Q3 2024 Progress Software Corp Earnings Call
Okay.
Speaker Change: Good day and welcome to the progress Software Corporation Q3, 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.
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 race to withdraw your 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 <unk>.
Speaker Change: Senior Vice President Investor Relations. Please go ahead Sir.
Okay. Thank you sure its always a always a pleasure having you with US good afternoon, everybody. Thanks for joining us for progress Software's third quarter 2000, and for 2024 financial results Conference call on the line with me today.
Speaker Change: Yogesh Gupta, President and CEO, and Anthony Folger, our Chief Financial Officer before.
Speaker Change: 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. Our proposed acquisition of share file, which we announced on September 9th and other information that might be considered forward looking such forward looking information.
Speaker Change: <unk> represents progress software's outlook and guidance.
Speaker Change: 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.
Speaker Change: And Exchange Commission.
Speaker Change: Software assumes no obligation to update forward looking statements included in this call. Additionally, please note that all the financial figures referenced on this call are non-GAAP measures unless otherwise indicated you can find a reconciliation of these non-GAAP financial measures to.
Speaker Change: To the most directly comparable GAAP figures figures in our financial results press release, which was issued after the market closed today.
Speaker Change: This document contains additional information related to our financial results for the third quarter of fiscal year 2024, and I recommend that you reference it for specific details. We also have prepared a presentation that contains supplemental data for our third quarter 2024 results provides highlights and additional financial.
Speaker Change: Both the earnings release, and the supplemental presentation, along with a copy of our press release and a supplemental slide presentation announcing the share file acquisition on September 19, 2024 are all available in the Investor Relations section of our website at investors Dock progress Dot Com today's call will be recorded in its entirety.
Speaker Change: And should be available for replay on the Investor Relations section of our web site. Shortly after we finish with that let me turn it over to Yogesh.
Yogesh Gupta: Thank you Mike Good afternoon, everyone and thank you for joining us as we share the results of our third fiscal quarter.
Yogesh Gupta: The last few months have been busy and exciting and I'm glad to be here. This afternoon to talk about all the great things happening here at progress right now.
Speaker Change: To begin with let's talk about the third quarter.
Speaker Change: Head of the high end of our items on both the top and bottom lines.
Speaker Change: Revenue grew by 2% year over year to $179 million and EPS grew 17% year over year, reflecting continued expense management.
Speaker Change: We ended the quarter with $582 million in are up sequentially, 1% and.
Speaker Change: And net retention rate held steady at 99% as some churn from late last year, which were previously discussed.
The trailing 12 month calculation.
Speaker Change: We generated excellent cash flows with DSO at 45 days and our balance sheet remains healthy and strong ending the quarter with over $230 million in cash.
Speaker Change: So on just about every metric we had a strong quarter.
Speaker Change: I'm very pleased with our Q3 results and Anthony will provide more details on our financial metrics and dynamics in his remarks.
Speaker Change: And another important news during the third quarter, the SEC notified us that it has concluded its investigation into the move it vulnerability with no enforcement action recommended.
Speaker Change: This news from the SEC in August was an addition to clearance decisions by data privacy regulators in the UK.
Speaker Change: Australia, and Spain over the past year.
Speaker Change: We view all of these decisions as positive indicators of how we've handled.
Speaker Change: The move is vulnerable.
Speaker Change: From our rapid initial response and reporting transparency.
Speaker Change: There are four slides cooperation with all regulatory inquiries and investigation.
Speaker Change: The third piece of exciting news, which we announced two weeks ago is our signing of the agreement to acquire Shaffer.
Which is the latest step in our total growth strategy and our largest acquisition yet.
Speaker Change: We intend to make an all cash purchase of share filed four $875 million.
Speaker Change: And expect to close the transaction before the end of fiscal 2024 subject to regulatory approvals and customary closing conditions.
Speaker Change: Immediately after closing we will begin the integration process and we look forward to welcoming the <unk> team to progress.
Speaker Change: We expect full integration to be completed within 12 months.
Speaker Change: I'm really excited about this acquisition and let me share some of the reasons why.
Speaker Change: Sure filed which we're acquiring from cloud software group is a leading provider of collaboration software for document centric use cases.
Speaker Change: It is a modern SaaS native platform with AI powered documented document centric collaboration and automated workflows.
Speaker Change: Client portals.
Speaker Change: Secure file sync and share and E signature capabilities.
Any company, whose business workflows, our document centric and compliance heavy.
Speaker Change: We have several internal and external parties collaborate on documents and.
Speaker Change: Require various levels of editing and approval to a secure auditable solution can benefit from using share file.
Speaker Change: This is why share finally, with complement and fitting perfectly with our existing digital experience offerings and will enable us to offer greater value to users.
Speaker Change: Sapphire is 86000 strong customer base is large and loyal and Spence industries, such as accounting financial and legal services healthcare construction and real estate.
100% of its revenue is recurring with a net retention rate of over 100%.
Speaker Change: Integration with our existing digital experience sales go to market engineering support and operating infrastructure will provide us a clear path to our operating margin target for the acquired business of 40%.
Speaker Change: When the deal closes we expect <unk> to add over $240 million in both the annual revenue and <unk>, which will bring our total annual revenue to nearly $1 billion and our IRR well over $800 million.
Speaker Change: In terms of financing deal.
Speaker Change: We will use a combination of cash on hand, and our existing revolving credit facilities.
Speaker Change: We expect pro forma net leverage to be around three six.
Speaker Change: At the time of closing.
We intend to Delever quickly.
Speaker Change: We have with our prior acquisitions.
Speaker Change: Speaking of Delevering, let me spend a few minutes on why we also announced our intention to suspend our quarterly cash dividend once the deal closes.
Speaker Change: Okay.
Speaker Change: This decision was made with significant deliberations as part of our total growth strategy. So it's worth examining our commitment to executing our plan and a little more detail.
Speaker Change: Our goal with the total growth strategy is to make progress more valuable, while making us stronger and larger.
Speaker Change: Our goal is to provide more value to our customers and create more value for our shareholders.
Speaker Change: I am extremely enthusiastic and passionate about our technology and our products and how they help our customers succeed implied in this ever changing technology driven world.
Speaker Change: Our fanatical focus on customer success is one of the key pillars of our strategy.
Speaker Change: <unk> is our commitment to investing in and innovating our products to grow and adapt to the needs of our customers.
Speaker Change: Updating and modernizing our offerings is essential for the continued success of our customers and for retaining them well into the future.
Speaker Change: This strong foundation of Great technology and sustained customer success are the bedrock of our business and the reason why all products generate significant free cash flow.
Speaker Change: That and that free cash flow in turn needs to be guided by our prudent capital allocation policy.
Speaker Change: Continued driving the success of our total growth strategy.
