Q2 2025 Progress Software Corp Earnings Call

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Michael mitigate: Now, it's my pleasure to turn the call over to Michael mitigate.

Michael mitigate: S V P of Investor Relations the floor is yours.

Michael mitigate: Thank you Carmen and good afternoon, everyone and thanks for joining us for progress Software's second fiscal quarter 2025 financial results Conference call on the line with me. This afternoon are Yogesh Gupta, President and CEO and Anthony Folger, Our Chief Financial Officer before we get started lets go over the safe Harbor statement during this.

Call, we will discuss our outlook for future financial and operating performance corporate strategies product plans cost initiatives or integration of share file and other enter information that might be considered forward looking such forward looking information represents progress software's outlook and guidance only as of today and are subject to risks and uncertainties for.

A description of the risk factors that may affect our results. Please refer to the risk factors in our SEC filings progress assumes no obligation to update forward looking statements included in this call. Additionally, please note that all the financial figure figures referenced in this call are non-GAAP measures unless otherwise indicated you can find a wreck.

Michael mitigate: <unk> of these non-GAAP financial measures to the most directly comparable GAAP figures in our financial results press release, which was issued after the market closed today. This document contains additional information related to our financial results for the second quarter of fiscal year 2025, and I recommend that you reference it for specific details we have also.

Provided a presentation that contains supplemental data of our of our second quarter and provide highlights and additional financial metrics. Both the earnings release and the supplemental presentation are available on the Investor Relations section section of our website at investors Dot progress Dot Com today's call will be recorded in its entirety and should be available.

Michael mitigate: Both for replay on the Investor Relations section of our web site. Shortly after we finish so yogesh I'll turn it over to you now.

We're done with that.

Yogesh: Thank you Mike Good afternoon, everyone and thank you for joining our conference call to discuss the results of our second fiscal quarter of 2025.

Yogesh: We're extremely pleased with our solid second quarter results and the success of our ongoing integration of chef aisle.

Yogesh: Before we get into the details of the quarter. Let me begin with the news, we just announced regarding the acquisition of nuclear for which we paid $20 million.

Nuclear provides an easy to use self service SaaS product that democratize, the use of trustworthy and verifiable Gen AI.

Yogesh: Small and mid sized businesses as well as large global corporations can quickly and easily reap the benefits of sophisticated agentic rag AI capabilities using nuclear SaaS.

Yogesh: While the deal does not have a material impact on our financials. We are very excited about nuclear and the unique agent take rate as a service AI capabilities. It breaks.

Yogesh: As we have often discussed the first pillar of our total growth strategy is to invest and innovate.

We regularly update modernize and improve our products as an everyday part of our business, which is reflected in the R&D line of our income statement.

Yogesh: For us our R&D investment is an essential element of providing value to our customers. So they stay with us long into the future.

Yogesh: With nuclear we have accelerated the R&D process by purchasing great technology that addresses an urgent market need and we will rapidly integrated with our products.

Yogesh: This will allow us to incorporate additional agent to Greg AI features that help our existing customers speed up their long Gen AI initiatives, thereby enabling us to continue to drive strong customer retention.

Yogesh: You'll hear more about nuclear in the coming quarters as we integrate this cutting edge technology without topics.

Yogesh: Turning to our second quarter results total revenue came in at $237 million up 37%, 36% over last year.

Yogesh: And were solid across geographies and product lines.

Yogesh: <unk> grew 46% year over year or 2% on a pro forma basis to $838 million and net retention was again, 100%.

Yogesh: Our operating margin was 40% and earnings exceeded the high end of our guidance, thanks to solid execution and expense control.

Yogesh: Lastly, our balance sheet improved as well with another $40 million paid down on our revolving credit line.

Yogesh: Anthony will provide the rest of the financial details in a minute, but as you saw we have raised guidance for the remainder of the year, reflecting our confidence in the continued strength of our business and solid expense control.

Yogesh: Overall, the second quarter showed strong renewals expansions and new customer additions across all geographies.

Yogesh: And we saw consistent performance across all product areas with significant strength coming from open edge as well as solid performance from share file.

Yogesh: Okay.

Yogesh: Our data platform products, including open edge continued to generate major renewals and expansions in the quarter.

Yogesh: Including a world class biotech company, a global pharmaceutical firm in major European DIY retailer and several open edge independent software vendors.

Yogesh: The growing importance of data and an AI driven world combined with the ongoing investments in our products is the driving force behind these wins.

