Q1 2024 Progress Software Corp Earnings Call
Operator: Good day, and welcome to the Progress Software Corporation Q1 2024 Earnings Call. At this time, all participants are in a listen only mode.
One.
Speaker Change: Good day and welcome to the progress Software Corporation Q1, 2024 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 him.
Operator: After the speaker's 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 question is. To withdraw your question, press star 1 1 again.
Speaker Change: Auto mated message advising your hand is right.
Operator: Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Mike Miciche, Senior Vice President of Investor Relations. Please go ahead.
Speaker Change: A question Press Star one again, please be advised that today's conference is being recorded I would now like to hand, the conference over to your Speaker, Mr. Mike Mitchell K Senior Vice President of Investor Relations. Please go ahead.
Michael Micciche: Okay, thank you, Shiri. Good to have you back with us. Good afternoon, everyone.
Speaker Change: Okay. Thank you Sherry good to have you back with us.
Michael Micciche: And thanks for joining us for Progress Software's first quarter 2024 Financial Results Conference Call. Online with me this afternoon are Yogesh Gupta, President and CEO, and Anthony Folger, our Chief Financial Officer. Before we get started, let's go over our safe harbor state.
Speaker Change: Afternoon, everyone and thanks for joining us for progress Software's first quarter 2024.
Speaker Change: Financial results conference call.
Speaker Change: Online with me. This afternoon are Yogesh Gupta, President and CEO and Anthony Folger, Our Chief Financial Officer 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.
Michael Micciche: 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 is subject to risks and uncertainty. For a description of the risk factors that may affect our results, please refer to the risk factors in our filings with the Securities and Exchange Commission.
Speaker Change: Such forward looking information represents progress software's outlook and guidance only as of today and are subject to risks and uncertainties for a description of the risk factors that may affect our results. Please refer to the risk factors in our filings with the Securities and Exchange Commission progress software assumes no obligation to update the forward looking statements included in this.
Michael Micciche: Progress Software assumes no obligation to update the forward-looking statements included in this call today. Additionally, please note that all the financial figures referenced in this call are non-GAAP measures, unless otherwise indicated. You can find a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP figures in our financial results press release, which was issued after the market closed today. This document also contains additional information related to our financial results for the first quarter of 2024, and I recommend that you reference those for specific detail. We also have prepared a presentation that contains updated supplemental data for our first quarter 2024 results, providing highlights and additional financial metrics. Both the earnings release and the supplemental presentation are available in the investor relations section of our website at investors.progress.com. Today's conference call will be recorded in its entirety and will be available for replay on the investor relations section of our website. And with that, I will turn it over to you, Yogesh.
Speaker Change: Call. Today. Additionally, please note that all the financial figures referenced on this call are non-GAAP measures unless otherwise indicated and you can find a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP figures in our financial results press release, which was issued after the market close today.
Speaker Change: This document contains additional information related to our financial results for the first quarter of 2024 and I recommend that you referenced those first specific details.
Speaker Change: We also have prepared a procedure a presentation that contains updated supplemental data for our first quarter 2024 results, providing highlights and additional financial metric metrics.
Speaker Change: Both the earnings release and the supplemental presentation are available in the Investor Relations section of our website at investors Dot progress Dot Com Today's conference call will be recorded in its entirety and will be available for replay on the Investor Relations section of our website.
Speaker Change: And with that I will turn it over to Yogesh no. Thank you, Mike and good afternoon, everyone and thank you for joining us today as we announce the results of the first quarter of fiscal 2024. It was a busy quarter for us so let's jump right in.
Yogesh K. Gupta: Thank you, Mike. Good afternoon, everyone, and thank you for joining us today as we announce the results of our first quarter of fiscal 2024. It was a busy quarter for us, so let's jump right in. Total revenue of $185 million in the first quarter came in above the high end of our guidance and represents 12% year-over-year growth. Once again, our top line benefited from steady demand across geographies and plots. ARR came in at $571 million, which was up slightly year over year in cost and currency, and NRR was 99%, which again reflects the resiliency of our business and the strength of our customer relationships. Our operating margins were 42% ahead of our expectations and were driven by our strong top-line performance, coupled with solid cost management and the realization of efficiencies as a result of the completion of the MarkLogic integration. EPS of $1.25 came in $0.09 above the high end of our latest guidance, and adjusted free cash flow was $72.2 million.
Yogesh K. Gupta: Revenue of $185 million in the first quarter came in above the high end of both items and represents 12% year over year Belk.
Yogesh K. Gupta: Once again, our top line benefited from steady demand across geographies and products.
Yogesh K. Gupta: Yeah on all came in at $571 million, which was up slightly year over year in constant currency and MLR was 99%, which again reflects the resiliency of our business and the strength of our customer relationships.
Yogesh K. Gupta: Our operating margins were 42%.
Yogesh K. Gupta: Our expectations and were driven by a strong top line performance, coupled with solid cost management and the realization of efficiencies as the result of the completion of the marked logic integration.
Yogesh K. Gupta: EPS of $1 25.
Yogesh K. Gupta: Came in 9% above the high end of our latest guidance.
And adjusted free cash flow was $72 2 million.
Yogesh K. Gupta: As you saw in our press release, we are raising guidance for both these metrics because as our existing business remains strong on the top line, and we continue to run the industry. Our balance sheets remain strong, and we finished the quarter with cash and cash equivalents of over $133 million. DSOs were 50 days versus 62 last quarter, which is reflective of the timing of collections we mentioned on the fourth quarter call in January.
Yogesh K. Gupta: As you saw in our press release, we are raising guidance for both of these metrics.
Yogesh K. Gupta: Our existing business remained strong on the top line and we continue to run lean.
Yogesh K. Gupta: Yeah.
Yogesh K. Gupta: Our balance sheet remains strong and we finished the quarter with cash and cash equivalents of over.
Yogesh K. Gupta: $133 million.
Yogesh K. Gupta: Dsos were 50 days versus 62 last quarter, which is reflective of the timing of collections, we mentioned on our fourth quarter call in January.
Yogesh K. Gupta: In other news, as you might have seen, we also announced a possible offer to acquire MariaDB, a New York Stock Exchange-listed Irish open source database company that reported fiscal 2023 revenue of around $53 million. MariaDB is used by over 600 enterprises around the globe for their mission-critical applications, as we've repeatedly demonstrated when we've acquired other enterprise software companies. We focus on serving the needs of our customers, as evidenced by our net retention rates of around 100%. This makes us the White Home for Maria D. Our possible offer of 60 cents a share represents an enterprise value multiple of under 1.5 times revenue. We believe that this valuation would represent a truly compelling offer for MariaDB's shareholders as it is a significant premium to their recent stock price. However, we are disciplined buyers and will only proceed if the terms generate value for Progress Shelf. Turning to our products and markets, we're seeing customers respond positively to our AI-powered products, as these products enable them to rapidly realize the business benefits of AI technology. For example, MarkLogic and Semaphore enable sophisticated generative AI applications through RAD or retrieval-based generation.