Speaker Change: We've always place the highest priority on M&A.
Speaker Change: Claude by share buybacks.
Speaker Change: So our game plan for growing shareholder value as simple.
Speaker Change: First.
Speaker Change: <unk> greater revenues earnings and cash flows.
Speaker Change: By acquiring highly accretive businesses.
Speaker Change: With characteristics similar to ours.
Speaker Change: As with excellent products and loyal customer bases.
Speaker Change: Second pay the right price integrate them quickly and efficiently, while focusing on customer success and retention.
Speaker Change: And finally.
Speaker Change: Aggressively reduce leverage to prime our liquidity for the next deal.
Speaker Change: In the meantime, we minimize dilution and return capital to shareholders in the form of well timed buybacks.
Speaker Change: When it comes to executing on M&A, we will continue to remain disciplined and patient as we search for new opportunities and then act decisively.
Speaker Change: Oftentimes as you've seen acting decisively means walking away from a potential acquisition that we don't think will work.
Speaker Change: We are far more willing to say no then yes, when it comes to finding the right fit and paying the right price.
Speaker Change: And we're very comfortable walking away because in the absence of an acquisition, we focus on continuously improving our processes and systems.
Speaker Change: We put great effort in upgrading and optimizing our internal technology and business practices.
Speaker Change: To continue to make us more integration ready and efficient.
Speaker Change: And of course.
Speaker Change: We're always trying to incorporate the lessons learned from any mistakes we mix.
Speaker Change: Just as important we keep progress a great place to work for our employees.
Speaker Change: Our voluntary turnover remains well below that of the overall software industry.
And has hovered around 6% over the past two years.
Speaker Change: Keeping a talented stable workforce is essential to the effective execution of our total growth strategy.
Speaker Change: Innovation and customer success to acquisition and integration.
Speaker Change: Our front office and back office teams, all get better with each deal and its subsequent integration.
Speaker Change: I feel proud of the fact, we have continued to mature and grow our ability to execute on our strategy and create more value for our customers our shareholders and of course our employees.
Speaker Change: So to wrap up the third quarter was excellent on several fronts.
Speaker Change: We had another great performance on the top and bottom lines.
Speaker Change: We received more good news about move it.
And we're getting ready to close on a meaningful acquisition that will provide us with recurring revenues at scale.
Speaker Change: As always I want to acknowledge all the people on the progress team who worked hard to produce these great results.
Speaker Change: Their work is extraordinary and I am grateful for their talent dedication and desire to succeed.
Speaker Change: Now, let me turn it over to Anthony to provide more financial detail around our third quarter.
Anthony.
Great. Thanks, Yogesh and good afternoon, everyone. Thanks for joining our call.
Anthony Folger: As Yogesh mentioned, we're very pleased with our third quarter results, which once again exceeded the high end of our previously issued guidance ranges.
Speaker Change: We're also thrilled that on September nine we announced the signing of a definitive agreement to acquire share file from cloud software group.
Speaker Change: I'll talk more about share file and the acquisition in a bit but first let's get into the numbers.
Speaker Change: Starting with IRR, which came in at $582 million and represented slight growth on a year over year basis, and approximately 1% sequential growth over the second quarter.
Speaker Change: Although no single product drove material growth in our total IRR.
Speaker Change: The increase that we delivered was the result of modest growth in multiple products across our portfolio, including open edge Dev tools site Trinity Loadmaster flow <unk> and.
Speaker Change: And move it.
Speaker Change: We also had another strong quarter for net retention with our Q3 rates coming in at 99%.
Speaker Change: In addition to our solid performance in the quarter quarterly revenue of $179 million slightly exceeded the high end of the Q3 guidance range. We provided in June.
Speaker Change: And represents approximately 2% year over year growth.
Speaker Change: Our strong revenue performance in the quarter was driven by stronger than expected demand for multiple products in our portfolio, including open edge.
Speaker Change: Turning now to expenses, our total costs and operating expenses were $105 million for the quarter.
Speaker Change: A decrease of $3 million compared to Q3 of last year.
Speaker Change: This year over year decrease was driven by two factors first.
Speaker Change: First is tight cost management across the business as our teams again executed well during the quarter.
Speaker Change: Second is the timing of certain expenses between the third and fourth quarters.
Speaker Change: Operating income for the quarter was $74 million, an increase of $6 million compared to the same quarter last year with an operating margin of 41%.
Speaker Change: Up 200 basis points year over year.
Speaker Change: Earnings per share for the quarter were $1 26.
Speaker Change: <unk> 11 above the high end of our guidance range.
And compared to the prior year.
Speaker Change: Earnings per share were up 18.
Speaker Change: Or 17%.
Speaker Change: With the increase being comprised of an improved operating margin.
Speaker Change: And lower interest coupled with higher interest income for the quarter.
Speaker Change: Both resulting from the convertible notes issuance and credit facility refinancing we completed earlier in the year.
Speaker Change: Yeah.
Speaker Change: Moving onto a few balance sheet and cash flow metrics.
We ended the quarter with cash cash equivalents and short term investments totaling $233 million and debt of $810 million, resulting in a net debt position of $577 million.
Speaker Change: This represents net leverage of approximately two times using our trailing 12 months adjusted EBITDA.
Speaker Change: DSO for the quarter was 45 days down four days compared to the year ago quarter differ.
Speaker Change: Deferred revenue was $285 million at the end of the third quarter down slightly from the second quarter, reflecting normal seasonality in our business.
Speaker Change: Adjusted free cash flow was $58 million for the quarter, an increase of $10 million or 21% from the year ago quarter.
Speaker Change: In the third quarter, we repurchased $14 million of progress stock, bringing our year to date total to $87 million.
Speaker Change: And at the end of Q3, we have $107 million remaining under our current share repurchase authorization.
Speaker Change: On September nine in conjunction with the share file announcement, we also announced our intent to suspend our quarterly cash dividend upon closing the <unk> acquisition.
We believe we can generate higher returns on capital through M&A as part of our total growth strategy and will therefore prioritized debt repayment to free up capacity for future M&A.
Speaker Change: We expect that we will continue to repurchase shares to offset dilution from our equity plans.
Speaker Change: And on occasion repurchase shares Opportunistically.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Now, let's discuss our outlook starting with share file.
Speaker Change: We expect share file to contribute approximately one month of results to our fiscal fourth quarter.
Speaker Change: With revenue of $18 million to $20 million.
Speaker Change: Operating margin of 15% to 20%.
Speaker Change: And negative adjusted free cash flow of approximately 15% to $20 million.
Speaker Change: I'd like to emphasize that the negative cash flow.
Is due to the proposed deal structure of the share file acquisition.
The acquisition is structured as an asset purchase.
Speaker Change: And share files accounts receivable at the time of closing are not included in the assets that are being acquired.