Yogesh: Let me share an example of how one customers benefiting from using our products in their generative AI efforts.

Yogesh: So Lisa the research and scientific scientists teams numbering in the thousands that a global pharmaceutical company.

Yogesh: We're struggling to find the correct information needed, which was buried in mountains of unstructured unstructured data such as research papers email spreadsheets files et cetera.

Yogesh: Using <unk> vector support which yielded rather poor results with only 44% accuracy of answers.

Yogesh: This resulted in these highly skilled teams wasting their time and getting frustrated.

Yogesh: To reduce this incredible waste the company partnered with progress to strategically transformative information search capabilities using the progress data platform.

Yogesh: By implementing our advanced <unk> solution integrated with semantic knowledge graph the company dramatically improve the precision and relevance of the search results.

Yogesh: The accuracy of answers improved to 84%.

Yogesh: Delivering significant time savings and dramatically improving user satisfaction.

Yogesh: During the quarter, we released new versions of progress Atlantic and Kendo, UI, which introduced a series of groundbreaking AI capabilities, including AI coding the systems that significantly accelerate development workflows.

Yogesh: These AI announcements were key to a major customer expansion with one of the largest ports in the U S.

Yogesh: In addition to the developer productivity boost from AI, the customer determined that the AI coding assistant also reduce business risk by producing higher quality code.

Yogesh: Our infrastructure management products also continue to see success around the world.

Yogesh: In Q2, one of the largest leading sustainability companies turn to our products to modernize the automation and deployment of their it infrastructure supporting their 6500 locations around the world and.

Yogesh: In the European government selected our products to improve cybersecurity using AI ops.

Yogesh: As organizations modernize the infrastructure they continue to recommit to our products for their data digital experience and infrastructure management needs.

Yogesh: Our <unk> business also saw continued strong renewals and expansions, including a fortune 500 global producer of oil and natural gas who use of share files AI powered document insights and collaboration tools to share large sensitive files with their customers and their global supply chain.

Yogesh: Speaking of <unk>, Let me provide you an update on the business with.

Yogesh: We reported at the end of Q1 that we were ahead of our integration plan the.

Yogesh: The same is true at the end of the second quarter.

Yogesh: Most of the primary operational synergies are completed and nearly all of the major milestones are now behind us.

Yogesh: We've completed and terminated the transition services agreement with cloud software group.

Yogesh: <unk> earlier than planned and I'm really pleased with the progress we have made so far.

Yogesh: In addition to our integration efforts the share file engine theme has continued to deliver new capabilities without missing a beat.

Yogesh: For example, we announced powerful new share file AI features for faster document collection, automating repetitive tasks and simplifying workflows and generating AI driven insight.

Yogesh: With these new AI capabilities businesses can gather documents three five times faster and extract key insights they need up to 20 times two five times faster.

Yogesh: Sure file is now also deeply integrated with Microsoft 365, allowing users to benefit from share file secure cooperating and file collaboration seamlessly from within Microsoft 365.

Yogesh: This helps organizations to streamline complex workflows and improve productivity.

Yogesh: Productivity as well.

Yogesh: And we are delighted that <unk> was named a visionary in the latest Gartner magic quadrant for document management.

Yogesh: I also want to briefly touch upon progress as one use of AI to innovate and improve our operations.

Yogesh: As you saw in our excellent bottom line results in Q2, we continued to maintain our expense discipline, which has always been central to our operating philosophy.

Yogesh: <unk> has begun to play an expanding role in helping us maintain our world class operating margins.

Yogesh: To that end, we are relentlessly pursuing ways to incorporate AI into any process that can be done more efficiently.

Yogesh: It includes both off the shelf and our own AI products to drive productivity and produced strong results.

Yogesh: Over the past year, we've embedded AI, driven automation and intelligence and wide range of our business functions from engineering and it.

Yogesh: The customer support marketing and sales.

Yogesh: For example, our engineering teams are leveraging AI assisted coding tools to accelerate development cycles and improved code quality, while our operations teams have adopted predictive analytics to proactively manage our infrastructure.

Yogesh: And reduce downtime.

Yogesh: And customer support we have implemented AI powered chat and case routing systems that significantly improve response times and customer satisfaction.

Yogesh: We're also using generative AI to streamline certain content creation and campaign execution within our marketing teams, enabling faster go to market strategies and a more personalized customer engagement.

