Q4 2024 Progress Software Corp Earnings Call
The
Speaker Change: Good day, and welcome to the Progress Software Corporation Q4 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 11 on your telephone.
Speaker Change: You will then hear an automated message advising your hand is raised. To withdraw your question, press star 1 1 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 Micciche, Senior Vice President of Investor Relations. Please go ahead.
Mike Micciche: Thank you, Sheree. It's always great to be in your capable hands. Thank you. Before we get started here, we're going to go over our Safe Harbor Statement.
Mike Micciche: During this call, we will discuss our outlook for future financial and operating performance, corporate strategies, product plans, cost initiatives,
Mike Micciche: 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
Mike Micciche: assumes no obligation to update forward-looking statements included in this call. Additionally, please note that all the financial figures referenced in this call are non-GAAP measures unless otherwise indicated. You can find a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP figures in our financial results press release.
Mike Micciche: which was issued after the market closed today. This document contains additional information related to our financial results for the fourth quarter and full fiscal year 2024. And I recommend that you reference it for specific details.
Mike Micciche: We've also provided a presentation that contains supplemental data for our fourth quarter and full fiscal year 2024 results provides highlights and additional financial and provides highlights and additional financial metrics.
Mike Micciche: Both the earnings release and the supplemental presentation are all available on the Investor Relations section of our website at investors.progress.com.
Mike Micciche: Today's call will be recorded in its entirety and should be available for replay on the Investor Relations section of our website shortly after we finish. With that, I'll turn it over to you, Yogesh. Thank you, Mike. Good afternoon, everyone, and thank you for joining our Q4 2024 Financial Results Conference Call.
Mike Micciche: Fiscal 24 was another outstanding year for progress, as you can see from our published results.
Mike Micciche: We registered another strong performance in Q4, marked by continued demand across our product portfolio.
Mike Micciche: Especially for our data platform products, PointLogic, OpenEdge, and DataDirect, and our AIOps network management products.
Mike Micciche: Our data platform products are the foundation for mission-critical applications at over 100,000 businesses and we are living in a world where business data is increasingly important for responsible AI applications.
Mike Micciche: We exceeded the high end of guidance on earnings and free cash flow and ARR grew by 46% in constant currency.
Mike Micciche: Our net retention rates came in above 100%, which holds true even when you completely exclude share files from our results.
Mike Micciche: We generated 238 million dollars in unlevered free cash flow on revenues of 753 million dollars close to the high-end guidance.
All 755 with you.
Mike Micciche: As a reminder, Sharefile contributed only one month of revenues in Q4.
Mike Micciche: Our strong top-line performance coupled with excellent expense management led to the significant outperformance in earnings and free cash flow.
Mike Micciche: I'm extremely proud of our team for their dedication and their relentless commitment to excellence.
Mike Micciche: Anthony will go through our excellent results in more detail and provide FY25 guidance shortly, but in the meantime I'd like to share some highlights of FY24.
Mike Micciche: As you might recall, we received good news in August from the SEC, which concluded its investigation into the Moobit vulnerability with no actions recommended.
Mike Micciche: Earlier in the year, several international data privacy regulators also closed their investigations without action.
Mike Micciche: We are heartened by these confirmations that Progress did the right thing in addressing the attack on Moobit and are happy to focus on the business of our business.
Mike Micciche: The biggest highlight of the year, of course, was that we closed the acquisition of ShareFile on October 31st.
and we've had an excellent start to our integration process.
Mike Micciche: Because ShareFile was a carve-out and not a standalone company, you will recall that we are operating under a Transition Services Agreement with Cloud Software Group, or CSG.
Mike Micciche: We're working diligently towards ending our reliance on the congestion services from CSG in a rapid and timely manner.
Mike Micciche: We've already completed or are well into some of the more immediate synergies.
Mike Micciche: such as eliminating duplicate infrastructure, transitioning ShareFile employees to a collaboration in HR systems, working with customers and partners.
Mike Micciche: to ensure a smooth transition and all the other activities we customarily initiate upon closing.
Mike Micciche: While it's still very early, the integration is on track and we expect to complete the full integration of ShareFile within the 12-month time frame we provided when we announced our Q3 results.
Mike Micciche: And, as we indicated when we announced the deal, we believe our 40% threshold for operating margins for the acquired business is attainable by the end of FY25.
Mike Micciche: We expect Sharefile to add about $250 million to the top line in FY25, which will be 100% SAS recurring revenue.
Mike Micciche: This meaningfully increases the percentage of products' total SAS revenue, getting it close to 30%.
Mike Micciche: It also adds excellent stability and visibility to our top line by significantly raising the share of recurring revenue to well over 85% of our overall revenue.
Anthony will share more on this.
Mike Micciche: Perhaps more importantly, ShareFile is a native SaaS platform with gross margins in excess of 80% and will benefit our own SaaS journey.