To compensate for this structural point.
Speaker Change: Progress will receive a $25 million working capital adjustment.
Speaker Change: Which will net against the $875 million purchase price at close.
Speaker Change: After our first billing cycle with share file we will begin generating cash inflows and expect share files adjusted free cash flow to be increasingly positive throughout 2025.
Speaker Change: With that context for share file in mind.
Speaker Change: For the fourth quarter of 2024, we expect revenue between $207 and $217 million and earnings per share of between $1 15, and $1 25.
Speaker Change: For the full year 2024, we expect revenue to be between $745 $755 million.
Speaker Change: And operating margin for the year of approximately 39%.
Speaker Change: Free cash flow between $195 and $205 million. This.
Speaker Change: This includes the negative contribution from share file.
Speaker Change: And earnings per share between $4 75, and.
Speaker Change: And $4 85.
Our guidance for full year, EPS assumes a tax rate of approximately 19%.
Speaker Change: And approximately 44 million shares outstanding.
Speaker Change: In closing, we're really excited to deliver another strong quarter of results and we're thrilled with the announced share file acquisition, both of which position us very well for 2025 and beyond.
Sherry: With that Sherry I'd like to open the call for Q&A.
Sherry: 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.
Speaker Change: One moment, while we compile the Q&A roster.
Speaker Change: And our first question will come from the line of John <unk> with Guggenheim. Your line is open.
Speaker Change: Thank you for taking my questions.
John <unk>: First one I think.
Speaker Change: Question for Anthony and then I think.
Speaker Change: To ask a follow up to Yogesh.
Speaker Change: Anthony really nice cash flow in the quarter and you reduce the annual guidance by $10 million, even though share file impact was negative 15% to 20.
Speaker Change: So I understood from Sri Macerate, it's easy math, but that implies excluding share file effects, you would have raised it $5 million to $10 million.
Speaker Change: The cash flow guidance and I just want to make sure is that correct and then I know you've talked about this.
Speaker Change: Talking about profit and getting getting things up to normal levels, but.
Speaker Change: And you've proven yourself in M&A you progress has.
Speaker Change: Your team has done that but.
Speaker Change: But can you go through some of the detail of why Youre confident in bringing share file profit metrics and I am really focused with free cash flow to year level to your normalized level over the next 12 months. The reason I ask on this one I know you said youre going to do that and you have done in the past, but this is a big one right and it's a little.
Speaker Change: Different regarding the core customer base relative to a lot of your other acquisitions, sorry for the long winded.
Speaker Change: No.
Speaker Change: That's great John Thank you.
John <unk>: And you're correct. The first question about free cash flow.
John <unk>: Yes, there is an implied increase to our cash flow guide for the year that gets netted down by the share file impact in Q4. So your math is correct.
Speaker Change: When it comes to our confidence in the share file integration.
Speaker Change: Youre right its a larger acquisition, but.
Speaker Change: As our business has grown.
<unk> share files about a third of our revenue.
Speaker Change: And so it's really not that far out of what we would normally targeted it feels like it's like it's manageable to us.
Speaker Change: The business already is profitable, it's running let's say between 15% and 20% operating margins.
Speaker Change: And they already have one of the things that was attractive to US is it's a cloud platform operating at scale, they've had with gross margins better than 80%.
Speaker Change: In terms of the diligence, we were able to dig into.
Speaker Change: And all of those things I think having.
Speaker Change: Already an ability to operate cloud infrastructure at scale like that to do it at a solid gross margin.
Speaker Change: And the fact that this is an asset deal and its really a carve out from cloud software group.
Speaker Change: We have a sizable dx business already digital experience business I think there's a lot of resources that we will bring to bear.
Speaker Change: I think our Dx business is used to a transactional type of heavy volume business. So there is a.
Speaker Change: An element within progress that share file looks very familiar too and I think bringing it over with really strong gross margins and very good net retention rates gives us a lot of confidence that we're going to be able to.
Speaker Change: To drive margins, where we would expect to in our model.
And to maintain a similar cash flow conversion metrics in this business.
Speaker Change: Okay. Okay. Thank you and then you'll get to that point about the digital experience business you have.
Speaker Change: Sure file a lot of exposure to the SMB similar customer base here.
Speaker Change: Great.
Speaker Change: And but.
Speaker Change: We're starting to see at least indications.
Speaker Change: In the market.
Speaker Change: A bit of a roller the smbs are really strong right in and I just.
Speaker Change: Starting to see a little bit of weakness out of that cohort in the market.
Speaker Change: Can you comment on your thoughts your thoughts regarding this and your recent experience regarding your businesses that do sell into sort of happy SMB customer base.
John <unk>: Yeah happy to John.
John <unk>: In our digital experience business right.
Pat: Also Pat.
Speaker Change: If there is a large number of customers I think it.
Speaker Change: Quite often not well known.
Pat: That we have more than 20 customers in our digital experience business ourselves. It also is a high velocity.
Pat: Small repeatable deals business.
Pat: We continue to see strength, there and we continue to see the business doing well.
Pat: John from from our perspective.
Business has been solid as the way I would.
John <unk>: I would characterize.
John <unk>: Characterize it.
Speaker Change: I know that some folks were seeing really really meaningful upside with the SMB side.
Speaker Change: We saw just a steady solid business.
Speaker Change: We are not seeing changes there in what we do.
Speaker Change: The shelf out of the business is a very interesting one.
Speaker Change: At target.
Speaker Change: Really a business user.
Speaker Change: That is using it for the core part of their business, which is collaborating with their clients and making sure the hip business functions.
Speaker Change: If you're an accountant, if you had a lawyer or if youre, a doctor or a few other.
Speaker Change: Or any other business services people that use this they are using it to exchange mission critical from their perspective business critical information, meaning secure reliable way do workflow on it.
Make sure that multiple people can work on it in a secure way to make sure that there is worsening in the ability to audit from track who did what.
Speaker Change: Many of these industries are highly regulated so it is a really stable business. The business has had a track record of stability. So.
Speaker Change: So we know that from looking at what has been shared with us.
John <unk>: So we feel we feel good if you can just that suddenly the business was doing well over the last couple of years. So we thought it was a good time to buy John So so thats that I also want to sort of add a little bit to anthonys earlier comment about operating margins.
Speaker Change: One additional point to share when you have a business. The scale that this is which is which is really nice.
Speaker Change: If you think about it right.
Speaker Change: The R&D expense.
Speaker Change: Nearly grow with scale.
Speaker Change: If I had <unk> 86.
Jeff: Jeff I had most of 86000 customers. They had 75000 customers or 60000 customers. They would still have to do the same R&D.
Jeff: So awesome as you scale up beyond a certain level.
Speaker Change: The R&D cost don't go up linearly.