Yogesh: And we're using AI in sales to help <unk> prospects before sales teams began to interact with them.

Yogesh: By generally by integrating AI technologies into our workflows, we're not only increasing efficiency in managing costs, but also freeing up our teams to focus on high value strategic work.

Yogesh: Lastly, I would like to briefly discuss the other key pillar of our strategy disciplined accretive M&A to drive sustained top line growth.

Yogesh: As you recall, we often discuss the overall size at all of our opportunity for M&A, which remains quite large before.

Yogesh: Before but before we acquired share file we saw many SaaS companies that are unattractive to us as potential targets because we lacked in house expertise to run a highly profitable SaaS business.

Yogesh: Today with share file we have a high quality SaaS business that contributes over a quarter of our revenues and more importantly, we are an organization with the expertise and experience of running a highly efficient and profitable SaaS business at scale.

Yogesh: So we are in a much better position today to evaluate almost any kind of business SaaS or otherwise as a possible acquisition targets.

Yogesh: Naturally our success in executing our total growth strategy depends on maintaining a strict M&A discipline.

Yogesh: We will continue to look for companies with excellent products with great customer basis, who love those products significant recurring revenues and high retention rates.

Yogesh: And we will continue to be disciplined about what we pay for them.

Yogesh: Our capital allocation priorities are unchanged.

Yogesh: We believe M&A will produce the best returns on capital for shareholders and between deals we will focus on reducing our net leverage.

Yogesh: Finally, and as always I want to thank all of our progress teams around the world.

Yogesh: Their dedication and hard work that led to our great results in Q2.

Yogesh: In addition to consistently performing at a high level.

Yogesh: Our employees also make progress.

Yogesh: Great place to work.

Yogesh: Once again progress was named among the 2025 best places to work recently by the Boston Business Journal.

Yogesh: I am so proud of the amazing culture, we have and the recognition we continually receive forest.

Yogesh: With that I will turn it over to Anthony.

Anthony Folger: Alright, Thanks, Yogesh and good afternoon, everyone. Thanks for joining our call.

Anthony Folger: As Yogesh mentioned, we're thrilled with our Q2 financial results. The progress we've made integrating share file and we feel very well positioned for the second half of 2025.

Anthony Folger: Before we dig into the numbers I'd first like to congratulate Yogesh on recently being named an Ernst and young entrepreneur of the year in New England.

Yogesh: This prestigious award recognizes visionary leaders and transformational Ceos that are driving innovation accelerating growth and creating lasting impact.

Yogesh: Having worked with Yogesh for several years now I can attest this honor is well deserved.

Yogesh: Alright, turning to the numbers.

Yogesh: Let's start on the top line with IRR.

Yogesh: We closed Q2 with IRR of $838 million, representing 46% growth year over year, and 2% pro forma growth on a year over year basis for clarity the pro forma results include share files.

Yogesh: In both periods.

Yogesh: Although no single product drove material growth in our total IRR.

Yogesh: 2% pro forma growth that we delivered.

Yogesh: Was the result of growth in multiple products across the portfolio, including share file open edge Dev tools site Trinity Loadmaster, and what's up goal.

Yogesh: Also worth highlighting is our strong net retention rate, which again came in at 100%, reflecting resilience in our top line.

Yogesh: As we've mentioned several times before and as Yogesh just covered in his remarks.

Yogesh: We believe that smart investments in our product portfolio and good customer relationship management, both serve as the foundation of our consistently strong net retention rates.

Yogesh: In addition to our solid IRR growth.

Yogesh: Revenue for the quarter of $237 million was solidly within the guidance range. We provided back in March and was powered by strong performance from share file and open edge.

Yogesh: Yeah.

Yogesh: Turning now to expenses, our total costs and operating expenses for the quarter were $142 million coming in better than our expectations. The.

Yogesh: The year over year increase of 31% was driven entirely by the addition of share file to our business.

Yogesh: Operating income in Q2 was $95 million up 42% over the prior year.

Yogesh: And our operating margin in the quarter was strong at over 40%.

Yogesh: Compared to 38% in the second quarter of 2024.

Yogesh: On the bottom line, our Q2 earnings per share of $1 40 was <unk> <unk> above.

Yogesh: Above the high end of the guidance range, we provided in March.

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

Yogesh: Moving on to a few balance sheet and cash flow metrics, we ended the quarter with cash and cash equivalents of $102 million and total debt of $1 $4 7 billion for a net debt position of $1 $3 7 billion.