Mike Micciche: Sharefile's proven at-scale SaaS platform, combined with the expertise of the technologists that joined us with this acquisition, provide us the foundation to accelerate our own SaaS product deliveries.
Mike Micciche: It will also make it easier for us to integrate any additional SAF companies that we may acquire in the future.
Mike Micciche: What's more, with this demonstrable proof point of evaluating, buying, and integrating a large SaaS business into our company, the universe of potential acquisition now expands to include other SaaS businesses as well.
Mike Micciche: Our approach to M&A, which is one of the three pillars of our total growth strategy, continues to be disciplined.
Mike Micciche: Our M&A discipline is simple. Acquire great businesses at the right price, integrate rapidly, and have a laser-like focus on improving customer retention.
Let me define what we mean by great businesses.
Mike Micciche: A great business to us is one with exceptional products that have future relevance, an impressive customer base that loves those products and relies heavily on them to run their business.
Mike Micciche: and has excellent, talented employees and a culture that fits well with our own.
Mike Micciche: Acquiring such businesses strengthens progress today and will keep us relevant well into the future.
For example,
Mike Micciche: Chef made us a meaningful provider in the DevSecOps market as the shift-left trend continues to gain momentum.
Ipswich and Kemp brought us observability and AIOps capabilities.
Mike Micciche: While MarkLogic has enabled us to enter the GenAI application market with a business-centric, reliable, and secure offering.
Mike Micciche: And our latest acquisition, ShareFile, is an at-scale SaaS AI-powered platform for content-centric collaboration.
Mike Micciche: All these modern offerings enable us to address a broader set of our customers' needs.
Mike Micciche: And the skills and expertise brought to progress by the employees of these acquired companies accelerate the technological evolution of all our products.
Importantly, my acquisitions have also broadened our go-to-market channels.
Mike Micciche: Ipswich and Kemp with their respective two-tier channels, Schiff with open source, and Mark Logic with U.S. federal government contractors.
Mike Micciche: and Sharefile at scale, and Sharefile's at-scale high-velocity sales model significantly complements Sorrow.
Mike Micciche: These channels, combined with our existing enterprise and ISV and OEM go-to-market strengths, enable us to efficiently serve large and small businesses around the world.
Mike Micciche: Acquiring such excellent businesses for the right price requires us to be patient and disciplined, which we have demonstrated in each of the five acquisitions we have completed to date, as well as in all the deals we have walked away from.
Mike Micciche: We will continue our track record of such discipline and patience when it comes to doing deals.
Mike Micciche: The other two equally important pillars in our total growth strategy are to innovate and to focus on customer success.
Mike Micciche: We invest in innovation to ensure that our products, go-to-market efforts, people, and systems continue to deliver increasing value to our customers.
Mike Micciche: In FY24, we delivered several innovative solutions within our product portfolio that enable our customers to develop, deploy, and manage responsible AI-powered applications and digital experiences.
For example, our data platform products, MarkLogic and Semaphore,
Mike Micciche: now use retrieval augmented generation and vector capabilities to enable our customers to securely leverage proprietary data and content to augment the Gen-AI capabilities of large language models.
Mike Micciche: This leads to accurate and contextually relevant Gen-AI responses based on a business's own proprietary data and these responses are supplemented with traceability and links to the original source material so that users can easily verify the results.
Mike Micciche: which is why a large U.S. government agency that serves tens of millions of citizens recently decided to extend their use of our data platform with its new capabilities to meet their Gen-AI needs.
Mike Micciche: In another example, our digital experience products now leverage AI to simplify the job of marketers by automating content creation and personalization, enabling conversion rate optimizations.
Mike Micciche: And our UI developer tools are AI-powered to make it easier for developers to embed Gen AI in applications and deliver AI-powered experiences to end-users.
Mike Micciche: Our core infrastructure management products have always incorporated some level of AI in their architecture.
Mike Micciche: But we are now leveraging advanced AI technology to make our products even more productive and easier to use, and to enhance their predictive analytics capabilities.
Mike Micciche: For example, in FY24, we launched FlowMon with advanced AI-powered threat detection that distills thousands of network events into specific actionable intelligence, drastically reducing the time and effort spent by cybersecurity experts to pinpoint threats.
Mike Micciche: Our share file acquisition also brings new AI capabilities to our portfolio, which include automated document summarization and automated guidance on user workflows.
It also leverages AI to protect sensitive information.
Mike Micciche: For example, if a user tries to share a document that contains sensitive information, ShareFile's AI-powered security detects the sensitive information, alerts the user, and suggests more secure ways for the user to share that document within their workflow.
Mike Micciche: In addition to innovation, we also have an unrelenting focus on customer success to ensure that they stay with us, which leads to a high net retention rate.