Speaker Change: So that's one of the reasons why we actually feel really good about our ability to and that's just one example, but I think the scale gives you added added benefit.
Speaker Change: The only other single product we have at progress that has a similar scale as openreach.
Speaker Change: And so obviously this is a cloud offering obviously this is an offering in which we need to continue to invest quite aggressively to stay competitive. So gross margins aren't the same as an on prem product, but we are extremely comfortable with the fact that we see line of sight to that 40% operating margin target.
Speaker Change: Well you guys have done it.
Speaker Change: Every time so.
Speaker Change: Thanks, Thanks for all of this thanks.
Speaker Change: Thank you.
Thank you one moment our next question.
Speaker Change: And that will come from the line of Lucky Schreiner with D. A Davidson your line is open.
Speaker Change: Alright.
Awesome. Thanks for taking my question.
I know you guys probably don't like this question, but since you mentioned share following movement.
So I move it.
Speaker Change: Have similar customer base and some of them both use the product is there a cross sell opportunity here that you see.
Speaker Change: Any color there would be helpful.
Speaker Change: So there are.
Speaker Change: Some common customers of movement in share file Lucky.
Speaker Change: From our perspective whenever we do these.
Speaker Change: Do these transactions and look at these acquisitions.
Speaker Change: Our business model is all done based on assuming no.
Speaker Change: Cross sell because we believe that cross sell is often much much harder than it looks on the surface.
Speaker Change: We will see what happens over time.
Speaker Change: And if obviously if there is an opportunity and if we do see some traction we will share.
Speaker Change: With you transparency.
Speaker Change: But our plan at least at this point does not.
Speaker Change: Contemplate any cross sell.
Speaker Change: And it just makes it for a.
Speaker Change: To be honest, a more conservative realistic plan.
Speaker Change: So that we get to the targets, we need to get to.
Speaker Change: But the way we want it.
Yes, I appreciate that that makes sense, maybe then on any additional color you can give on the average contract length for share file and maybe what the renewal process will look like here in the future.
Speaker Change: Sorry.
Speaker Change: Your line was a little scratchy, what you're asking about average contract size.
Speaker Change: Average contract length, the duration of the contract share following and how renewals might trend here in the future.
Speaker Change: Yeah. So so they have.
Speaker Change: So they do both.
Speaker Change: The vast majority of them are annual.
Speaker Change: And Anthony please correct if I'm wrong.
They also have.
Speaker Change: Chris It's broad based auto renewals off their contracts.
Speaker Change: Dave.
Dave: Some of their billings are.
Dave: Annual some of their billings, a monkey I believe that's right.
So it is a it is a mix of lucky.
Speaker Change: As to the contract length as well as the billing cycle.
Speaker Change: But nothing is multiyear build upfront. So it is either build or maybe de minimus, yes, okay. So the minimum multiyear buildup.
Speaker Change: It isn't in terms of the kind of Lumpiness youll see year over year for our billings and our other products you won't see that here.
Speaker Change: Yes.
Speaker Change: Perfect I appreciate you taking the questions.
Mike: Oh Youre welcome Mike.
Speaker Change: Thank you as a reminder, if you have a question. Please press star one one.
Speaker Change: One moment for our next question.
Speaker Change: And that will come from the line of Brent Thill with Jefferies. Your line is open.
Speaker Change: Hey, guys. This is Joe on for Brent. Thanks for thanks for taking the question.
Speaker Change: Typically you guys have acquired businesses.
15% to 25% of your base like that range, but clearly share filings with much bigger and so what.
Speaker Change: What gives you that.
Speaker Change: The confidence in your ability to integrate that deal and the same.
Speaker Change: Timeframe.
Speaker Change: Previous.
Speaker Change: Waller acquisition.
Speaker Change: Should we be looking at this.
Cater that perhaps going forward.
Speaker Change: M&A pool could be beyond that 25% range.
Speaker Change: Yes. So good question. So first of all right. You are correct that we have historically done deals that have been 15% to 25% of our size on revenue that is our sweet spot.
Speaker Change: But we've also said if the right opportunity comes along we might go a little smaller we might go a little bit bigger.
Speaker Change: As you know it wasn't that long ago that we were looking at the business cycle.
Speaker Change: Not even quite 10% of our size site, which became public because of the way.
Speaker Change: Because the way Irish stuff works, but so so so really from our perspective.
Speaker Change: About a third of our revenue is not that far off.
Speaker Change: The integration challenge is really not on revenue when you think about it.
Speaker Change: Integration challenges around people, it's alarm systems.
It is around processes, that's fundamentally what is the challenge and when it comes to scale. The biggest scale challenge can be people.
Speaker Change: So one of the things that we always look for is what is the het comp ratio between our company and the acquired business because.
Speaker Change: If that is as.
Speaker Change: As I like to say, it's four of us and we're bringing in one new for every four we have which is worth approximately.
Speaker Change: The ratio between Shanghai employees in progress.
Speaker Change: Employees, it's about four to 405 to one of share file.
That makes it easier to sustain a culture that makes it easier for the people to be brought onboard and integrate it into our organization.
Speaker Change: It allows for much easier.
Speaker Change: Go forward success and Thats, why we feel that.
Speaker Change: Bringing in 25%.
Speaker Change: It's more folks in our organization is really very doable. So boa integration effort of integration complexity people are probably the single biggest.
Speaker Change: Always the single biggest thing to watch for.
Speaker Change: And.
Speaker Change: And we're really excited about bringing in the <unk> people.
The people we have met had been all delightfully wonderful.
Speaker Change: And I can't wait to welcome them and to welcome the share file customers into the progress finally.
Kurt: Thanks Kurt.
Kurt: Maybe a quick one on on international you know it looks like.
Kurt: EMEA.
Speaker Change: It's a little a little softer this quarter and you had some outperformance in Asia Pacific just anything to call out there in terms of.
Speaker Change: Productivity levels from sales reps.
Speaker Change: Turning to different regions.
Speaker Change: No I don't think so but I think it was probably generally in line with with what we expected.
Speaker Change: I don't think anything unusual to speak of.
Speaker Change: Great. 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 Group does for any closing remarks.
Speaker Change: Thank you Sherry. Thank you everyone for joining us for this call.
Speaker Change: We are excited about what lies ahead and we look forward to speaking with you soon thank you very much and have a wonderful evening.
Speaker Change: This concludes today's program. Thank you all for participating you may now disconnect.
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Speaker Change: Good day and welcome to the progress Software Corporation Q3, 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 this session you will need to press star one on your telephone you will then hear an automated message.
Speaker Change: Advising your hand is right to withdraw your 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 Michigan.
Speaker Change: <unk> Vice President Investor Relations. Please go ahead Sir.
