helping move the needle on our retention and expansion efforts as well as winning some new customers. So it is, it is all, you know, we measure it, we, we track it, we measure performance.

Yogesh Gupta: And so, you know, we, we are continuing to invest appropriately for the profiles of those businesses. And, and, you know, just a little bit more color on that, you know, some people say, well, you know, what percentage of revenue you might invest on a particular product. Right. It is a combination of things. If it's a very large revenue number, right? The percentage revenue invested in the engineering side on the product is less because the large denominator.

Yogesh Gupta: But so the question really uses what work do we need to do to keep off products competitive in the market to make sure that they continue to be relevant, to make sure that our customers are happy, and that's what drives our engineering investment.

Antonio Menterron: Awesome, great, thank you.

Yogesh Gupta: And then maybe it's a quick follow up, I think you sort of alluded to it, but can you drill down on the go-to-market strategy with Mark Logic and higher-approaching that and sort of what the realignment of the go-to-market looks like? Sure, so you know we as you might be aware, we have had a very strong internally portfolio of a relational database and data integration for our technologies between open edge and data direct, right?

Yogesh Gupta: And these two products are significant parts of our business in terms of revenue, and Mark Logic is a no-sequel database, so it complements our open edge database, and the semi-four product does semantic analysis of data across all types of data. And so really the go-to-market is to bring, you know, efforts have been to bring together these go-to-market organizations, so there's one organization now for all of our clues, these products is all one and together, it's completely integrated, it's under one general manager, and so that makes for opportunities to potentially, you know, if something arises to take products in from one portfolio to another, but it also means that, you know, we have strong relationships and relationship management skills at progress and we bring those to where in terms of retention and expansion skills as well, so I hope that helps the question. It is now combined with our application and data management go-to-market efforts. Great, thanks for guys. Thank you. I'm showing no further questions in the queue at this time.

Yogesh Gupta: I'll turn the call back over to Mr. Yogesh Gupta for any closing remarks.

Ittai Kidron: Actually, we did have a question come from it's I Kidron with Oppenheimer, just one moment inside. Your line is open. Thank you. I thought I had my hand raised. Guys, thank you so much for the time. There's three questions from me, Yogesh. First of all, can you comment to move it in a little bit more detail, more specifically, it seems like the impact from this continues to be unraveled almost on a weekly basis here.

Ittai Kidron: How many customers have already got off the platform? How many do you think more might be coming? And is there, I'm trying to think about their liability exposure here, is there anything that can come back to you because of this? Do you have cyber insurance for that? I don't know if I'm asking the right questions, but I'm trying to really understand the more the lasting impact of this on your business.

Yogesh Gupta: So, I think for thanks for questions, and I will try to answer as many of these as I can. As you know, we do have an ongoing investigation. We do have ongoing legal efforts around this, so you know, most of our communication happens through our filings, but let me share some of the things that you were asking. So, you know, from the perspective of our customers, actually, our customers have been extremely positive about what we've been doing for them.

Yogesh Gupta: As we mentioned, There was minimal impact on our business in Q3. As you notice, they're in Q4 and for the year, right? We are still confident about our outcomes, so we're not really seeing what I was looking for from our customers at this point. As far as litigation expands, it is way too early to try to do any kind of an estimate as to what it would be. I think we have shared that we have a, you know, a cyber insurance to the tune of $15 million.

Yogesh Gupta: That's one five. And, you know, we report, I mean, we reported in our, you know, press release in, you know, basically sort of the approximate expense in this, in this area, and we will continue to report that and in our ten cues. And, you know, we just don't know what the future litigation impact might be because it is so early. But in general, you know, customers have been to be honest, really happy with our response. Okay.

Anthony Folger: Anthony, a couple financial questions. First of all, US dollars making a move. Can you remind us what if, if anything, this, you know, how this influences your financial statements? Yeah, sure. I think we would say that we're, you know, north of 70% of our top line of our buildings and revenue were down in dollars. And from an expense perspective, I think we're in the high 60s. And most of the foreign currency buildings are sort of, I would say it's euro or pound or dollars that are closely, you know, move closely in concert with those two.

Anthony Folger: So, you know, I think, you know, to the extent that the dollar weekends, we may see a little bit of benefit from that, but there's a pretty decent natural hedge built in. So it can move the top line a little bit, but generally speaking, on the margin, we have a reasonable natural hedge in place. Okay. And then lastly, on your guidance for the fourth quarter, you haven't really moved it at all, whatever the upside was in the quarter, you kind of rolled it over into the next into your annual guide and you do not really change your fourth quarter number.

Anthony Folger: And I'm just kind of wondering why you feel, you know, your guide is short before consensus will fund the top line in the bottom line and trying to think, you know, with the solid execution that you have with the environment being stable and with the fourth quarter of being kind of year and quarter, why aren't you, why aren't you a bit more. A beat and willing to commit to higher set of numbers.

Anthony Folger: Yeah, no, I think we're pretty upbeat at tie and I think, you know, revenues up a million dollars at the mid and I think EPS is up three pennies at the mid. And, you know, that's been a pretty consistent team each quarter this year. So, you know, I think we feel pretty good in terms of the demand environment in terms of our ability to manage costs. In terms of the integration of mark logic and so, you know, we felt like going into q4 taking numbers up a little bit was a was a pretty positive sign and, you know, not sure what what others are doing out there in this market, but certainly taking numbers up into q4 felt like pretty positive thing to do and, you know, to the extent we can over perform those numbers, I think even better. Thank you very much. Thank you.

Yogesh Gupta: And as I'm showing no further questions in the queue at this time, I'll turn the call back over to Mr. Yogesh Gupta for any closing remarks. Well, thank you, Sheree. And thanks again everyone for joining us.

Yogesh Gupta: We look forward to talking to you again soon. Have a good night. Thank you all for participating.

Operator: This concludes today's program. You may now disconnect. Thank you, Sheree.