Mike Micciche: It is this focus on customer success that resulted in a net retention rate in FY24 of over 100% despite, as you might recall, a few large customers churning in late 2023 and early FY24.
Mike Micciche: Keeping our customers happy and NRR high also enables us to be highly efficient with our sales and marketing efforts and allows us to continue to deliver high operating margins and generate cash.
Mike Micciche: Speaking of cash, I'd like to briefly talk about our capital allocation strategy.
Mike Micciche: As a reminder, we strengthened our balance sheet in Q2 of 2024 when we issued a new $450 million convertible bond and consolidated our prior credit facilities.
ending up with a single 900 million dollar revolving facility.
Mike Micciche: We used $730 million of that credit facility to finance the ShareFile deal.
Mike Micciche: With our strong recurring revenues and cash generation, we expect to pay down our outstanding debt quickly and prepare for our next acquisition.
Mike Micciche: Our goal is to allocate capital in the most effective and efficient way to create greater shareholder value over time.
Mike Micciche: And we want to consistently generate a return on invested capital that exceeds our cost of capital.
Mike Micciche: I want to reiterate what we said in our Q3 earnings call. Our corporate development efforts are ongoing. We continue to look for great businesses, and if the right one comes along at the right price, we will not hesitate to act.
Mike Micciche: We are confident that we can integrate more than one acquisition in Padler.
Mike Micciche: Lastly, as the final highlight of the year, we continue to make progress and an even better place to work for our employees.
Mike Micciche: In addition to the numerous awards Progress earned for our exceptional work related to the environment and to employee culture,
Mike Micciche: We were again selected a Best Place to Work by Boston Globe and the Boston Business Journal.
Mike Micciche: These awards reflect the strength and engagement of our employees, which is a key to our success.
Mike Micciche: Our low employee turnover and our outstanding employee net promoter scores continue to show that we are one of the best technology companies to work for.
Mike Micciche: We have great people who get better at what they do each year, and we benefit from their expertise, experience, and institutional knowledge.
Mike Micciche: Because of this low turnover, we have a significantly lower hiring and training expenses.
Mike Micciche: We strongly believe that having highly talented and engaged employees is one of our strategic differentiators and a competitive advantage in an industry where high turnover is the norm.
Mike Micciche: I can't thank the progress team enough for their commitment to our success and for their hard work.
Mike Micciche: So to wrap up, we have pretty good execution in FY24 and excited about FY25.
Mike Micciche: Just a few weeks ago, we got our field organization off to a quick start, to FY25. We held our global kickoff in early December, where more than 500 of our people gathered in person to learn about our new offerings, sales plays, and their targets.
Mike Micciche: The team's returned energized and ready to hit the ground running.
Mike Micciche: In FY25, we expect continued solid demand for our products to drive meaningful ARR growth.
Mike Micciche: We also expect continued improvement in the share file operating margin throughout the year, resulting in significant growth in the unlevered free cash flow, which we will use to aggressively pay down debt while we look for the next business to acquire.
Mike Micciche: Let me now turn it over to Anthony to provide additional details around our results and guidance. Anthony?
Anthony: Thanks, Yogesh. Good afternoon, everyone, and thank you for joining our call.
Anthony: As Yogesh mentioned, our fourth quarter results were strong across every metric and we're thrilled to deliver such a solid close to the year.
Speaker Change: I'll start by mentioning the close of our acquisition of ShareFile at the end of October, which means we've got a one-month contribution from ShareFile included in our 2024 fiscal fourth quarter and full-year results.
Anthony: Please keep that in mind as we run through the numbers.
Anthony: And speaking of the numbers, let's start with ARR, which we believe provides the best view into our top-line performance.
Anthony: We closed Q4 with ARR of $842 million, which represents approximately 46% growth on a year-over-year basis.
and almost 4% pro-former growth on a year-over-year basis.
Anthony: For clarity, the pro forma results include ShareFiles ARR in both periods.
Thank you.
Anthony: Our growth in ARR was driven by multiple products, including Sharefile, OpenEdge, our DevTools products, Loadmaster, and Sitefinity.
Anthony: Also, as mentioned on previous calls, our net retention rate continued its upward move again in the fourth quarter, and we closed the year with a net retention rate of over 100 percent.
Anthony: And as Yogesh mentioned in his remarks, our net retention rate is over 100% if you completely exclude ShareFile's results, and it's also over 100% when ShareFile's results are included in all periods.
Anthony: In addition to growth in ARR and an increasing net retention rate, revenue for the quarter of $215 million was very close to the high end of the Q4 guidance range we provided back in September and represents approximately 21% growth on a year-over-year basis.
Anthony: Our strong revenue performance in the quarter includes a $21 million contribution from ShareFile, coupled with growth in other products, including OpenEdge, DataDirect, MarkLogic, and our DevTools products.
all of which performed better than our internal expectations.
Thank you.