Yogesh K. Gupta: In other news as you might have seen we also announced a possible offer to acquire where we at DB.
Yogesh K. Gupta: Stock Exchange listed Irish Open source database company, who reported fiscal 2023 revenue of around $53 million.
Yogesh K. Gupta: Maria D. D is used by over 600 enterprises around the globe for their mission critical applications.
Yogesh K. Gupta: As we have repeatedly demonstrated when we've acquired other enterprise software companies, we focus on serving the needs of our customers as evidenced by our net retention rates of around 100%.
Yogesh K. Gupta: This makes us the right home for Maria Debbie.
Yogesh K. Gupta: Our possible offer of 60 cents, a share representing an enterprise value multiple of under one five times revenue.
Yogesh K. Gupta: We believe that this valuation would represent a truly compelling offer familiar DB shareholders as it is a significant premium.
Yogesh K. Gupta: Recent stock price.
Yogesh K. Gupta: We are disciplined buyers and we'll only proceed if the terms and great value for the shareholders.
Yogesh K. Gupta: Turning to our products and markets, we're seeing customers respond positively to our AI powered products as these products enable them to rapidly realize the business benefits.
Yogesh K. Gupta: AI technologies.
Yogesh K. Gupta: For example, Mark logic, and some of what enabled sophisticated generative AI applications to that ore retrieval automated generation.
Yogesh K. Gupta: The Retrieval Augmented Generation, RAG, is becoming the most popular method to contextualize and dramatically improve the accuracy of generated responses. MachLogic and Semaphore, and enable our customers to leverage their own proprietary data and content to augment the Gen-AI capabilities of LLM. We continue to make advances with AI in our digital experiences products as well. Sitefinity 15 introduced out-of-the-box generative AI capabilities based on Azure OpenAI that allow content editors and marketers to generate, improve, optimize, and personalize content at the click of a button. And last quarter, we released our AI-powered observability product, FlowMonADS, for anomaly detection to help cybersecurity professionals detect, understand, prioritize, and quickly respond to security events. IT operations managers are facing an ever-growing volume of increasingly sophisticated cyber attacks.
Yogesh K. Gupta: The retrieval augmented generation lag is becoming the most popular method to contextualize and to dramatically improve the accuracy of generated responses.
Yogesh K. Gupta: Logic, and <unk> enable our customers to leverage their own proprietary data and content to augment the journey I capabilities.
Yogesh K. Gupta: <unk>.
Yogesh K. Gupta: We continued to make advances with AI and our digital experience those products as well.
Yogesh K. Gupta: Sorry, 2015 introduced out of the box generative AI capabilities based on Azure open AI that allows.
Yogesh K. Gupta: Editors and marketers to generate improve optimize and personalize content at the click of a button.
Yogesh K. Gupta: And last quarter, we released our AI powered absorbability product flow on avs anomaly detection to help cyber security professionals detect understand prioritize and quickly respond to security events.
Yogesh K. Gupta: IP operations managers are facing an ever growing volume of increasingly sophisticated cyber attacks.
Yogesh K. Gupta: Floman ADS uses AI to analyze increasingly complex network operations data to pinpoint issues and provide context around a potential intrusion to help inform an effective response. This product has only been available for a few months, and it's already on the shortlist for two categories of the 2024 Cloud Security Awards, namely Cloud Security Innovator of the Year and Best Network Security. We also continue to offer new SaaS AIOps products to complement our existing portfolio. For example, Loadmaster 360 is a SAS control plane for large loadmaster deployments.
Yogesh K. Gupta: <unk> uses AI to analyze the increasingly complex network operational data to pinpoint issues and to provide context around the potential intrusion to help inform and effective response.
Yogesh K. Gupta: This product has only been available for a few months and it's already on the shortlist in two categories.
Yogesh K. Gupta: 2020 for cloud Security awards, namely cloud security innovator of the year and best Network security solution.
Yogesh K. Gupta: We also continue to offer new SaaS AI ops products to complement our existing portfolio.
For example.
Yogesh K. Gupta: Loadmaster 360 is in it is SaaS control plane for large loadmaster deployment.
Yogesh K. Gupta: The product provides telemetry data that will allow customers to realize the value derived from loadmaster deployments, which in turn will lead to expansion opportunities and greater renewal rates. Released only a quarter ago, this subscription product is already seeing meaningful customer adoption. And Chef SAS, which was released in the second half of 2023, has also been embraced by many enterprise customers. Amazon recently announced that the AWS OpsWorks platform will be discontinued, and several of those customers have moved to Chef SAS.
Yogesh K. Gupta: The product the lifestyle imagery data that will allow customers to realize the value derived from loadmaster deployments, which in turn will lead to expansion opportunities and greater renewal rate.
Yogesh K. Gupta: Please only a quarter ago the subscription product.
Yogesh K. Gupta: It's already seen meaningful customer adoption.
Yogesh K. Gupta: Yeah.
And <unk>, which was released in the second half of 2023 has also been embraced by many enterprise customers.
Yogesh K. Gupta: Amazon recently announced that the AWS <unk> platform will be discontinued and several of those customers have moved to shelf SaaS.
Yogesh K. Gupta: Lastly, we also released a subscription-only version of WhatsApp Gold, which our partners have embraced enthusiastically. We've had several customers sign up within a month of launch, and expect that the product will drive adoption of WhatsApp Gold even further. And as always, our workforce product, OpenEdge, performed extremely well as revenues remained robust and customers remained steadfast in their commitment to that platform. Turning to other recent news, at the very end of the quarter, you likely saw that we announced the convertible notes issue, which was upsized to $450 million and a new $900 million revolving credit. These transactions will lower our interest rates and give us more flexibility and greater scale for accretive M&A by fortifying our balance sheet even more. To provide a bit of detail, we use the proceeds of the convertible notes to pay off all of our previously existing bank debt, which carried a variable interest rate slightly above 7%. With that bank debt refinanced into lower-cost convertible notes, we were able to amend our bank facilities and put in place a new $900 million revolving line of credit.
Yogesh K. Gupta: Lastly, we also released a subscription only version of flexible, which our partners have embraced enthusiastically.
Yogesh K. Gupta: We've had several customer sign up within a month of launch and expect that the product will drive adoption of Whatsapp gold even further.
Yogesh K. Gupta: And as always our workhorse product open edge performed extremely well as the revenues remained robust and customers remain steadfast in their commitment to that plan.
Yogesh K. Gupta: Yeah.
Yogesh K. Gupta: Turning to other recent news at the very end of the quarter you likely saw that we announced a convertible notes offering which was upsized to $450 million and a new $900 million revolving credit facility.
These transactions will lower our interest rate and give us more flexibility and greater scale for accretive M&A by fortifying our balance sheet even more.
Yogesh K. Gupta: To provide a bit of detail we use the proceeds of the convertible notes to pay off all of our previously existing back debt, which carried a variable interest rate slightly above 7%.
Yogesh K. Gupta: With that bank debt refinanced into lower cost convertible notes, we were able to amend our bank facilities and put in place a new $900 million revolving line of credit.