Yogesh: On a post synergy basis, we expect our net leverage ratio to be approximately three four times.

Yogesh: Our DSO for the quarter was 53 days compared to 48 days last quarter and Unlevered free cash flow of $52 million was driven by the strength of our operating performance coupled with strong collections in our base business.

Yogesh: The slight bump in our DSO in Q2 was the result of transitioning the share file business under progress as billing system.

Yogesh: This was a significant milestone on our integration roadmap.

Yogesh: And with billings.

Yogesh: Fulfillment credit and collections now fully under progress as control.

Yogesh: We expect to significantly improve the share final customer experience.

Yogesh: Also during Q2.

Yogesh: We repaid $40 million against the revolving line of credit that was drawn down to partially finance the share file acquisition.

Yogesh: This brings our total first half debt repayment to $70 million and keeps us on schedule to pay down a total of $160 million during fiscal 2025.

Yogesh: At the end of Q2, our revolving line of credit has a balance of $660 million.

Yogesh: Finally during Q2, we repurchased $20 million of progress stock, bringing our first half total to $50 million and leaving $57 million remaining under our current share repurchase authorization.

Yogesh: Okay, now I would like to turn to our outlook for Q3 and the full year 2025.

Yogesh: Our outlook reflects continued strength in the demand environment for our solutions.

Yogesh: It reflects recent changes in foreign exchange dynamics.

Yogesh: And it reflects continued confidence in our team's ability to execute.

Yogesh: I'd also like to mention that our acquisition of nuclear is not expected to have a material impact on our financial results in the second half of 2025.

Yogesh: In other words, our second half outlook is the same with or without the nuclear acquisition.

Yogesh: For the third quarter of 2025, we expect revenue between 237% and $243 million in.

Yogesh: And earnings per share of between $1 28, and $1 34.

Yogesh: For the full year 2025, we are increasing our outlook across the board and expect revenue between 962 and $974 million, an increase of $4 million from our prior guidance.

Yogesh: And operating margin of 38% to 39% an increase of rough roughly 50 basis points from our prior guidance.

Yogesh: Adjusted free cash flow between 228 and $240 million.

Yogesh: And Unlevered free cash flow of between 285 and $296 million in.

Yogesh: An increase of $2 million from prior guidance for both.

Yogesh: Finally, we expect earnings per share between $5 28.

Yogesh: And $5 40 in.

Yogesh: An increase of <unk> <unk> from prior guidance.

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

Yogesh: The repurchase of $50 million in progress shares that's been done to date.

Yogesh: And total debt repayment of $160 million.

Yogesh: In terms of the total share count in our EPS assumption, we're assuming approximately 45 million shares outstanding and this includes approximately 500000 shares associated with potential dilution on our 2026 convertible notes.

Yogesh: I'm sure you will recall that we purchased a call spread on our 2026 convertible notes to hedge the economic impact of dilution up to approximately $89 per share.

Yogesh: Accounting regulations require that recognition of any benefit from that call spread be excluded when calculating shares outstanding.

Yogesh: Because of this added nuance, we will continue to provide the number of shares that we've assumed for dilution each.

Yogesh: Each time, we provide an outlook on earnings per share.

Yogesh: For more details I'd recommend you refer to the supplemental financial presentation filed with our press release, which includes detailed information on our outstanding debt.

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

Yogesh: Really a continuation of the trend we saw in the first quarter and we believe we're very well positioned to deliver against our improved outlook for the remainder of 2025 and beyond.

Yogesh: With that I'd like to open the call for Q&A.

Speaker Change: Thank you and I'm, Sorry reminder, to ask a question simply press Star one one on your telephone and wait for your name to be announced to withdraw your question simply press Star one again.

Speaker Change: First question is from <unk> <unk> with Oppenheimer. Please proceed.

Speaker Change: Hi, This is <unk> on for a tie.

Speaker Change: Really just want to get a little bit more color about.

Speaker Change: The nuclear acquisition and.

Speaker Change: This is a little bit of a divergence from what we generally see the profile of company that you guys go after.

Speaker Change: Being more mature software company.

Speaker Change: So maybe just give us a little bit more color on nuclear and.

Speaker Change: Yes, Thank you for taking the question.

Speaker Change: Yeah.

Speaker Change: Sure happy to and Anthony feel free to add.

Speaker Change: <unk>.