Anthony: For the full year, our revenue of $753 million grew $55 million, or 8% over the prior year.
Anthony: This growth was driven by the top-line contributions of MarkLogic and Sharefile, combined with growth in other products, most notably OpenEdge and our DevTools products.
Anthony: With customer retention rates improving throughout 2024 and a consistent demand environment fueling growth for our products, we're thrilled with our top-line performance for the year.
Anthony: Turning now to expenses, our total costs and operating expenses were $135 million for the quarter, up 17% over the year-ago quarter, and $455 million for the full year, up 6% compared to fiscal 2023.
Anthony: The year-over-year increase in expense for the quarter was driven by the acquisition of share file
Anthony: and the increase in our full year expense was driven almost entirely by the inclusion of a full year of activity from ArcLogic and the aforementioned acquisition of ShareFile.
Anthony: Operating income for the quarter was 81 million dollars for an operating margin of 37 percent, handily exceeding our internal expectations.
Anthony: This better-than-expected operating performance was the result of over-performing on the top line while managing our expenses to plan.
Anthony: On the bottom line, our earnings per share of $1.33 for the quarter were $0.08 above the high end of our guidance range.
Anthony: This over performance relative to expectations was again driven by strong top line performance coupled with solid cost management across the business.
Anthony: All right, turning now to a few balance sheet and cash flow metrics, let me start with a few details on the acquisition of share file.
Anthony: The acquisition was an asset purchase whereby certain assets and liabilities were acquired for a base purchase price of 875 million dollars.
Anthony: and it was subject to a $25 million working capital credit.
Anthony: This working capital credit was negotiated to compensate for the fact that Sharefile's accounts receivable were not acquired.
Anthony: While the credit results in a net purchase price of $850 million, Progress won't collect any of ShareFile's accounts receivable from before the acquisition close date.
Anthony: So said simply, we swapped some future cash inflows for an equivalent purchase price reduction.
and many more. Thank you.
Anthony: To fund the purchase, we used a combination of cash and debt, drawing $730 million from our existing revolving line of credit, which has a variable interest rate currently running at approximately 6.6%.
Anthony: As we've previously mentioned, we intend to begin aggressively paying down debt in the first half of 2025.
Anthony: After closing the acquisition, we ended the year with cash and cash equivalents of $118 million and debt of $1.54 billion for a net debt position of $1.42 billion.
Anthony: We expect to complete the integration of ShareFile in 2025, and in doing so, we expect to realize meaningful synergies throughout the year.
Anthony: On a post-synergy basis, we expect our net leverage ratio to be approximately 3.5 times.
Anthony: DSO for the quarter was 67 days, up five days compared to the year ago quarter.
Anthony: And deferred revenue was $404 million at the end of the fourth quarter, up approximately $119 million on a sequential basis.
Anthony: reflecting our strong top-line performance in the fourth quarter coupled with the addition of $96 million in deferred revenue from the share file acquisition.
Anthony: Adjusted free cash flow was 18 million dollars for the quarter, bringing our annual total to 212 million dollars, an increase of 21% over the prior year.
Anthony: During the fourth quarter, we did not repurchase any progress stock. Our annual repurchase total for fiscal 2024 was $87 million at an average price of less than $53 per share.
Anthony: And we ended our fiscal year with $107 million remaining under our current share repurchase authorization.
Okay, now turning to our outlook.
Anthony: When considering our outlook, it is important to keep in mind the following.
first.
Sharefile's revenue model is entirely SaaS.
Anthony: and the acquisition will increase our recurring revenue mix to approximately 87%.
So consistent with our message last year
Anthony: We are going to continue to focus on ARR as a key metric.
Anthony: and we expect ARR will continue to grow in fiscal 2025 in the low single digits.
Thank you very much.
Second,
Anthony: Absent any acquisitions, we expect to aggressively repay the revolving line of credit that was used to partially finance the share file acquisition.
We've modeled $150 million in repayments during fiscal year 2025.
As a result of this,
Our 2025 interest expense will increase meaningfully compared to 2024.
Anthony: and it will be further affected by the amount and timing of our 2025 repayments.
Anthony: These changes have the potential to distort the comparability of earnings per share and free cash flow in both prior and future periods.
Anthony: As a result, we will provide unlevered free cash flow as a key metric to assist with year-over-year comparisons.
Finally, when calculating our fiscal 2025 earnings per share,
Anthony: we've considered dilution from our 2026 convertible notes because our share price is well above the conversion price.
Anthony: Though we did purchase a call spread that covers the economic impact of dilution up to approximately $89 per share.
Anthony: The accounting regulations do not allow us to recognize any benefit from the call spread when calculating our shares outstanding.
Speaker Change: Go to www.Flydreamers.com to purchase a free audio or video disc.
Anthony: Because of this added nuance, we will provide you with the number of shares that we've assumed for dilution each time we provide an outlook for EPS.