Mike Michigan: Okay. Thank you sure its always a pleasure to have you with US good afternoon, everybody. Thanks for joining us for progress Software's third quarter 2000, and for 2024 financial results Conference call on the line with me today are you.
Speaker Change: <unk>, <unk>, 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. Our proposed acquisition of share file, which we announced on September nine and other information that might be considered forward looking such forward looking information.
Speaker Change: <unk> 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.
Speaker Change: And Exchange Commission.
<unk> software assumes no obligation to update forward looking statements included in this call. Additionally, please note that all the financial figures referenced on this call are non-GAAP measures unless otherwise indicated you can find a reconciliation of these non-GAAP financial measures to.
To the most directly comparable GAAP figures figures in our financial results press release, which was issued after the market closed today.
Speaker Change: This document contains additional information related to our financial results for the third quarter of fiscal year 2024, and I recommend that you reference it for specific details. We also have prepared a presentation that contains supplemental data for our third quarter 2024 results provides highlights and additional financial Mr. Mehta.
Speaker Change: Both the earnings release, and the supplemental presentation, along with a copy of our press release and a supplemental slide presentation announcing the share file acquisition on September nine 2024 are all available in the Investor Relations section of our website at investors Dock progress Dot Com today's call will be recorded in its entire.
Speaker Change: And should be available for replay on the Investor Relations section of our web site. Shortly after we finish with that let me turn it over to Yogesh.
Yogesh Gupta: Thank you Mike Good afternoon, everyone and thank you for joining us as we share the results of our third fiscal quarter.
Yogesh Gupta: The last few months have been busy and exciting and I'm glad to be here. This afternoon to talk about all the great things happening here at progress right now.
Yogesh Gupta: To begin with let's talk about the third quarter, which was ahead of the high end of our items on both the top and bottom lines.
Yogesh Gupta: Revenue grew by 2% year over year to $179 million and EPS grew 17% year over year, reflecting continued expense management.
Yogesh Gupta: We ended the quarter with $582 million in <unk> up sequentially, 1%.
Yogesh Gupta: And net retention rate held steady at 99% as Sunshine from late last year, which were previously discussed.
The trailing 12 month calculation.
Yogesh Gupta: We generated excellent cash flows with DSO at 45 days and our balance sheet remained healthy and strong ending the quarter with over $230 million in cash.
Yogesh Gupta: So on just about every metric we had a strong quarter.
I'm very pleased with our Q3 results and Anthony will provide more details on the financial metrics and dynamics in his remarks.
And another important news during the third quarter, the SEC notified us that it has concluded its investigation into the move it vulnerability with no enforcement action recommended.
Speaker Change: This news from the SEC in August was an addition to clearance decisions by data privacy regulators in the UK.
Anthony Folger: Australia, and Spain over the past year.
Anthony Folger: We view all of these decisions as positive indicators of how we've handled.
Anthony Folger: They'll move it vulnerability from our rapid initial response and reporting transparency.
Anthony Folger: There are four slides cooperation with all regulatory inquiries and investigation.
The third piece of exciting news, which we announced two weeks ago is our signing of the agreement to acquire Shaffer.
Anthony Folger: Which is the latest step in our total growth strategy and our largest acquisition yet.
We intend to make an all cash purchase of share file for $875 million.
Anthony Folger: And expect to close the transaction before the end of fiscal 2024 subject to regulatory approvals and customary closing conditions.
Anthony Folger: Immediately after closing we will begin the integration process and we look forward to welcoming the <unk> team to progress.
Anthony Folger: We expect full integration to be completed within 12 months.
Anthony Folger: I'm really excited about this acquisition and let me share some of the reasons why.
Sure filed which we are acquiring from cloud software group is a leading provider of collaboration software for document centric use cases.
Anthony Folger: It is a modern SaaS native platform with AI powered documented document centric collaboration and automated workflows.
Anthony Folger: Client portals secure file sync and share.
Anthony Folger: And E signature capabilities.
Anthony Folger: Any company, whose business workflows, our document centric and compliance heavy.
We have several internal and external partners collaborate on documents and require various levels of editing and approval to a secure auditable solution can benefit from using share file.
Anthony Folger: This is why share file will complement and fit in perfectly with our existing digital experience offerings and will enable us to offer greater value to users.
Anthony Folger: Sapphire is 86000 strong customer base is large and loyal and spans industries, such as accounting financial and legal services healthcare construction and real estate.
Anthony Folger: 100% of its revenue is recurring with a net retention rate of over 100%.
Anthony Folger: Integration with our existing digital experience sales go to market engineering support and operating infrastructure will provide us a clear path to our operating margin target for the acquired business of 40%.
Anthony Folger: When the deal closes we expect <unk> to add over $240 million in both the annual revenue and <unk>, which will bring our total annual revenue to nearly $1 billion and our IRR dwell.
Anthony Folger: Well over $800 million.
Anthony Folger: In terms of financing deal.
Anthony Folger: We will use a combination of cash on hand.
Our existing revolving credit facility.
Anthony Folger: We expect pro forma net leverage to be around three six.
Anthony Folger: The time of closing.
Anthony Folger: And we intend to Delever quickly.
We have with our prior acquisitions.
Anthony Folger: Speaking of Delevering, let me spend a few minutes on why we also announced our intention to suspend our quarterly cash dividend once the deal closes.
Anthony Folger: This decision was made with significant deliberations as part of our total growth strategy. So it's worth examining our commitment to executing our plan and a little more detail.
Anthony Folger: Although the total growth strategy is to make progress more valuable, while making a stronger and larger.
Anthony Folger: Our goal is to provide more value to our customers and create more value for our shareholders.
Anthony Folger: I am extremely enthusiastic and passionate about our technology and our products and how they help our customers succeed implied in this ever changing technology driven world.
Anthony Folger: Our fanatical focus on customer success is one of the three key pillars of our strategy.
Anthony Folger: As is our commitment to investing in and innovating our products to grow and adapt to the needs of our customers.
Updating and modernizing our offerings is essential for the continued success of our customers and for retaining them well into the future.
Anthony Folger: This strong foundation of Great technology and sustained customer success are the bedrock of our business and the reason why all products generates significant free cash flow.
Anthony Folger: That and that free cash flow in turn needs to be guided by our prudent capital allocation policy.
To continue driving the success of our total growth strategy.
Anthony Folger: We've always place the highest priority on M&A, followed by share buybacks.
Anthony Folger: So our game plan for growing shareholder value as simple.
Anthony Folger: First.
Anthony Folger: <unk> greater revenues earnings and cash flows by acquiring highly accretive businesses.
Anthony Folger: With characteristics similar to ours.
Anthony Folger: As with excellent products and loyal customer bases.
Anthony Folger: Second pay the right price integrate them quickly and efficiently, while focusing on customer success and retention.
And finally.
Aggressively reduce leverage to prime our liquidity for the next deal.