Speaker Change: So.

Speaker Change: You are right that this is not like some of our more recent acquisitions that we have done.

Speaker Change: This acquisition was primarily driven.

Speaker Change: <unk> investment in our product portfolio.

Speaker Change: <unk> as many of you know progress has had a long history.

Speaker Change: With many many decades of continuing to invest in our portfolio to make sure that the portfolio stays current.

Yogesh: And our customer retention stays high.

Yogesh: When and I know this is probably maybe before some folks on the call may even be.

Yogesh: But before the Internet came around our progress was primarily a client server software company Internet came along cloud came along we basically invested heavily in making open edge multi tenant.

Yogesh: Which allowed the open edge business to continue extremely start strong and stable.

Yogesh: Then when mobile computing came along we again invested heavily in that made a small acquisition along the way to add mobile computing capabilities to that end today.

Yogesh: We're doing something similar with AI, which is the third major way in the enterprise software that we see dramatically changing the landscape.

Yogesh: Probably even more than the first prudent.

Yogesh: So.

Yogesh: So from our perspective this is.

Yogesh: This is something that the company has a strong history of doing we believe that there is tremendous opportunity in ensuring that our customers continue to find great value with our products.

Yogesh: That they stay with us.

Yogesh: This is a rather modest purchase price for a leading edge technology around Agentic Rag solutions for Gen AI.

Yogesh: So we feel really really good about it.

Yogesh: Both for adding the technology as well as bringing on a strong team that can help us continue to move this technology forward integrated with our products.

Yogesh: And our new go to market.

Yogesh: Okay.

Yogesh: Pretty much pretty much appreciated and congrats on the quarter.

Yogesh: Thank you so much.

Speaker Change: Thank you one moment for our next question.

Speaker Change: And it comes from the line of John <unk> with Guggenheim Securities. Please proceed.

Speaker Change: Thank you.

Speaker Change: I'm going to ask another question on nuclear I know, it's a small acquisition, but it's a really interesting in another way.

Speaker Change: You guys know you typically byproducts that sort of stand on their own and you run them frankly, you run them a lot more efficiently and but nuclear it feels like it's something you can leverage across your portfolio of products, which is not what you'd normally do I know, sometimes those or confusion over that but can this be can this one the cross sell.

Speaker Change: Turning to you or perhaps even something that can be embedded in other products. It seems like maybe you can.

Speaker Change: John you're absolutely right.

Speaker Change: John you're absolutely right it.

Speaker Change: It is something that we expect to integrate across our product portfolio I think it brings value not just to our data platform business, which is open edge and.

Speaker Change: Mark logic in <unk>, but I think it brings value to things like <unk> and share file.

Speaker Change: I think it is I think it is all kinds of interesting interesting opportunities to bring value to those.

Speaker Change: Dealing with.

Speaker Change: Leveraging that information that in fact, as you know share file has.

Speaker Change: [laughter] 86000 customers and their data is sitting in our chair file late so so we see opportunity here.

Speaker Change: We see opportunity too.

Speaker Change: Integrate across across the portfolio over time and create value for our customers.

Speaker Change: And therefore business.

Speaker Change: And that makes sense. It makes it makes it a little different too.

Speaker Change: From <unk>.

Speaker Change: It does.

Speaker Change: It does.

Speaker Change: Okay, and if I could a follow up for Anthony Anthony free cash flow in the quarter was actually below what we had expected a little bit below what we were looking for but you brought up annual forecast meaningfully. So could you just give us a little color on that like what happened this quarter and explain why our expectation so much higher for the second.

Yogesh: Was it just some timing things happening just wanted to just make sure we understand that.

John: Yes, I think two things John one is a little bit of timing on on collections.

Yogesh: The second is we did move.

Yogesh: We basically picked up share files business.

Yogesh: Which up to this point, we had still been on a transition service agreement with PSG.

Yogesh: And we went live on the progress billing platform for share file and so that's basically picking up a $250 million business and cutting it over onto a new.

Yogesh: Billing fulfillment and credit and collection system.

Yogesh: So I would say we are really happy with the result, we are really happy with the early returns on it but anytime you do a.

Yogesh: Sort of a major lift and shift like that theres always a little bit of.

Yogesh: Youll go a little bit slower to make sure that everything is working properly and I would say there was a little bit of that in the quarter in terms of.

Yogesh: How we were sort of batching up invoices and how we were handling collections I think we were being.