Yogesh K. Gupta: This new revolving line of credit is three times the size of a prior revolver and has less restrictive terms, which reflect our solid recurring revenues, durable cash flows, and strong record of executing well on acquisitions. Anthony will go through both transactions in more detail, but I want to share that we're very pleased with the outcome and how it positions us to continue executing our strategy going forward. I want to emphasize that while we now have access to more capital, which we can deploy with greater flexibility, our discipline around our total growth strategy will remain unchanged.
Yogesh K. Gupta: This new revolving line of credit is three times the size of our prior revolver.
Yogesh K. Gupta: Less restrictive terms, which reflect our solid recurring revenues durable cash flows and strong record of executing well on acquisitions.
Anthony will go to both transactions in more detail, while I want to share that we're very pleased with the outcome and how it positions us to continue executing our strategy going forward.
Yogesh K. Gupta: I want to emphasize that while we now have access to more capital, which we can deploy with greater flexibility.
Yogesh K. Gupta: Our discipline around our total growth strategy will remain unchanged.
Yogesh K. Gupta: We will still target infrastructure software companies that have excellent technology, a sticky customer base, solid recurring revenues, and opportunities for synergies that will allow us to quickly reach our operating margin target. Likewise, we intend to remain extremely disciplined with respect to how much we pay for a company, to ensure that our return on invested capital exceeds our weighted average cost of capital, and we will be watchful of our net leverage ratio. So why do we have access to more capital and the ability to move quicker on opportunities?
Yogesh K. Gupta: We will still target infrastructure software companies that have excellent technology, a sticky customer base solid recurring revenues and opportunities for synergies that will allow us to quickly reach our operating margin targets.
Yogesh K. Gupta: Likewise, we intend to remain extremely disciplined with respect to how much we pay for our company.
Yogesh K. Gupta: To ensure that our return on invested capital exceeds our weighted average cost of capital and be watchful of our net leverage ratio.
Yogesh K. Gupta: So why do we have access to more capital and the ability to move quickly on opportunities we.
Yogesh K. Gupta: We do not intend to change the model that has been working well for us so far. The opportunities for M&A remain robust, and we remain active in vetting deals within our target area. We continue to feel confident, not only in the availability of quality companies but also in our ability to execute more than one transaction in a year. Before handing off to Anthony, I'd like to take a moment to talk about moving. As you know, we have been very transparent about the movement vulnerability in our disclosures, including our recent 10K. As we have previously shared, the attack primarily impacted the on-premise version of Moovit, which is deployed in our customers' environments and where we have no insight.
Yogesh K. Gupta: We do not intend to change the model that has been working well for us so far.
Yogesh K. Gupta: The opportunities for M&A remains robust and we remain active vetting deals within our targeted yes.
Yogesh K. Gupta: We continue to feel confident not only in the availability of quality companies, but also in our ability to execute more than one transaction in a year.
Speaker Change: Before handing off to Anthony I'd like to take a moment to talk about <unk>.
Anthony Folger: As you know we have been very transparent about the motor Tolerability in our disclosures, including our recent 10-K.
Anthony Folger: As we have previously shared the at that primarily impacted the on Prem version of move it which is deployed in our customers' environments and where we have no insight.
Yogesh K. Gupta: Nevertheless, we rapidly patched and proactively communicated to our customers to help them defend against the attack on their move-it-and-buy business, and while movement represents less than 4% of our total revenue, for progress, every MOV-IT customer is important. We have received very positive feedback regarding our response to the situation, and I believe that our customer-first approach to everything that we do has helped us navigate a difficult situation and minimize the impact on others. It is also important to note that while the SEC and other governmental entities are conducting fact-finding inquiries into the attack on MOVE-IT, the investigations do not mean that Progress or anyone else has violated any laws or that these entities have a negative opinion of Progress.
Anthony Folger: Nevertheless, we rapidly pashtun proactively communicated to our customers to help them defend against the attack on their move it in parts.
Anthony Folger: And while new and represents less than 4% of our total revenues.
Anthony Folger: For progress every mortgage customer is important.
Anthony Folger: We have received very positive feedback regarding our response to the situation and I believe that our customer first approach to everything that we do has helped us navigate a difficult situation and minimized the impact to our business.
Anthony Folger: It is also important to note that while the SEC and other governmental entities are conducting fact, finding enquiries into the attack on move at.
Anthony Folger: The investigations do not meet that progress or anyone else has violated any laws or that piece entities, having negative opinion of progress.
Yogesh K. Gupta: Progress has been fully cooperating with the SEC and other governmental entities in their investigation, while we are currently unable to quantify any potential impact from future proceedings or Governmental Investigations. We're grateful for the continued support of our customers, partners, and employees, and we will continue to be transparent, proactive, and cooperative. So to finish up, it was another solid quarter for progress, and our outlook remains positive. Creative M&A combined with solid execution remains our top priority, and we look forward to the rest of the year with confidence. As always, I want to thank my fellow progressives for their hard work and our investors for their continued support. With that, I'll turn it over to Anthony. Thanks, Yogesh.
Anthony Folger: Progress has been fully cooperating with the SEC and other governmental entities in their investigations.
Anthony Folger: While we are currently unable to quantify any potential impact from future proceedings.
Anthony Folger: Our government investigations, we're grateful for the continued support of our customers partners and employees.
And we will continue to be transparent proactive and cooperative.
So to finish up it was another solid quarter for progress and our outlook remains positive.
Anthony Folger: Accretive M&A combined with solid execution remains our top priority and we look forward to the rest of the year with confidence.
Speaker Change: As always I want to thank my fellow progresses for their hard work and our investors for their continued support.
Speaker Change: With that I'll turn it over to Anthony.
Anthony Folger: Good afternoon, everyone, and thanks for joining our call. As Yogesh mentioned, we're very pleased with our Q1 results, which again exceeded the high end of our guidance range for revenue and earnings per share. We're also very pleased to have recently completed a refinancing of our credit facilities and believe the amended facilities provide Progress with significantly more liquidity and flexibility to continue the execution of our total growth strategy. More on that in a few minutes.
Speaker Change: Okay.
Anthony Folger: Thanks, Yogesh and good afternoon, everyone and thanks for joining our call.
Anthony Folger: As Yogesh mentioned, we're very pleased with our Q1 results, which again exceeded the high end of our guidance range on revenue and earnings per share.
Anthony Folger: We're also very pleased to have recently completed a refinancing of our credit facilities and believe the amended facilities provide progress with significantly more liquidity and flexibility to continue the execution of our total growth strategy.
Anthony Folger: Turning to our results and starting with the top line, we closed the first quarter with ARR of $571 million, which represents modest growth on a year-over-year basis. This growth in ARR was driven by steady demand for several products across our portfolio, especially. Another factor that continues to contribute to the resiliency of our top line is strong net retention, with Q1 net retention rates coming in at 99%. In addition to our solid ARR results, revenue for the quarter of $185 million was above the high end of our guidance range, with the overperformance driven by strong demand for multiple products in our portfolio. On a year-over-year basis, revenue growth of 12% was driven by a full quarter contribution from MarkLogic compared to only one month contribution in Q1. And this growth was partially offset by the timing of renewals on multi-year subscription contracts.