Anthony Folger: In the meantime, we minimize dilution and return capital to shareholders in the form of well timed buybacks.
Anthony Folger: When it comes to executing on M&A, we will continue to remain disciplined and patient as we search for new opportunities and then act decisively.
Anthony Folger: Oftentimes as you've seen acting decisively means walking away from a potential acquisition that we don't think will work.
Anthony Folger: We are far more willing to say no then yes, when it comes to finding the right fit and paying the right price.
Anthony Folger: And we're very comfortable walking away because in the absence of an acquisition, we focus on continuously improving our processes and systems.
Anthony Folger: We put great effort in upgrading and optimizing our internal technology and business practices.
Anthony Folger: To continue to make us more integration ready and efficient.
Anthony Folger: And of course.
We're always trying to incorporate the lessons learned from any mistakes we makes.
Anthony Folger: Just as important we keep progress a great place to work for our employees.
Anthony Folger: Our voluntary turnover remains well below that of the overall software industry.
Anthony Folger: And has hovered around 6% over the past two years.
Anthony Folger: Keeping a talented stable workforce is essential to the effective execution of our total growth strategy.
Anthony Folger: Innovation and customer success to acquisition and integration.
Anthony Folger: Our front office and back office teams, all get better with each deal and its subsequent integration.
Anthony Folger: I feel proud of what we have continued to mature and grow our ability to execute on our strategy and create more value for our customers our shareholders and of course our employees.
Anthony Folger: So to wrap up the third quarter was excellent on several fronts.
Anthony Folger: We had another great performance on the top and bottom lines.
Anthony Folger: We received more good news about move it.
And we're getting ready to close on a meaningful acquisition that will provide us with recurring revenues at scale.
As always I want to acknowledge all the people on the progress team who worked hard to produce these great results.
Anthony Folger: Their work is extraordinary and I am grateful for their talent dedication and desire to succeed.
Anthony Folger: Now, let me turn it over to Anthony to provide more financial detail around our third quarter.
Anthony Folger: Anthony.
Anthony Folger: Great. Thanks, Yogesh and good afternoon, everyone. Thanks for joining our call.
Anthony Folger: As Yogesh mentioned, we're very pleased with our third quarter results, which once again exceeded the high end of our previously issued guidance ranges.
Speaker Change: We're also thrilled that on September nine we announced the signing of a definitive agreement to acquire share file from cloud software group.
Speaker Change: I'll talk more about share file and the acquisition in a bit but first let's get into the numbers.
Speaker Change #100: Starting with <unk>, which came in at $582 million and represented slight growth on a year over year basis, and approximately 1% sequential growth over the second quarter.
Speaker Change #100: Although no single product drove material growth in our total IRR. The increase that we delivered was the result of modest growth in multiple products across our portfolio, including open edge Dev tools site entity loadmaster flow man.
Speaker Change #100: And move it.
Speaker Change #100: We also had another strong quarter for net retention with our Q3 rates coming in at 99%.
Speaker Change #100: In addition to our solid <unk> performance in the quarter quarterly revenue of $179 million slightly exceeded the high end of the Q3 guidance range. We provided in June and represents approximately 2% year over year growth.
Speaker Change #100: Our strong revenue performance in the quarter was driven by stronger than expected demand for multiple products in our portfolio, including open edge.
Speaker Change #100: Turning now to expenses, our total costs and operating expenses were $105 million for the quarter, a decrease of $3 million compared to Q3 of last year.
Speaker Change #100: This year over year decrease was driven by two factors.
Speaker Change #100: First is tight cost management across the business as our teams again executed well during the quarter.
Speaker Change #100: Second is the timing of certain expenses between the third and fourth quarters.
Operating income for the quarter was $74 million, an increase of $6 million compared to the same quarter last year with an operating margin of 41%.
Speaker Change #100: Of 200 basis points year over year.
Earnings per share for the quarter were $1 26.
Speaker Change #100: 11 above the high end of our guidance range.
Speaker Change #100: And compared to the prior year.
Speaker Change #100: Earnings per share were up 18.
Speaker Change #100: Or 17%.
Speaker Change #100: With the increase being comprised of an improved operating margin.
Speaker Change #100: And lower interest coupled with higher interest income for the quarter.
Speaker Change #100: <unk>, resulting from the convertible notes issuance and credit facility refinancing we completed earlier in the year.
Speaker Change #100: Moving onto a few balance sheet and cash flow metrics.
Speaker Change #100: We ended the quarter with cash cash equivalents and short term investments totaling $233 million.
Speaker Change #100: And debt of $810 million, resulting in a net debt position of $577 million.
Speaker Change #100: This represents net leverage of approximately two times using our trailing 12 months adjusted EBITDA.
Speaker Change #100: DSO for the quarter was 45 days.
Speaker Change #100: <unk> four days compared to the year ago quarter.
Speaker Change #100: Deferred revenue was $285 million at the end of the third quarter down slightly from the second quarter, reflecting normal seasonality in our business.
Speaker Change #100: Adjusted free cash flow was $58 million for the quarter, an increase of $10 million or 21% from the year ago quarter.
Speaker Change #100: In the third quarter, we repurchased $14 million of progress stock, bringing our year to date total to $87 million.
Speaker Change #100: And at the end of Q3, we have $107 million remaining under our current share repurchase authorization.
Speaker Change #100: On September 9th in conjunction with the share file announcement, we also announced our intent to suspend our quarterly cash dividend upon closing the <unk> acquisition.
Speaker Change #100: We believe we can generate higher returns on capital through M&A as part of our total growth strategy and will therefore prioritized debt repayment to free up capacity for future M&A.
Speaker Change #100: We expect that we will continue to repurchase shares to offset dilution from our equity plans and on occasion repurchase shares opportunistically.
Speaker Change #100: Okay.
Speaker Change #101: Now, let's discuss our outlook starting with share file.
Speaker Change #102: We expect share file to contribute approximately one month of results to our fiscal fourth quarter.
Speaker Change #102: With revenue of $18 million to $20 million.
And operating margin of 15% to 20%.
And negative adjusted free cash flow of approximately 15% to $20 million.
Speaker Change #102: I'd like to emphasize that the negative cash flow.
Speaker Change #102: Is due to the proposed deal structure of the share file acquisition.
Speaker Change #102: The acquisition is structured as an asset purchase.
Speaker Change #102: And share files accounts receivable at the time of closing are not included in the assets that are being acquired.
Speaker Change #102: To compensate for this structural point.
Speaker Change #102: <unk> will receive a $25 million working capital adjustment.
Speaker Change #102: Which will net against the $875 million purchase price at close.
Speaker Change #102: After our first billing cycle with share file we will begin generating cash inflows and expect share files adjusted free cash flow to be increasingly positive throughout 2025.