Yogesh: Much more careful and much more thoughtful about the customer experience.

Yogesh: The long term implementation of the system and less so maybe about the DSO in the quarter.

Yogesh: It is.

Yogesh: Something that we sort of move past very quickly here, but we're more.

Yogesh: We're excited just to get this I mean, it was a big milestone as you might imagine on the integration plan. So it was a nice wanted to get done.

Yogesh: Yes.

Yogesh: Okay that makes a lot of sense and by the way I mean, you sort of that's reflected in your guidance for the year. So, but you know that such an important metric for especially for you guys, but anyway.

Yogesh: Especially with <unk> given the size of that.

Yogesh: It's nice to see that coming along so well thanks, a lot guys.

John: Thank you John.

John: Thank you and as a reminder, if you do have a question simply press star one one to get in the queue.

Speaker Change: Alright, yes, I see no further questions in the queue I will pass it back to management for final remarks.

Speaker Change: Thank you thank.

Speaker Change: Thank you again for joining our call today I'm truly excited about our performance in Q2, I'm pleased to share our confidence in the outlook for the rest of fiscal 2025.

Speaker Change: I'm, especially proud of the dedication of our entire organization and their continued hard work, which positions us well as we continue to execute our total growth strategy.

Speaker Change: We look forward to talking to you soon thanks, again and bye bye.

Speaker Change: And this concludes our program for today. Thank you for participating and you may now disconnect.

[music].

Michael Micciche: Now it is my pleasure to turn the call over to Michael Micciche, SVP of Investor Relations. Thank you, Carmen.

Michael Micciche: Good afternoon, everyone, and thanks for joining us for Progress Software's second fiscal quarter 2025 financial results conference call. On the line with me this afternoon are Yogesh Gupta, President and CEO, and Anthony Folger, our Chief Financial Officer.

Michael Micciche: Before we get started, let's go over the Safe Harbor Statement. During this call, we will discuss our outlook for future financial and operating performance, corporate strategies, product plans, cost initiatives, our integration of ShareFile, and other information that might be considered forward-looking. Such forward-looking information represents Progress Software's outlook and guidance only as of today and is 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 SEC filings. Progress assumes no obligation to update forward-looking statements included in this call.

Michael Micciche: Additionally, please note that all the financial figures referenced in this call are non-GAAP measures unless otherwise indicated. You can find a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP figures in our financial results press release, which was issued after the market closed today. This document contains additional information related to our financial results for the second quarter of fiscal year 2025, and I recommend that you reference it for specific details. We've also provided a presentation that contains supplemental data of our second quarter and provides highlights and additional financial metrics. Both the earnings release and the supplemental presentation are available on the Investor Relations section of our website at investors.progress.com.

Michael 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.

Michael Micciche: So, Yogesh, I'll turn it over to you now that we're done with that. Thank you, Mike.

Yogesh Gupta: Good afternoon, everyone, and thank you for joining our conference call to discuss the results of our second fiscal quarter of 2025. We're extremely pleased with our solid second quarter results and the success of our ongoing integration of ShareFile.

Yogesh Gupta: Before we get into the details of the quarter, let me begin with the news we just announced regarding the acquisition of Nuclea, for which we paid $20 million. Nuclear provides an easy-to-use self-service SaaS product that democratizes the use of trustworthy and verifiable Gen-AI. Small image-sized businesses, as well as large global corporations, can quickly and easily reap the benefits of sophisticated, agentic WAG-AI capabilities using Nuclea SaaS.

Yogesh Gupta: While the deal does not have a material impact on our financials, we are very excited about Nuclea and the unique, agentic, RAAG-as-a-Service AI capabilities it brings. As we have often discussed, the first pillar of our total growth strategy is to invest and innovate. We regularly update, modernize, and improve our products as an everyday part of our business, which is reflected in the R&D line of our income statement. For us, our R&D investment is an essential element of providing value to our customers so they stay with us long into the future. With Nuclea, we have accelerated the R&D process by purchasing great technology that addresses an urgent market need, and we will rapidly integrate it with our product.

Yogesh Gupta: This will allow us to incorporate additional agentic RAG-AI features that help our existing customers speed up their own Gen-AI initiatives, thereby enabling us to continue to drive strong customer return.

Yogesh Gupta: You'll hear more about Nuclea in the coming quarters as we integrate this cutting-edge technology with our product.