Speaker Change: More on that in a few minutes.
Speaker Change: Turning to our results and starting with the topline we closed the first quarter with IRR of $571 million, which.
Speaker Change: Zentz modest growth on a year over year basis.
Speaker Change: This growth in IRR was driven by steady demand for several products across our portfolio, especially open edge.
Speaker Change: Another factor that continues to contribute to the resiliency of our topline is strong net retention with Q1 net retention rates coming in at 99%.
Speaker Change: In addition to our solid <unk> results revenue for the quarter of $185 million was above the high end of our guidance range with the over performance driven by strong demand for multiple products in our portfolio.
Speaker Change: On a year over year basis revenue growth of 12% was driven by a full quarter contribution from Mark logic compared to only one month contribution in Q1 of 'twenty three.
Speaker Change: And this growth was partially offset by the timing of renewals on multiyear subscription contracts.
Anthony Folger: As I've noted on previous earnings calls, the timing of subscription contract renewals, especially multi-year subscriptions, can have a significant impact on our revenue in any given quarter and skew results higher or lower, using Q1 of 24 to illustrate this point. If we were to exclude both MarkLogic's contribution and the impact from the timing of renewals on multi-year subscription contracts. Our remaining business would have shown low single-digit revenue growth, generally consistent with our growth in ARR and growth trends in recent quarters. We will therefore continue to focus on ARR as a barometer of our top-line performance.
Speaker Change: As I've noted on previous earnings calls the timing of subscription contract renewals, especially multiyear subscriptions can have a significant impact on our revenue in any given quarter and skew results higher or lower.
Speaker Change: Using Q1 of 2004 to illustrate this point.
Speaker Change: If we were to exclude both mark logics contribution and the impact from the timing of renewals on multiyear subscription contracts.
Speaker Change: Our remaining business would have shown low single digit revenue growth generally consistent with our growth in IRR.
Speaker Change: And growth trends in recent quarters.
Speaker Change: We will therefore continue to focus on IRR as a barometer of our topline performance.
Anthony Folger: And as a reminder, our calculation of ARR is presented on a pro forma basis to include the results of acquired businesses in all periods, and in constant currency with all periods presented at our current year budgeted exchange rates. I should mention that, consistent with past practice, we've updated ARR using our 2024 budgeted rates. And as a result, the ARR that was reported in prior periods has changed slightly.
Speaker Change: And as a reminder, our calculation of IRR is presented on a pro forma basis to include the results of acquired businesses in all periods.
Speaker Change: And in constant currency with all periods presented at our current year budgeted exchange rates.
Speaker Change: I should mention that consistent with past practice, we've updated <unk> using our 2024 budgeted rates and as a result, the IRR that was reported in prior periods has changed slightly.
Anthony Folger: The change isn't material and doesn't alter the trend in ARR growth or the net retention rates that we've been reporting over the past several quarters. And to illustrate this point, we've included some details in the supplemental presentation filed with our press release. Turning now to expenses. Our total costs and operating expenses for the quarter were $108 million, up 16% compared to the prior year and slightly lower than our expectations. The year-over-year increase was driven by the impact of a full quarter of MarkLogic when compared to last year and, to a lesser extent, an expected increase in compensation costs across the rest of our business. Operating income was $77 million, up $5 million compared to the prior year quarter.
Speaker Change: The changes in material and doesn't alter the trend in IRR growth.
Speaker Change: And the net retention rates that we've been reporting over the past several quarters.
Speaker Change: And to illustrate this point we've included some details in the supplemental presentation filed with our press release.
Speaker Change: Okay.
Speaker Change: Turning now to expenses.
Speaker Change: Our total costs and operating expenses for the quarter were $108 million up 16% compared to the prior year and slightly lower than our expectations.
Speaker Change: The year over year increase was driven by the impact of a full quarter of mark logic, when compared to last year and to a lesser extent expected increase in compensation costs across the rest of our business.
Speaker Change: Operating income was $77 million up $5 million compared to the prior year quarter.
Anthony Folger: Our operating margin was 42%, which was well ahead of our expectations and driven by our top line overperformance combined with strong cost management. On the bottom line, earnings per share of $1.25 for the quarter is $0.09 above the high end of our guidance range. This overperformance relative to our expectations was again driven by solid cost management across the business, coupled with the previously mentioned overperformance on the top line.
Speaker Change: Our operating margin was 42%, which was well ahead of our expectations and driven by our topline over performance combined with strong cost management.
Speaker Change: On the bottom line earnings per share of $1 25 for the quarter is nine tenths above the high end of our guidance range. This over performance relative to our expectations was again driven by solid cost management across the business coupled with the previously mentioned over performance on the top line.
Anthony Folger: Moving on now to a few balance sheet and cash flow metrics. I'll begin with our recently completed refinancing and remind everyone that our 2030 convertible notes and the amended credit agreement were both completed in March and, therefore, will not be reflected in our financial statements until Q2. At the outset, our goal was to refinance our previously existing bank debt into a lower cost fixed rate instrument and to amend our bank facilities so that they better supported our business model and future growth. With that in mind, here are some of the details. First, our convertible notes offering was completed on March 1st, 2024, and the total offering amount, including the over-allotment option, was $450 million. The notes carry an interest rate of 3.5%, a six-year maturity, and with privately negotiated capped call transactions, they have a 75% effective conversion premium of $92.98. The net proceeds from the offering and the capped call transactions were used to repay all existing bank debt, which totaled $338 million at the end of the quarter, and to repurchase $25 million of Progress shares during the office.
Speaker Change: Yes.
Speaker Change: Moving on now to a few balance sheet and cash flow metrics I'll begin with our recently completed refinancing and remind everyone that our 2030 convertible notes.
Speaker Change: And the amended credit agreement were both completed in March and therefore will not be reflected in our financial statements until Q2.
Speaker Change: At the outset, our goal was to refinance our previously existing bank debt into a lower cost fixed rate instrument.
Speaker Change: And to amend our bank facilities, so that they better support our business model and future growth.
Speaker Change: With that here are some of the details.
Speaker Change: First our convertible notes offering was complete on March one 2024, and the total offering amount, including the over allotment option was $450 million.
Speaker Change: The notes carry an interest rate of three 5%, a six year maturity and with privately negotiated capped call transactions. They are about 75% effective conversion premium of $92 98.
Speaker Change: The net proceeds from the offering and capped call transactions were used to repay all existing bank debt.
Speaker Change: Which totaled $338 million at the end of the quarter.
Speaker Change: And to repurchase $25 million of progress shares during the offering.