Speaker Change #102: With that context for share file in mind.
Speaker Change #103: For the fourth quarter of 2024, we expect revenue between $207 and $217 million and earnings per share of between $1 15, and $1 25.
Speaker Change #103: For the full year 2024, we expect revenue to be between $745 $755 million.
Speaker Change #103: And operating margin for the year of approximately 39%.
Speaker Change #103: Free cash flow between $195 and $205 million.
Speaker Change #103: This includes the negative contribution from share file.
Speaker Change #103: And earnings per share between $4 75.
Speaker Change #103: And $4 85.
Speaker Change #103: Our guidance for full year, EPS assumes a tax rate of approximately 19%.
Speaker Change #103: And approximately 44 million shares outstanding.
Speaker Change #103: In closing, we're really excited to deliver another strong quarter of results and we're thrilled with the announced share file acquisition, both of which position us very well for 2025 and beyond.
Sherry: With that Sherry I'd like to open the call for Q&A.
Sherry: 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.
Speaker Change #104: One moment, while we compile the Q&A roster.
Speaker Change #105: And our first question will come from the line of John <unk> with Guggenheim. Your line is now open.
John <unk>: Thank you for taking my questions.
Speaker Change #106: First one I think.
Speaker Change #106: Question for Anthony and then I think.
Speaker Change #107: To ask a follow up to Yogesh.
Speaker Change #107: Anthony really nice cash flow in the quarter and you reduce the annual guidance by $10 million, even though share file impact was negative 15% to 20.
Speaker Change #109: So I understood from Sri Macerate, it's easy math, but that implies excluding share file effects, you would have raised it $5 million to $10 million.
Speaker Change #110: The cash flow guidance and I just want to make sure is that correct and then I know you've talked about this.
Talking about profit and get them getting things up to normal levels, but.
Speaker Change #111: And you've proven yourself in M&A you progress has.
Speaker Change #112: Your team has done that but.
Speaker Change #113: But can you go through some of the detail of why you're confident in bringing share file profit metrics that I'm really focused with free cash flow to year level to your normalized level over the next 12 months. The reason I ask on this one I know you said youre going to do that and you have done in the past, but this is a big one right and it's a little.
Different regarding the core customer base relative to a lot of your other acquisitions, sorry for the long winded.
Speaker Change #113: No.
That's great John Thank you.
Speaker Change #114: And Youre correct that the first question about free cash flow.
Yes, there is an implied increase to our cash flow guide for the year that gets netted down by the share file impact in Q4. So your math is correct.
Speaker Change #115: When it comes to our confidence in the share file integration.
Speaker Change #115: Youre right its a larger acquisition, but.
Speaker Change #115: As our business has grown.
Speaker Change #115: <unk> share files about a third of our revenue.
Speaker Change #115: And so it's really not that far out of what we would normally targeted it feels like it's like it's manageable to us.
Speaker Change #115: The business already is profitable, it's running let's say between 15% and 20% operating margins.
Speaker Change #115: And they already have one of the things that was attractive to US is it's a cloud platform operating at scale, they've had with gross margins better than 80%.
Speaker Change #115: In terms of the diligence, we were able to dig into.
Speaker Change #115: And all of those things I think having.
Speaker Change #115: Already an ability to operate cloud infrastructure at scale like that to do it at a solid gross margin.
Speaker Change #115: And the fact that this is an asset deal and its really a carve out from cloud software group.
Speaker Change #115: We have a sizable dx business already digital experience business I think there's a lot of resources that we will bring to bear.
Speaker Change #115: I think our Dx business is used to a transactional type of heavy volume business. So there is a.
Speaker Change #115: An element within progress that share file looks very familiar too and I think bringing it over with really strong gross margins and very good net retention rates gives us a lot of confidence that we're going to be able to.
Speaker Change #115: To drive margins, where we would expect to in our model and to maintain a similar cash flow conversion metrics in this business.
Speaker Change #115: Okay. Okay. Thank you and then youll get to that point about the digital experience business you have.
Speaker Change #116: Sure file a lot of exposure to the SMB the similar customer base here.
Speaker Change #115: Great.
Speaker Change #117: And but.
Speaker Change #117: We're starting to see at least indications.
Speaker Change #117: In the market.
Speaker Change #117: A bit of a roller the smbs are really strong right.
Speaker Change #117: And I just.
Speaker Change #117: Starting to see a little bit of weakness out of that cohort in the market.
Speaker Change #118: Can you comment on your thoughts your thoughts regarding this and your recent experience regarding your businesses that do sell into sort of happy SMB customer.
John <unk>: Yeah happy to John.
Speaker Change #119: In our digital experience business right.
Pat: Also Pat.
Speaker Change #120: If there is a large number of customers I think.
Pat: It is quite often not well known.
Speaker Change #121: That we have more than 20000 customers in our digital experience business ourselves. It also is a high velocity.
Speaker Change #122: Small repeatable deals business.
Speaker Change #122: We continue to see strength, there we continue to see the business doing well.
Speaker Change #122: John from from our perspective.
John <unk>: Business has been solid is the way I would characterize.
John <unk>: Characterize it.
Speaker Change #123: I know that some folks were seeing really really meaningful upside with the SMB side.
We saw just a steady solid business and we are not seeing changes there in what we do.
Speaker Change #123: The <unk> business is a very interesting one.
Speaker Change #123: Target.
Really a business user.
Speaker Change #123: That is using it for the core part of their business, which is collaborating with their clients and making sure that that business functions.
Speaker Change #124: If you're an accountant if you had a lawyer or if youre a doctor if you order.
Any other business services people that use this they are using it to exchange mission critical from their perspective business critical information, meaning secure reliable way to workflow on it.
Speaker Change #124: Make sure that multiple people can work on it in a secure way to make sure that there is worsening and inability to audit from track who did what.
Many of these industries are highly regulated so it is a really stable business. The business has had a track record of stability right.
Speaker Change #125: So we know that from looking at what has been shared with us.
John <unk>: So we feel we feel good if you can just suddenly the business was doing well over the last couple of years. So we thought it was a good time to buy John So so that's that I also want to sort of add a little bit to anthonys earlier comment about operating margins.
Speaker Change #126: One additional point to share when you have a business. The scale that this is which is which is really nice.
John <unk>: If you think about it right.
Speaker Change #127: The R&D expense doesn't linearly grow with scale.
Speaker Change #128: If I had <unk> 86.
Speaker Change #128: Jeff I had most of 86000 customers.
Jeff: 75000 customers or 60000 customers they would still have to do the same R&D.
Speaker Change #129: So awesome as you scale up beyond a certain level.
Speaker Change #129: The R&D cost don't go up linearly.
Speaker Change #129: So that's one of the reasons why we actually feel really good about our ability to and Thats. Just one example, but I think the scale gives you added added benefit.