Yogesh Gupta: Turning to our second quarter results, total revenue came in at $237 million, up 36% over last year, and was solid across geographies and products. AR grew 46% year-over-year, or 2% on a pro forma basis, to $838 million, and net retention was again $100 million. Our operating margin was 40% and earnings exceeded the high end of our guidance, thanks to solid execution and expense.

Yogesh Gupta: Lastly, our balance sheet improved as well with another $40 million paid down on our revolving credit. Anthony will provide the rest of the financial details in a minute, but as you saw, we have raised guidance for the remainder of the year, reflecting our confidence in the continued strength of our business and solid expense. Overall, the second quarter showed strong renewals, expansions, and new customer additions across all geographies. And we saw consistent performance across our product areas with significant strength coming from OpenEdge as well as solid performance from SharePoint. Our data platform products, including OpenEdge, continue to generate major renewals and expansions in the quarter, including a world-class biotech company, a global pharmaceutical firm, a major European DIY retailer, and several OpenEdge independent software The growing importance of data in an AI-driven world combined with the ongoing investments in our products.

Yogesh Gupta: is the driving force behind it.

Yogesh Gupta: Let me share an example of how one customer is benefiting from using our products in their generative AI efforts. The research and scientist teams, numbering in the thousands, at a global pharmaceutical company were struggling to find the correct information needed, which was buried in mountains of unstructured and structured data, such as research papers, emails, spreadsheets, files. They tried using GenAI with vector support, which yielded rather poor results with only 44% accuracy of M. This resulted in these highly skilled teams wasting their time and getting frustrated. So to reduce this incredible waste, the company partnered with Progress to strategically transform its information search capabilities using the Progress data platform.

Yogesh Gupta: By implementing our advanced WAG search solution, integrated with semantic knowledge graphs, the company dramatically improved the precision and relevance of the search. The accuracy of answers improved to 84%, delivering significant time savings and dramatically improving user satisfaction. During the quarter, we released new versions of Progress Caleric and Kendo UI, which introduced a series of groundbreaking AI capabilities, including AI coding assistants that significantly accelerate development work These AI enhancements were key to a major customer expansion with one of the largest ports in the U.S. In addition to the developer productivity boost from AI, the customer determined that the AI coding assistant also reduced business risk by producing higher quality code.

Yogesh Gupta: Our infrastructure management products also continue to see success around the world. In Q2, one of the largest leading sustainability companies turned to our products to modernize the automation and deployment of their IT infrastructure, supporting their 6,500 locations around the world. and the European government selected our products to improve cybersecurity using AIR. As organizations modernize their infrastructure, they continue to recommit to our products for their data, digital experience, and infrastructure management. Our Sharefile business also saw continued strong renewals and expansion. including a Fortune 500 global producer of oil and natural gas who uses share files, AI-powered document insights, and collaboration tools to share large sensitive files with their customers and their global supply.

Yogesh Gupta: Speaking of ShareFile, let me provide you an update on the business. We reported at the end of Q1 that we were ahead of our integration. The same is true at the end of the second quarter. Most of the primary operational synergies are completed and nearly all of the major milestones are now behind. We've completed and terminated the transition services agreement with Cloud Software Group, again, earlier than planned, and I'm really pleased with the progress we have made. In addition to our integration efforts, the ShareFile engineering team has continued to deliver new capabilities without missing a beat.

Yogesh Gupta: For example, we announced powerful new ShareFile AI features for faster document collection, automating repetitive tasks and simplifying workflows, and generating AI-driven insights. With these new AI capabilities, businesses can gather documents 3.5 times faster and extract key insights they need up to 25 times faster. ShareFile is now also deeply integrated with Microsoft 365, allowing users to benefit from ShareFile secure co-authoring and file collaboration seamlessly from within Microsoft 365. This helps organizations to streamline complex workflows and improve productivity as well.

Yogesh Gupta: And we are delighted that Shefail was named a visionary in the latest Gartner Magic Quadrant for Document.

Yogesh Gupta: I also want to briefly touch upon Progress' own use of AI to innovate and improve our operations. As you saw in our excellent bottom line results in Q2, we continue to maintain our expense discipline, which has always been central to our operating philosophy. And AI has begun to play an expanding role in helping us maintain our world-class operating model. To that end, we are relentlessly pursuing ways to incorporate AI into any process that can be done more efficiently. which includes both off-the-shelf and our own AI products. to drive productivity and produce stronger. Over the past year, we've embedded AI-driven automation and intelligence into a wide range of our businesses.