Anthony Folger: With our existing bank debt repaid using proceeds from the refinance, we were able to negotiate a new amended credit facility that provides a $900 million revolving line of credit. This new line expands our liquidity and provides significant flexibility as we continue executing our total growth strategy, and there are currently no revolving credit loans outstanding under this new facility. In closing, I'll reiterate these financing transactions and the $25 million in related share repurchases were completed after the end of Q1, and they'll be reflected in our balance sheet starting in the second quarter. Moving on, we ended the quarter with cash, cash equivalents, and short-term investments of $133 million and total debt of $698 million for a net debt position of $565 million.
Speaker Change: Okay.
Speaker Change: With our existing bank debt repaid using proceeds from the convert we were able to negotiate a new amended credit facility that provides a $900 million revolving line of credit.
Speaker Change: This new line expand our liquidity and provides significant flexibility as we continue executing our total growth strategy.
Speaker Change: And there are currently no revolving credit loans outstanding under this new facility.
In closing I'll reiterate these financing transactions and the $25 million in related share repurchases were completed after the end of Q1.
Speaker Change: And there'll be reflected in our balance sheet, starting in the second quarter.
Speaker Change: Moving on we ended up the quarter with cash cash equivalents and short term investments of $133 million and total debt of $698 million for a net debt position of $565 million.
Anthony Folger: This represents net leverage of two times using our trailing 12-month adjusted EBITDA. Our DSO for the quarter was 50 days, an improvement of 12 days when compared to last quarter. Adjusted free cash flow was $72 million for the quarter, an increase of $25 million compared to the prior year.
Speaker Change: This represents net leverage of two times using our trailing 12 month adjusted EBITDA.
Speaker Change: Our DSO for the quarter was 50 days, an improvement of 12 days when compared to last quarter.
Speaker Change: And adjusted free cash flow was $72 million for the quarter.
Speaker Change: An increase of $25 million compared to the prior year quarter.
Anthony Folger: As we discussed on our last call, the increase in free cash flow was aided by the timing of billings in Q4, and was also driven by stronger-than-expected Q1 collections and operating. During the first quarter, we also repurchased $23 million of Progress stock, and at the end of the quarter, we had $171 million remaining under our current share repurchase authorization. Now, turning to our outlook for Q2 and the full year 2024 When considering our outlook for Q2, it's important to reiterate the point I made earlier about the revenue impact of multi-year contract renewals and how their timing can impact our revenue in any given quarter, skewing results higher or lower. Despite this potential for volatility in quarterly revenue, We would expect ARR to be a good reflection of our fundamental top line performance.
Speaker Change: As we discussed on our last call the increase in free cash flow was aided by the timing of billings in Q4.
And was also driven by stronger than expected Q1 collections and operating performance.
Speaker Change: During the first quarter, we also repurchased $23 million of progress stock and at the end of the quarter, we had $171 million remaining under our current share repurchase authorization.
Speaker Change: Okay now turning to our outlook for Q2 and the full year 2024.
Speaker Change: When considering our outlook for Q2 it is important to reiterate the point I made earlier about the revenue impact of multi year contract renewals and how theyre timing can impact our revenue in any given quarter skewing results higher or lower.
Speaker Change: Despite this potential for volatility in quarterly revenue.
Speaker Change: We would expect <unk> to be a good reflection of our fundamental topline performance and as mentioned on our last call. We expect <unk> to grow slightly in 2024.
Anthony Folger: And as mentioned on our last call, we expect ARR to grow slightly in 2024. With that, for the second quarter of 2024, we expect revenue between 166 and 170 million, and earnings per share of between 93 and 97 cents. For the full year, we continue to see strength in the demand environment for our solutions. And we're also aware that the macro environment may become more challenging. As such, for the full year 2024, we expect revenue between $722 and $732 million, consistent with our prior guidance, an operating margin of between 39 and 40%, generally consistent with our prior guidance. Adjusted free cash flow between $205 and $215 million, an increase of $3 million compared to our prior guidance, and earnings per share of between $4.65 and $4.75, an increase of seven cents compared to our prior guide, our annual EPS, contemplates a tax rate of approximately 20%, approximately 44.6 million shares outstanding and the impact of 30 million in additional share repurchase, bringing our total share repurchase expectation to $78 million for 2024.
Speaker Change: With that for the second quarter of 2024, we expect revenue between 166 and $170 million.
And earnings per share of between 93 and 97.
Speaker Change: For the full year, we continue to see strength in the demand environment for our solutions and we're also aware that the macro environment may become more challenging as such for the full year 2024, we expect revenue between 722% and $732 million consistent with our prior guidance.
Speaker Change: And operating margin of between 39% and 40% <unk>.
Speaker Change: Generally consistent with our prior guidance adjusted.
Speaker Change: Adjusted free cash flow between 205, and $215 million, an increase of $3 million compared to our prior guidance.
Speaker Change: And earnings per share of between $4 65, and $4 75.
Speaker Change: An increase of seven <unk> compared to our prior guidance.
Speaker Change: Our annual EPS.
Speaker Change: Estimated contemplates a tax rate of approximately 20%.
Speaker Change: Approximately $44 6 million shares outstanding and the impact of 30 million in additional share repurchases, bringing our total share repurchase expectation to $78 million for 2024.
Operator: In closing, we're excited to deliver strong financial results across the board in the first quarter, a continuation of the trend we saw for all of 2023. We're thrilled with the refinancing of our bank facilities and believe we're very well positioned to deliver strong results for the remainder of 2024 and beyond. With that, I'd like to open the call for Q&A. 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, please press star 11 again.
Speaker Change: In closing, we're excited to deliver strong financial results across the board in the first quarter a continuation of the trend we saw for all of 2023.
Speaker Change: We're thrilled with the refinancing of our bank facilities and believe we're very well positioned to deliver strong results for the remainder of 2024 and beyond.
Speaker Change: With that I'd like to open the call for Q&A.
Speaker Change: Thank you as a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again due to time Mr. <unk>. We ask that you. Please limit yourself to one question and one follow up question. Please standby, while we compile the Q&A roster.
Raymond Michael McDonough: Due to time constraints, we ask that you please limit yourself to one question and one follow-up question. Please stand by while we compile the Q&A roster. And our first question will come from the line of Ray McDonough with Guggenheim Securities. Your line is open. Great, thanks. Yogesh, maybe for you, MariaDB is obviously based on open source technology. And throughout history, there are very few examples of companies that were successful in scaling businesses supporting open source technologies. Why is MariaDB different in progress control?
And our first question will come from the line of Ryan Macdonald with Guggenheim Securities. Your line is open.
Ryan Macdonald: Great. Thanks.
Ryan Macdonald: You guys maybe for you Maria DB is obviously based on open source technology and throughout history. There's very few examples of companies that were successful in scaling businesses supporting open source technologies.
Ryan Macdonald: This is Maria DB different in progress is control and how confident are you that you can ramp margins when I just look at the filings that they have there. It seems like they are burning a good amount of cash right now so I just wanted to understand kind of what.
Yogesh K. Gupta: And how confident are you that you can ramp margins? When I just look at the filings that they have there, it seems like they're burning a good amount of cash right now. So just want to understand kind of what you're seeing in that business in terms of your ability to drive success and drive free cash flow. Sure, Ray. Thank you.