Speaker Change #129: The only other single product we have at progress that has a similar scale as openreach.
Speaker Change #130: And so obviously this is a cloud offering obviously this is an offering in which we need to continue to invest quite aggressively to stay competitive. So gross margins aren't the same as an on prem product, but we are extremely comfortable with the fact that we see line of sight to that 40% operating margin target.
Speaker Change #130: Well you guys have done it.
Speaker Change #130: Every time so.
Speaker Change #132: Thanks. Thanks, Thanks for all of this thanks.
Speaker Change #132: Thank you Don Thank you.
Speaker Change #133: Thank you one moment our next question.
Speaker Change #133: And that will come from the line of Lucky Schreiner with D. A Davidson your line is open.
Speaker Change #133: Alright.
Lucky Schreiner: Awesome. Thanks for taking my question.
Lucky Schreiner: I know you guys probably don't like this question, but since you mentioned share following movement.
Speaker Change #135: So I move it.
Similar customer base and some of them use the product is there a cross sell opportunity here that you see.
Speaker Change #136: Yes, any color there would be helpful.
Speaker Change #137: So there are some.
Some common customers of move it in share file lucky.
Speaker Change #138: From our perspective whenever we do these.
Speaker Change #138: Do these transactions and look at these acquisitions.
Our business model is all done based on assuming no cross sell because we believe that cross sell is often much much harder than it looks on the surface.
Speaker Change #138: We will see what happens over time and if obviously if there is an opportunity and if we do see some traction we will share.
Speaker Change #139: You transparently, but our plan at least at this point does not.
Speaker Change #138: Contemplate any cross sell.
Speaker Change #140: And it just makes it for a.
Speaker Change #140: To be honest, a more conservative realistic plan.
Speaker Change #140: So that we get to the targets, we need to get to that.
Speaker Change #140: Way, we want it.
Speaker Change #141: Yes, I appreciate that that makes sense, maybe then on any additional color you can give on the average contract length for share file and maybe what the renewal process will look like here in the future.
Speaker Change #140: Sorry.
Speaker Change #142: Your line was a little scratchy were you asking about average contract size.
Speaker Change #142: Average contract length, the duration of the contract share following and how renewals might trend here in the future.
Speaker Change #143: Yeah. So so they have.
A day they do both.
Speaker Change #144: The vast majority.
Speaker Change #145: <unk> of them are annual.
Speaker Change #146: And Anthony please correct, if I'm wrong there.
They also have.
Speaker Change #147: Credit card based auto renewals of their contracts.
Speaker Change #146: Dave.
Speaker Change #147: Some of the billings are.
Dave: Annual some of the billings or monthly I believe.
Speaker Change #149: So it is a it is a mix of lucky.
Speaker Change #149: As to the contract length as well as the billing cycle.
Speaker Change #149: But nothing is multiyear build upfront so it is either build or maybe de minimus.
Speaker Change #149: Okay.
Speaker Change #149: Minimum multiyear buildup. So it isn't in terms of the kind of Lumpiness youll see year over year for our billings and our other products you won't see that here.
Speaker Change #149: Yes.
Speaker Change #150: Perfect I appreciate you taking the questions.
Speaker Change #151: Youre welcome.
Speaker Change #152: Thank you as a reminder, if you have a question. Please press star one one.
Speaker Change #152: One moment for our next question.
Speaker Change #152: And that will come from the line of Brent Thill with Jefferies. Your line is open.
Hey, guys. This is Joe on for Brent. Thanks for thanks for taking the question.
Speaker Change #153: You guys typically you guys have acquired businesses.
Speaker Change #154: 15% to 25% of geographic base like that range, but clearly share filings with much bigger and so.
Speaker Change #155: I'll give you.
Speaker Change #156: The confidence in your ability to integrate that deal in the game.
Speaker Change #155: Timeframe.
Speaker Change #155: Previous <unk>.
Speaker Change #155: Waller acquisition then.
Speaker Change #155: Should we be looking at this as an indicator that perhaps going forward.
Speaker Change #155: M&A pool could be beyond that 25% range.
Speaker Change #157: Yes. So good question. So first of all right. You are correct that we have historically done deals that have been 15% to 25% of our size on revenue that is our sweet spot.
Speaker Change #157: But we've also said if the right opportunity comes along we might go a little smaller we might go a little bit bigger.
As you know it wasn't that long ago that we were looking at a business that grows.
Speaker Change #157: Not even quite 10% of our size site, which became public because of the way.
Speaker Change #157: Because the way Irish stuff works, but so so so really from our perspective.
Speaker Change #157: About a third of our revenue is not that far off.
Speaker Change #157: The integration challenge is really not on revenue when you think about it.
Speaker Change #157: Integration challenges around people, it's alarm systems.
Speaker Change #157: It is around our processes, that's fundamentally what is the challenge and when it comes to scale. The biggest scale challenge can be people.
So one of the things that we always look for is what is the headcount ratio between our company and the acquired business because.
Speaker Change #157: Is that as you know as.
Speaker Change #157: As I like to say, it's four of us and we're bringing in one for every four we have which is worth approximately.
Speaker Change #157: The ratio between share file employees on progress.
Employees, it's about photo and our core deposits one of share file.
Speaker Change #157: That makes it easier to sustain a culture that makes it easier for people to be brought onboard and integrated into our organization.
Speaker Change #157: It allows for much easier.
Speaker Change #158: Our go forward success, and Thats, why we feel that bringing in 25%.
Speaker Change #158: Additional holes in our organization is really a very doable so bore integration.
Speaker Change #158: Further integration complexity people are probably the single biggest.
Speaker Change #158: <unk> always the single biggest thing to watch for and.
And we're really excited about bringing in the chef our people.
Speaker Change #159: The people we have met have been all delightfully wonderful.
Speaker Change #160: And I can't wait to welcome them and to welcome the <unk> file customers, including progress finally.
Speaker Change #160: Thanks.
Speaker Change #160: Maybe a quick one on on international it looks like.
Speaker Change #160: EMEA.
Speaker Change #161: With a little a little softer this quarter and you had some outperformance in Asia Pacific.
Speaker Change #161: Anything to call out there in terms of productivity levels from sales reps.
Speaker Change #161: Between the different regions.
Speaker Change #162: No I don't think so but I think it was probably generally in line with with what we expected.
Speaker Change #161: I don't think anything unusual to speak of.
Great. Thank you.
Speaker Change #163: 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 Group does for any closing remarks.
Speaker Change #164: Thank you Sherry. Thank you everyone for joining us for this call.
Speaker Change #165: We're excited about what lies ahead and we look forward to speaking with you soon thank you very much and have a wonderful evening.
Speaker Change #166: This concludes today's program. Thank you all for participating you may now disconnect.