Thank you.
Anthony: All right, with all that said, for the first quarter of 2025, we expect revenue between 232 and 238 million and earnings per share of between $1.02 and $1.08.
Anthony: and for the full year 2025 we expect revenue of between 958 and 970 million representing between 27 and 29 percent growth over 2024.
Anthony: We anticipate an operating margin for the year of 37 to 38 percent.
Anthony: We are projecting adjusted free cash flow of between $225 and $237 million.
Anthony: and we're projecting unlevered free cash flow of between 282 and 294 million dollars.
Anthony: We expect earnings per share to be between $5.00 and $5.12.
Our guidance for the full year EPS.
assumes a tax rate of 20%
the repurchase of $80 million in progress shares
Anthony: and approximately 46 million shares outstanding, which includes 1.4 million shares associated with dilution on our 2026 convertible notes.
Anthony: In closing, we're excited to deliver a great result for fiscal 2024. We're thrilled with the share file acquisition and our delivery against some early integration milestones, and we think we're well positioned for 2025 and beyond.
Anthony: With that, I'd like to open the call up for questions.
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, press star one one again. Due to time restraints, 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.
Speaker Change: And our first question will come from the line of Fatima Boulani with Citi. Your line is open.
Fatima Boulani: Good afternoon. Thank you for taking my questions and a belated Happy New Year to you.
Fatima Boulani: Yogesh, I wanted to focus my first question and channel it to you with regards to the performance in the entirely organic side of the business. You saw a ton of momentum in your flagship solutions like OpenEdge, Data Duras and now MarkLogic and so I wanted to really unearth
Speaker Change: what is driving some of that almost revitalization in organic demand and performance? And if you can maybe help us bifurcate that by end market, if you're seeing any differences by way of geography and or end market, and even from a distribution perspective. And then I have a quick follow-up as well, please. Thank you.
Thank you very much.
Speaker Change: Thank you, Fatima. Happy New Year to you as well. So, you know, the three businesses, as you know, you know, they are
Speaker Change: To be honest, relatively lumpy businesses, just to be upfront. We all know that these are businesses with large enterprises and large OEM deals in the case of DataDirect.
large ISV customers in the case of OpenEdge.
and MarkLogic is a large enterprise solution as well.
So, you know, what drove these, so the business.
First of all, from a global perspective, we saw strength.
Speaker Change: across the globe. There wasn't really whether North America did better than Europe. Most of these products are primarily North America and Europe, you know, where their footprint is, even though we do have customers in Latin America and APJ for these products.
Speaker Change: I think the whole importance of data is becoming critical to businesses.
Speaker Change: These products are the, you know, this is where mission-critical data either sits in the case of OpenEdge and MarkLogic, or it is connected to using DataDirect.
Speaker Change: So, so I think that the whole, you know, I think the data movement is a, is a important part of this, you know, it's
Speaker Change: It's kind of interesting to see, but as I said, you know, this is a lumpy business. And Anthony, if you'd like to add something to this?
Anthony: Yeah, no, I agree with all that, Yogesh. I think, you know...
Anthony: There continue to be more and more opportunities to leverage the AI aspects of our platform in our install base, and I think that's another element that I think is at least bolstering a lot of our upsell and giving us a lot more opportunity. So it just felt like a strong quarter, you know, across geographies, across channels, and across a good number of products.
I appreciate that and Anthony just as a
Anthony: direct consequence of, you know, the increased criticality of your core solutions. How are you thinking about the investment envelope specifically around your core products, and especially because historically you have done a pretty good job of maybe
Anthony: siloing some of your products, so you know very surgically focusing on our retention rate, but just wondering how you're thinking about incremental investment on the organic solutions to help power more upsell, potentially more cross-sell, to really you know have the net retention rate break out into new territory. And that's it for me, thank you.
Fatima Boulani: Yeah, thank you Fatima. I would say we're not, you know, there's not going to be a material change in our investment envelope. You know, a lot of...
Fatima Boulani: And then through acquisition, I think we have done a lot to really add to the portfolio in terms of AI capabilities, especially on the data platform side.
Fatima Boulani: And so I think it's less about the investment envelope and just more about continuing to focus and enhance those solutions for our customers. I think we're well positioned to, you know, to continue to get some traction in that area.
Thank you.
Thank you. One moment for our next question.
Thank you very much.
John DeFuci: And that will come from the line of John DeFuci with Guggenheim Securities. Your line is open.
Speaker Change: Thank you. First question is for Yogesh. Yogesh, you spoke about your acquisition strategy.
John DeFuci: And you guys have done a commendable job, at least in our observation. How does the new administration, and perhaps even more importantly, higher interest rates for longer?
John DeFuci: affect that strategy? In other words, if rates stay where they are, should we assume sort of, I don't know,
a pause in your strategy?