What youre seeing in that business in terms of your ability to drive success and drive free cash flow generation.
Perhaps the short rate. Thank you. So two things first of all we do have chef, which is also an open source product.
Yogesh K. Gupta: First of all, you know, we do have Chef, which is also an open source product. And we have demonstrated that we can do well with a business like Chef, both from the perspective of customer retention or growth, margin expansion, and so on. So we have an example of an open source company that we have done this before with. With respect to MariaDB, a couple of points. You know, their last year's financials actually do not reflect some of the restructuring that they announced at the very end of last year. So they have done a significant restructuring. I think they publicly announced that they were eliminating at least 28% of their employee headcount. They have also talked about the fact that they have exited two very, very small but highly unprofitable businesses. And they also have, to be honest, public company costs that way. If you can imagine a 50-some million-dollar revenue company dealing with a full public company expensive structure, which is further opportunity for us.
And we have demonstrated that we can.
Ryan Macdonald: Do well with a business like chef.
Ryan Macdonald: From the perspective of customer retention and growth.
Margin expansion and so on so we have an example of an open source company that we have done this before with <unk>.
Ryan Macdonald: With respect to Maria DB, a couple of points there last year's financials actually do not reflect some of the restructuring that they announced at the very end of last year.
Ryan Macdonald: So they have done a significant.
Ryan Macdonald: Restructuring I think they publicly announced that they were eliminating at least 28% of their.
Ryan Macdonald: Employee head count.
Ryan Macdonald: We have.
Ryan Macdonald: Also talked about the fact that they have.
Ryan Macdonald: Exhibit two very very small, but highly unprofitable businesses.
Ryan Macdonald: And they also have to be honest public company costs that spread if you cannot imagine a 50 something million dollar revenue company dealing with a.
Ryan Macdonald: Full of public company expenses structure, which is further opportunity for us.
Anthony Folger: We believe that we have a tremendous opportunity here to create truly significant, meaningful value for our shareholders. That makes sense. And then maybe just a follow up for Anthony, you know, in your comments around guidance, you mentioned, you're aware of the macro might become more challenging as we move forward. I'm just wondering, one, is there anything behind those comments in terms of what you're seeing out of your customer base in any sort of product category? And two, maybe just kind of help us understand what level of prudence you're putting in the guidance here. And, you know, what could go wrong and what could go right, or what could be better in the macro and what that would mean in terms of achieving your high end of your goal.
Ryan Macdonald: We believe that we have tremendous opportunity here.
Ryan Macdonald: To create truly significant meaningful value for our shareholders.
Speaker Change: That makes sense and then maybe just a follow up for Anthony.
Speaker Change: And your comments around guidance you mentioned you are aware the macro might become more challenging as we move forward I'm just wondering.
Anthony Folger: Is there anything behind those comments in terms of what Youre seeing out of your customer base.
Anthony Folger: Any sort of product category and to maybe just kind of help us understand what level of prudence youre, putting in the guidance here.
Anthony Folger: What could go wrong, and what could go right or what could be better than the macro and what that would mean in terms of achieving your high end of your guidance.
Anthony Folger: Yeah, sure. I think, you know, we continue to see inflation still running through from a cost perspective, right? And so I think that was probably the point that we were making is that, you know, that's still a bit of a challenge for us.
Speaker Change: Yes, sure I think.
Speaker Change: We continue to see inflation still running through from a cost perspective right.
Speaker Change: So I think that was probably.
Speaker Change: Probably the point that we were making is that that's.
Yogesh K. Gupta: And compared to a lot of companies out there, I think we're pretty good at managing costs and being forward-looking in terms of, you know, how our cost profile is going to develop. And I think it's just a nod to the fact that we're going to have to continue with that because, you know, we still see some of the same inflationary pressures in the market and in our business. And, you know, we'll continue to stay disciplined in managing that and managing our margins. And to sort of just add a bit, I think from a demand side, we are not seeing, you know, to be honest, anything different; we continue to see steady, solid demand across the board. Great, thanks for taking the question. Thank you. Please take a moment for our next question. And that will come from the line of Fatima Boolani with Citi. Your line is open. Hi, good afternoon.
Speaker Change: Still a bit of a challenge for us and for a lot of companies out there I think we're pretty good at managing costs and.
Speaker Change: And being forward looking in terms of.
Speaker Change: Our cost profile is going to develop.
Speaker Change: And I think it's just a nod to the fact that we're going to have to continue with that because we still see some of the same inflationary pressures in the market and in our business.
Speaker Change: And we will continue to stay disciplined in managing that and managing our margins.
Speaker Change: And to sort of just to add a bit I think from a demand side, we are not seeing to be honest.
Speaker Change: Anything differently, we continue to see steady solid demand across the portfolio.
Speaker Change: Great. Thanks for taking my questions.
Speaker Change: Thank you one moment for our next question.
Speaker Change: And that will come from the line of Fatima <unk> with Citi. Your line is open.
Fatima Aslam Boolani: Thank you for taking my questions. Yogesh, I have one for you to start and a follow-up question for Anthony. Over the course of last year, you know, one of the themes that we discussed was this opportunity for MarkLogic to enjoy some cross-sell synergies with your very sticky, very large open edge install base. I'm curious, with now a full year under your belt and having been very conservative or having been very conservative, conservative rather, on your ability and expectations to kind of cross-sell or cross-pollinate into those bases. I'm curious if you're going to take any deliberate or material steps to actually derive that behavior this year. So, you know, Fatima, our efforts around cross-sell are modest because, as you know, our efforts around go-to-market are, in general, modest, right?
Fatima: Hi, good afternoon. Thank you for taking my questions.
Fatima: Gotcha.
Fatima: To start in the follow up.
Fatima: Over the course of last year again, I wanted to themes that.
Fatima: We had discussed with this opportunities for Mark logic to enjoy some cross sell synergy with your <unk>.
Fatima: Very sticky very large open edge install base I'm curious with now a full year under your belt and having been very conservatism.
Fatima: Having been very concerned at conservative rather on your ability and expectation to kind of cross sell or cross pollinate into those spaces.
Fatima: Curious if youre going to take any.
Fatima: Deliberate or material steps to actually derive that.
Behavior. This year and then just a follow up for Anthony.
Speaker Change: Yes so.
Speaker Change: Talking about our.
Anthony Folger: Our efforts around cross sell.
Anthony Folger: Our modest because as you know our efforts around go to market or in general what modest means.
Fatima Aslam Boolani: I mean, one of the things that, you know, the trade-off that we make is the trade-off between what happens to the spend on go-to-market efforts and what we deliver in terms of our margins. Fundamentally, you know, we continue to do what I would call targeted efforts around cross-sell, but we have always modeled every single one of our acquisitions with, to be honest, right, and we've said this publicly, no cross-sell is modeled in our modeling. You know, we think of these businesses as having to stand alone to deliver value for our shareholders, and if we can actually do some cross-sell, then that's an upside. So, you know, from our perspective, Fatima, I don't see, to be honest, any real meaningful cross-sell that sort of moves the top line needle in a meaningful way.