So, John, thank you.
Speaker Change: for those kind words, but the short answer is no, no pause, but I'll give you a slightly longer answer. You know, I think interest rates, if you notice, right, I mean, they've been relatively high for a couple of years now. It actually creates a competitive advantage for us. There are a lot of
Speaker Change: buyers who look to buy the kind of businesses we look to buy and their
Speaker Change: sort of approach is to lever them to an extremely high degree.
Speaker Change: which doesn't work in a high-interest environment. And so therefore I think in terms of competitive
situation, I think we will find that
That we have an edge
Speaker Change: I mean, look at Sharefile itself, right? I mean, here was a business that potentially, right, if you had lower interest rates, somebody else could have.
Speaker Change: You know potentially said ah I can level it up much more and therefore pay much more So I think that's one, you know competitive advantage for us You know, we we still have a little bit of firepower left in our capital even today So we could do a relatively modest size transaction but as we pay off
Speaker Change: are dead, which we intend to as rapidly as we can. I mean, Anthony mentioned that $150 million down this year.
Speaker Change: That creates additional capital that frees up for us to go do additional acquisitions. So I think,
Speaker Change: The combination of getting, you know, share file synergies going, the combination of paying down debt, the combination of the fact that the competitive landscape for buyers like us.
Speaker Change: is going to be favorable. I think last but not least, higher for longer also probably John means let's just say more reasonable valuations.
Right. And so all those things are.
I don't think they're going to play in our favor.
Speaker Change: Historically I've seen that the, you know, that the periods that follow this kind of a, you know, increased interest rate for the next few years, three to five years, there is tremendous opportunity to buy great enterprise infrastructure, software companies.
at Reasonable Multiples.
Speaker Change: Thank you. All of that makes a lot of sense. It does. So, thanks on that. And I guess, a follow-up for Anthony. And, you know, Anthony, I'm going to come back afterwards to ask you, because actually, I think, like, the street, including us,
Speaker Change: Like your forecast for the year, we got the revenue right.
Speaker Change: like within your range but our interest expense has got to be off We'll talk about that after.
Thank you.
Speaker Change: I guess I want to ask a question because helping us model, as you know, you have a lot of different models within Progress, so it makes it, you know, it's hard to model you if you really try to do it. And we tried several times, so it's hard. But at this point, with ShareFile,
Speaker Change: Would you break out the SaaS business going forward, since it's material? I think Yogesh said in his prepared remarks, it's going to be close to 30% of total revenue.
Speaker Change: Is that something you could do for us? I think you put it in services this this quarter, but it just seems like it's we can model. Go ahead, sorry.
yeah no John that's a it's a good question and
Speaker Change: I think as we move through 2025, you're right, because ShareFile is material, because we have other SaaS offerings that are going to push us up close to that 30% mark,
Speaker Change: I think it is likely that we'll have a services line in our P&L this year, which will effectively be all of our SAS solutions. It may include a little bit of professional services as well, but I think, you know, you'll be able to, I think it'll lend itself to
Speaker Change: maybe some tighter modeling as we go and maybe a better understanding of you know for folks just sort of how the how the different elements within the revenue line are working. So yeah I think that is to come as we move through the as we move through the quarters this year.
Speaker Change: Thank you. I think that'll help. It'll help the understanding of the business a lot and to your benefit. So, thank you. Thanks, guys.
Thank you. One moment for our next question.
Thank you.
Speaker Change: And that will come from the line of Itay Kidron with Oppenheimer, your line is open.
Itay Kidron: Thanks and guys congrats on closing the deal it's a big one but I have full confidence you can
do with it as you've done with others.
Speaker Change: I guess I have maybe two, three questions. Maybe I'll start with you, Anthony, just on the financial and the EPA side. I want to make sure I understand the guide for next year. Is there a way for you to quantify the convert?
Speaker Change: and the interest impact on a year-over-year basis. I'm just trying to think about.
Speaker Change: What would have been the EPS guide if those two wouldn't have been a factor this year as they have not been a factor last year. So, just trying to get a little bit more of an apples-to-apples EPS. If you could do the work on that, that would be great.
Speaker Change: I think from an interest expense perspective, the incremental interest expense is about $0.74 or $0.75 for the year.
Speaker Change: and the dilution from our converts is about 20 cents. So both of those together, you're talking just under a dollar per share on a year-over-year basis. That's the impact on EPS.
Speaker Change: Okay, that's very helpful. And then one thing on the annual guide, if I got this right, correct me if I'm wrong, you've got it to 37 to 38 percent operating margin.
Speaker Change: Fully integrate and improve and bring that business back to the 40% level Why that number is not more closer to 40 than rather than at 37 38
Speaker Change: Yeah keep in mind the share file contribution in 2024 in the fourth quarter was only one month.
Speaker Change: and you know I think we mentioned this before when we were sort of framing the acquisition that that business came over with a an operating margin below 20% so sort of in the high teens and I think that's right around where it landed for the
Speaker Change: for the fourth quarter. And so, you know, there'll be a...
Speaker Change: a gradual improvement in that margin as the year goes on.
Speaker Change: You know, I think knowing that it's coming on at that level and the size of that acquisition, I think we feel pretty good about
being able to deliver 37 to 38.
So it's nice to think about the linearity of this.
Speaker Change: starting low, getting better and improving through the year, ending on a high note? Is that kind of the way to think about this?
I think so, yes.
Okay, lastly for you, Yogesh.
Speaker Change: It was an interesting review of the business for you, in that you've kind of...
Speaker Change: highlighted or I guess reminded all of us that your business is not just old legacy on-premise infrastructure software but rather now evolving to be cloud-based with also multiple go-to-market motions right where to be through OEMs, open source, so on and so forth. I guess
Thank you.
Speaker Change: My question is, you know, one of the things you've always emphasized in our meetings in the past is the importance of running your business focused.
and efficient and I guess my question is
Where is the risk in having multiple go-to-market motions?
Speaker Change: How do you maintain efficiency when you have multiple go-to-market motions?
Speaker Change: I'm just kind of wondering, what is the risk in executing here and also on ShareFile? Shouldn't we think that that business by the nature of it is a higher churn than the other businesses you typically purchase? Thank you.
Speaker Change: Thanks for the multiple questions. I'll start with the first stuff. Sorry. No, that's okay. So on the, you know, on the staying focused part, right?
Speaker Change: So it has one of the things that you know, we have demonstrated that even with, you know, before we acquired Sharefile, right?
All the channels basically were in place at Progress.
Speaker Change: We've had a high-velocity go-to-market model. We've had a channel model with Kemp and Ipswich. We've had an open-source model with Chef. So we've demonstrated that we can run, and of course, we've always had an enterprise and selling to ISVs model.
It's pretty much the early days of progress.
Speaker Change: So, I think we have already demonstrated that we can run a lean operation and deliver high margins because our go-to-market efforts...
There's a lot of...
Speaker Change: of Global Market Motions. It also allows us to actually address not just large enterprises, but mid-sized and smaller businesses. After all, we have now nearly 200,000...
businesses who use our products around the world.
and the only, you know, 2000, Global 2000s, right?
Speaker Change: So really we have a very large number of businesses who rely on us and how do we reach them? And the impact channels actually are very efficient in doing so, as is the things like online sales and so on. So I don't see...
Speaker Change: it impacting our margins. I actually see them as being very, very effective in helping us manage.
Speaker Change: A lot of our channel, a lot of the lower size deals, a lot of the high velocity stuff, that's all.
Speaker Change: It's either inside sales or completely automated or folks that do channel partner management who then basically do meaningful revenue at their end. So it's actually, you know, tremendously efficient.
Very good. And then on the churn, on Cherfon.
Speaker Change: So I think that actually, you know, the net retention of ShareFile was practically the same as that of Progress in FY24. And as you know, we have always looked to improve net retention when we acquire a business.
Speaker Change: That is one of our core competencies. And so our goal is to, you know, get back to 100 plus as well. And it's extremely close to that.
Yeah, and I would just add a tie that
You're right, the...
Speaker Change: sort of the raw churn or raw, you know, gross retention might be slightly lower in a business like ShareFile. But it's not different than some of the other products we have in our portfolio. So we have, you know, a group of DX products. We've got
Speaker Change: you know, DevTools, we have Sitefinity, products like that I would say share common attributes with ShareFile in terms of you know the velocity and sort of the churn and how those those products play out and I think we're pretty comfortable with where ShareFile has been and where it can be relative to the rest of those products in our portfolio.
Appreciate it. Thanks for your patience. Thank you.
Thank you. One moment for our next question.
Speaker Change: And that will come from the line of Brent Thill with Jeffries. Your line is open.
Speaker Change: Hi guys, this is Fodi and I'm for Brentville. Thanks for taking the question. Yes, I wanted to ask a high-level one on the demand environment.
Speaker Change: So, you know, we're three weeks into the new year now, and...
Speaker Change: I guess my question is, you know, more around how demand looks, customer appetite, spending trends, you know, heading into 2025 versus this time last year, and, you know, what are the assumptions that you're sort of embedding in the four-year guide?
So, you know, we see
Speaker Change: really, you know, continue similar demand as we've had in 24. So I, you know, again...
Speaker Change: Demand in 24 has been solid. I mean, actually, we expected not such great demand. I mean, that's one of the reasons why we have continued to do well throughout 24 as the year has progressed.
Speaker Change: We are expecting sustained demand across our product portfolio. So right now and we're not seeing anything to to make us feel otherwise. Of course you know
Speaker Change: There are lots of uncertainties out there, as we all know, and, you know, who knows what will happen, but at least at this stage, you know, we see solid demand going forward.