Speaker Change: One of the things that.
Speaker Change: The trade off that we make is the trade off between what happens on the spend on go to market efforts and what we deliver in terms of our margins. So I think fundamentally.
Speaker Change: We continue to do what I would call targeted efforts around cross sell but we have always modeled every single one of our acquisitions.
Speaker Change: To be honest I think we've said this publicly no cross sell is modeled in our modeling.
Speaker Change: We think of these businesses as having to standalone to deliver value for our shareholders and if we can actually do some cross sell.
Speaker Change: That's upside.
Speaker Change: So from our perspective.
Speaker Change: Don't seem to be honest any real meaningful.
Speaker Change: Our cross sell that sort of moves the topline needle in a meaningful way.
Yogesh K. Gupta: We will continue to do some cross-selling. We are doing cross-selling, and it's not just actually cross-selling MarkLogic into OpenEdge. It's even cross-selling other products into the MarkLogic customer base. So, you know, whether it is our Chef product for managing those environments and the deployment and DevOps for those environments, or whether it is something like Sitefinity and other digital experience products that end up front-ending a MarkLogic application.
Speaker Change: We will continue to do some cross sell we are doing cross selling not just actually cross selling monologic into open edge, it's even cross selling other products into the market logic customer base. So.
Speaker Change: Whether it is our.
Speaker Change: Our chef product for managing those environments.
Speaker Change: Alignment and Dev ops for those environments, whether it is.
Speaker Change: Like I say infinity and all other digital experience products that end up front, ending a mark logic application.
Yogesh K. Gupta: So, we see opportunities there as well as opportunities with, you know, MarkLogic going into the OpenEdge customer base. But really, again, I keep saying this, and, you know, I guess I repeat myself over and over, we really don't see a meaningful impact from that on our business. I appreciate that, Yogesh.
Speaker Change: So we see opportunities there as well as we see opportunities with Mark logic going into open its customer base, but really again.
Speaker Change: I keep saying this.
Speaker Change: I guess I repeat myself over and over we really don't see a meaningful impact.
Speaker Change: That on our business.
Fatima Aslam Boolani: And Anthony, for you, on the net retention rate at 99% now, just a nitpick, that is a shade below your internal threshold at 100%. So any nuances you can offer to us on why that stepped down? You've been pretty consistently at the 100, 100-ish level, 100-ish percent.
Okay.
I appreciate that.
Speaker Change: And Anthony for you on the net retention rate at 99% now just to nitpick that is a shade below your internal thresholds at 100%. So any nuances you can offer us on why that step down now you've been pretty consistently at 100 100 ish level.
Anthony Folger: So just wanted to get maybe some additional context around that site compression this quarter. Thank you. Yeah, sure, Fatima.
Anthony Folger: So just wanted to get maybe some additional context around that.
Anthony Folger: Like compression this quarter. Thank you.
Anthony Folger: The I would say compression because we measure our net retention rates on a trailing 12-month basis. You sort of have to look back over that trailing 12-month period and figure out the ins and outs. And we mentioned in Q4 that we had a couple of contracts churned out. One of them was due to M&A, frankly, where we ended up losing a customer. And that impacted us in Q4, bringing the net retention rate down a little bit. And that contract is still in the denominator of our calculation. You know, it'll be there for a couple more quarters.
Anthony Folger: Yes sure for Tina.
Anthony Folger: I would say that compression because we measure our net retention rates on a trailing 12 month basis.
Anthony Folger: You sort of have to look back over that trailing 12 month period and figure out the ins and outs and we mentioned in Q4 that we had a couple of contracts churn out.
Anthony Folger: One of them was due to M&A, frankly, where we ended up losing a customer and that impacted us in Q4 brought the net retention rate down a little bit and that contract is still in the denominator of our calculation.
Anthony Folger: So we're not surprised to see things at 100 percent or 99 percent for a little bit. Certainly, it doesn't change our long-term outlook from a net retention and a target perspective of being 100 or better. Thank you so much.
Anthony Folger: It'll be there for a couple more quarters. So we're not surprised to see things at 100% or 99% for a little bit.
Anthony Folger: Certainly doesn't change our long term outlook from our net retention in a target perspective of being a 100 or better.
Anthony Folger: Okay.
Speaker Change: Thank you so much.
Brent John Thill: Thank you. One moment for our next question, and that will come from the line of Brent Thill with Jefferies. Your line is open.
Speaker Change: Okay.
Speaker Change: Thank you one moment for our next question.
Speaker Change: And that will come from the line of Brent Thill with Jefferies. Your line is open.
Antonio Venturim: Hi guys. Thanks for taking the question. This is Antonio Venturimon speaking for Brent Thill.
Brent John Thill: Hey, guys. Thanks for taking the question. This is Antonio of a term loan for for Brookdale.
Antonio Venturim: Looks like you guys had an overall strong quarter on the top and bottom line. Can you just give us your puts and takes on the delta between ARR growth sort of being flat to slightly up versus revenue growth growing, you know, double digits? If you could just give us some takes on that, that would be great.
Brent John Thill: Like you guys had an overall strong quarter top and bottom line can you just give us your puts and takes on the delta between <unk>.
Brent John Thill: Our growth sort of being flat to slightly up versus revenue growth growing enough.
Brent John Thill: Yes double digits. If you could just give us puts and takes on that that'd be great.
Anthony Folger: Yeah, sure. Sure, Antonio. I can, I can take that. So for the quarter, MarkLogic, if you sort of take a look at the year over year, we only got a month's contribution from MarkLogic last year, and we got a full quarter this year. So that drove, you know, the vast majority of our growth. But you know, there was an offset to that, right?
Brent John Thill: Yeah sure sure Antonio I can I can take that so for the quarter Mark logic, if you sort of take a look at the year over year, we only got a month contribution from Mark logic last year, and we get a full quarter. This year so that drove.
Brent John Thill: The vast majority of our growth.
Anthony Folger: We did have some multi-year subscription contracts that executed last year, and they renewed last year. We didn't have the same opportunity this year in the quarter. So when you're looking at revenue on a year over year basis, I think that the right way to reconcile it is you've got, you know, some growth from MarkLogic. It gets offset a little bit by the timing of contract renewals. Some of those subscription deals.
Speaker Change: But there was an offset to that right. We did have some multiyear subscription contracts that executed last year. They renewed last year. We didn't have the same opportunity this year in the quarter.
Speaker Change: So when youre looking at revenue on a year over year basis, I think the right way to reconcile it is you've got some growth from Mark logic.
Speaker Change: It gets offset a little bit by.
Speaker Change: The timing of contract renewals some of those subscription deals and.
Anthony Folger: And so, you know, you can still sort of reconcile down to low single-digit growth on revenue, but ARR just ends up being, I think, a more accurate, more accurate reflection this quarter of what's going on in the business fundamentally. And, you know, what's interesting is that, you know, when you look at ARR year over year, last year, the full, you know, pro forma ARR of Martalogist was included in last year's results. So when you think about it that way, right, when we compare ARR, we include acquisition prior ARR as though it was part of our business. So the growth in ARR is really sort of the real growth of the business, on the real trajectory of the business, whereas, you know, until you have a full 12-month cycle, the actual reported revenue looks significantly higher because MarkLogic is adding to this quarter for a full quarter, whereas last year, as Anthony said, was just about a month.
Speaker Change: So you can still sort of reconcile down to low single digit growth on the revenue, but just ends up being I think a more accurate.
Speaker Change: More accurate reflection this quarter of what's going on in the in the business fundamentally.
Speaker Change: And what's interesting is that when you look at the out on a year over year last year the full.
Speaker Change: Forma IRR of Mark largest was included in last year's results. So when you think about it that way right. When we compare <unk>. We include acquisition prior <unk> as though it was part of our business. So the <unk> is really sort of the real growth of the business.
Speaker Change: Although real trajectory of the business where it is.
Speaker Change: Until you have a full 12 month cycle. The actual reported revenue look significantly higher because mark logic is adding to this quarter for the whole quarter.
Speaker Change: Quarter, whereas last year as Anthony said was just about a month.
Antonio Venturim: Awesome. Thanks for taking the questions. Congratulations on the quarter.
Speaker Change: Awesome. Thanks for taking the question congrats on the quarter.
Pinjalim Bora: Thanks. Thank you. As a reminder, if you would like to ask a question, please press star 1 1. One moment for our next question, and that will come from the line of Pinjalim Bora with J.P. Morgan. Your line is open.
Speaker Change: Okay.
Speaker Change: Thanks.
Speaker Change: Thank you as a reminder, if you would like to ask a question. Please press Star 111 moment, our next question.
Pinjalim Bora: And that will come from the line of pendulum Bora with Jpmorgan. Your line is now open.
Yogesh K. Gupta: Oh, great. Thanks for taking the questions. I want to ask you about MarkLogic. I heard you threw out the word RAG along with MarkLogic. I know it's a document database, but can you remind us what MarkLogic has developed so far from a RAG standpoint? Have they created a VectorDB store? Is there a search layer in there?
Pinjalim Bora: Oh, great. Thanks for taking the questions.
Pinjalim Bora: I wanted to ask you on <unk>.
Pinjalim Bora: <unk> I heard.
Throughout the word drag.
Pinjalim Bora: Along with Marc Jacobs, and it's a document database, but can you remind us what has mark logic developed so far from a Reg standpoint have they created a vector <unk> store is there a search layer in there maybe help us understand that absolutely.
Yogesh K. Gupta: Maybe that will help us understand that. Absolutely not. Are you seeing customers look at that more seriously for their RAG use cases? Great question, Pinjalim! So what we have done, so if you think about mock logic, of course, is really unstructured data, but semaphore on top of that, right, is the semantic analysis of that information. And so the question becomes, you know, when you get information out of an LLM, how do you contextualize it? So, yes, we have actually created capabilities, and we have, I don't want to say customers in production, but we have customers who are looking to figure out how to use them to actually leverage their content and their data using both MockLogic and Semaphore on top of their information and then augmenting any retrieval that they do through LLMs of any generated content, right? So you get the LLM will do its thing, you know, basically, they augment the generation with information from MarkLogic slash Semaphore and therefore provide more contextual answers.
Pinjalim Bora: Are you seeing customers look at that more.
Pinjalim Bora: Seriously.
Pinjalim Bora: For their use cases.
Speaker Change: Yes, great question pendulum. So what we have done. So if you think about mark logic of courses is really unstructured data and but semaphore on top of that right is the semantic analysis of that information and so the question becomes when you get <unk>.
Speaker Change: Information out of an LLM, how do you contextualize. It. So yes, we have actually created capabilities we have.
Speaker Change: I don't want say customers in production, but we have customers who are looking to figure out how to use it to.
Speaker Change: Two to actually leverage.
Speaker Change: Their content and their data.
Speaker Change: Using both <unk> and <unk> on top off.
Speaker Change: That information and then augmenting any.
Speaker Change: Any receivable that they do through llm's of any generative.
Speaker Change: Content until you get the LLM will do its thing basically the augment.
Speaker Change: The generation with information from <unk>.
Yogesh K. Gupta: I wish we could get to the point where we have production customers we can talk about. Interesting. Yeah, thank you. Thank you for that, Yogesh. One for Anthony.
And therefore provide more contextual answers I wish him well.
Speaker Change: We get to the point, where we have production customers and we can talk about it.
Speaker Change: Interesting. Thank you thank you for that.
Pinjalim Bora: I hear you on the comment that you made about the kind of customer turn you had. Transcripts provided by Transcription Outsourcing, LLC. But when I see the sequential decline in ARR, it seems like it's a little bit more than maybe a year ago even. I just want to make sure that there is no incremental gross dollar. Sure, Pinjalim.
Anthony Folger: One for Anthony.
Speaker Change: I hear you on the comment that you made about.
Anthony Folger: The customer churn you had a couple of customer.
Anthony Folger: Churn last quarter, and that's kind of impacting NRI.
Anthony Folger: When I see the sequential decline in the IRR seems like it's a little bit more.
Speaker Change: And then maybe a year ago or even maybe last quarter just wanted to make sure that there is no incremental gross dollar churn that youre seeing at this point. Thank you.
Anthony Folger: Yeah, I would say that the trends for us have been generally consistent. We do see sort of a seasonal move in ARR because we're a software company where contracts can lapse. We've generally seen a step down from Q4 to Q1. It's not uncommon for us in terms of ARR. And so we saw that again this quarter, although I think it may be slightly higher than what it was last year.
Speaker Change: Yes, sure pendulum, yes, I would say that the trends for us have been generally consistent we do see sort of a seasonal move in <unk>, because we're a software.
Pendulum: Company, where contracts can lapse.
Pendulum: We've generally seen a step down from Q4 to Q1, it's not a not uncommon for us in terms of IRR and so we saw that again this quarter I think.
Pendulum: It may be slightly higher than what it was last year, but from our perspective in terms of what comes back into the tail in Q2 and.
Anthony Folger: But from our perspective, in terms of what comes back into the till in Q2, and just trends in the business, I don't see it as anything meaningful in terms of incremental turn in the. Thank you. I'm showing no further questions in the queue at this time. I would now like to turn the call back over to Mr. Yogesh Gupta for any closing remarks. Well, thank you everyone for joining our call, and we look forward to speaking with you again in a quarter. Thank you. Bye bye. Thank you all for participating. This concludes today's program. You may now disconnect.
Pendulum: And just trends in the business I don't see it as anything meaningful in terms of incremental churn in the quarter.
Speaker Change: Got it thank you.
Speaker Change: Thank you I'm showing no further questions in the queue. At this time I would now like to turn the call back over to Mr. Yogesh Gupta for any closing remarks.
Well. Thank you everyone for joining our call and we look forward to speaking with you again in a quarter. Thank you bye bye.
Speaker Change: Thank you all for participating. This concludes today's program you may now disconnect.
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