Thank you.
Speaker Change: I don't think there's anything specific that is different. You know, our top of funnel continues to be robust.
Thank you.
Speaker Change: So, to us, that is very, very predictable and we know well in advance when renewals are coming up.
We know well in France when customers have...
Speaker Change: their contracts that we can maybe expand upon. Or, you know, so I think that it's really, you know, as you know, our new business is very small, right? Our ARR growth.
Speaker Change: which is, you know, in the low single digits last year, and...
Speaker Change: you know, but 100% was MRR. So, you know, over 100. So, so you can see that, you know, mu is just a couple of points. And so that, you know, that's a relatively small amount, so to speak. And we have, you know,
Speaker Change: Good pipelines, robust pipelines for that. So really, you know, for us, pipeline, we think of our pipeline very differently. You know, we don't, to us, it's really more of the making sure that we understand our existing customer base and their cycles. You know, that's where the vast majority of energy goes.
That's helpful. Thank you.
Thank you. One moment for our next question.
Thank you.
Speaker Change: And that will come from the line of Pendulum Bora with J.P. Morgan. Your line is open.
Oh, great. Thank you for taking the questions.
Speaker Change: Yogesh, I want to double down on one of the things that you said about MarkLogic being sold to the US government.
on the Gen AI workload.
Speaker Change: What is it that the customer is using? Is that kind of using MarkLogic Semaphore as a vector database? What is the use case? I want to just understand that use case and maybe help us understand if you're seeing more customer traction around that use case and are you leaning in from a marketing standpoint? Trying to think if that business line could start accelerating.
Speaker Change: Happy to. Yeah, happy to. So, Pendulum, you know, this is an existing MarkLogic Summer for customers. So, let me start there.
Speaker Change: And so they have been using MarkLogic for their primary, you know, business.
Data
Speaker Change: So the business data is unstructured as well as structured. They store all of that in MarkLogic. And so what has happened is that as we have delivered vector capabilities and the ability to do retrieval augmented generation RAD against the corporate information to
Speaker Change: you know, augment the answers coming back from LLMs. These customers who are.
Speaker Change: you know, users of MarkLogic already, MarkLogic plus Semaphore already, they have an opportunity, you know, much rather in the near term rather than the longer term to see how they can use that for a whole host of purposes.
Speaker Change: So, initial LLM use is for the internal use, sorry, initial
Speaker Change: Jenny, I use with Mark logic and semaphore is for internal use and the internal users and then we'll see how it goes from there. So they just started this project. So, you know, this is a new.
Speaker Change: Go to Market Plan for us. We are looking at our entire both morphology concern for customer base as well as looking at broader than that and seeing how we can get some of the other customers to recognize what we can bring to them as well.
Speaker Change: Yeah, understood. One follow-up for Anthony. Anthony, what is the assumption for revenue contribution for Fiscal 95 from ShareFile, and can you remind us what that business is growing at?
Speaker Change: Yeah, we're expecting it to be around $250 million for the year pendulum, and I would say it's going to be...
Speaker Change: You know, we're going to say it's consistent with the rest of our business, sort of low single digits.
Speaker Change: Just to follow up, you said $250 million in addition. I'm just looking at the guidance. I think the guidance versus last or the last fiscal year came up.
Speaker Change: you'd be adding something like 211, 214. So I'm trying to understand how, if you're adding 250 million from.
Speaker Change: This acquisition is the organic business Looks a week a little bit weak. So I'm so I'm trying to understand the wrappable piece ARR 250 million, I understand but to revenue the wrappable piece, is that lower?
Speaker Change: Yeah, well, one thing to keep in mind is there's one month contribution from Sheriff Island 24 so the
You know, there's maybe a $230, $229 million incremental contribution.
Speaker Change: term license renewals that either come in or don't in a particular year, the revenue can get lumpy one way or another, which is why we continue to focus on ARR, which I would say we're expecting growth in ARR. And if you look at 24,
even without ShareFile, ARR grew by probably around 2%.
Speaker Change: which was probably a little ahead of where we thought it would be.
Speaker Change: I think next year with ShareFile, we're expecting continued ARR growth. So, yeah, you can, if you sort of unwrap, let's say, $228, $229 million for the incremental ShareFile revenue in 2025.
Speaker Change: You do have an FX impact of maybe five, six million dollars on the year, and then there's going to be a little variability from timing of contract renewals for things like Data Direct.
Yep.
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.
Yogesh Gupta: Thank you, Sheree. To close, we're delighted with our performance in FY24, and we're looking forward to an exciting FY25. Thanks again for joining us, everyone. Have a good night.
Thank you.
Yogesh Gupta: Thank you all for participating. This concludes today's program. You may now disconnect.