Yogesh Gupta: from engineering and IT to customer support, marketing, and sales. For example, our engineering teams are leveraging AI-assisted coding tools to accelerate development cycles and improve code quality, while our IT operations teams have adopted predictive analytics to proactively manage our infrastructure and reduce downtime. In customer support, we have implemented AI-powered chat and case rousting. that significantly improved response times and customer satisfaction. We're also using generative AI to streamline certain content creation and campaign execution within our marketing teams, enabling faster go-to-market strategies and a more personalized customer engagement. And we are using AI and sales to help nurture prospects before sales teams begin to interact.

Yogesh Gupta: By integrating AI technologies into our workflows, we're not only increasing efficiency and managing costs, but also freeing up our teams to focus on high-value strategic.

Yogesh Gupta: Lastly, I would like to briefly discuss the other key pillar of our strategy, disciplined accretive M&A to drive sustained top-line growth. As you recall, we often discuss the overall size of our opportunity for M&A, which remains quite large. But before we acquired Sharefile, we saw many SaaS companies that were unattractive to us as potential targets, because we lacked in-house expertise to run a highly profitable SaaS Today, with ShareFile, we have a high-quality SaaS business that contributes over a quarter of our revenues. And more importantly, we have an organization with the expertise and experience of running a highly efficient and profitable SaaS business at scale.

Yogesh Gupta: So we are in a much better position today to evaluate almost any kind of business, SaaS or otherwise, as a possible acquisition target.

Yogesh Gupta: Naturally, our success in executing our total growth strategy depends on maintaining our strict M&A. We will continue to look for companies with excellent products with great customer bases who love those products, significant recurring revenues, and high retention. and we will continue to be disciplined about what we pay for. Our capital allocation priorities are unchanged. We believe M&A will produce the best returns on capital for shareholders. And between deals, we will focus on reducing our net level.

Yogesh Gupta: Finally, and as always, I want to thank all of our progress teams around the world for their dedication and hard work that led to our great results in June. In addition to consistently performing at a high level, our employees also make progress a great place. Once again, Progress was named among the 2025 Best Places to Work recently by the Boston Business Journal. I am so proud of the amazing culture we have and the recognition we continually receive for it.

Anthony Folger: With that, I will turn it over to Anthony. All right. Thanks, Yogesh. And good afternoon, everyone. Thanks for joining our call.

Anthony Folger: As Yogesh mentioned, we're thrilled with our Q2 financial results, the progress we've made integrating ShareFile, and we feel very well positioned for the second half of 2025.

Anthony Folger: Before we dig into the numbers, I'd first like to congratulate Yogesh on recently being named an Ernst & Young Entrepreneur of the Year in New England. This prestigious award recognizes visionary leaders and transformational CEOs that are driving innovation, accelerating growth, and creating lasting impact. Having worked with Yogesh for several years now, I can attest this honor is well deserved.

Anthony Folger: All right, turning to the numbers. Let's start on the top line with ARR. We closed Q2 with ARR of $838 million, representing 46% growth year-over-year and 2% pro forma growth on a year-over-year basis. For clarity, the pro forma results include share files ARR in both periods. Although no single product drove material growth in our total ARR, the 2% pro forma growth that we delivered was the result of growth in multiple products across the portfolio, including ShareFile, OpenEdge, DevTools, Sitefinity, Loadmaster, and What's Up Gold. Also worth highlighting is our strong net retention rate, which again came in at 100%, reflecting resilience in our top line.

Anthony Folger: As we've mentioned several times before, and as Yogesh just covered in his remarks, We believe that smart investments in our product portfolio and good customer relationship management both serve as the foundation of our consistently strong net retention. in addition to our solid ARR growth.

Anthony Folger: Revenue for the quarter of $237 million was solidly within the guidance range we provided back in March and was powered by strong performance from ShareFile and OpenIT. Turning now to expenses, our total costs and operating expenses for the quarter were $142 million, coming in better than our expectations. The year-over-year increase of 31% was driven entirely by the addition of ShareFile to our business. Operating income in Q2 was $95 million, up 42% over the prior year, and our operating margin in the quarter was strong at over 40%. compared to 38% in the second quarter of 2024.

Anthony Folger: On the bottom line, our Q2 earnings per share of $1.40 was $0.06 above the high end of the guidance range we provided in March.

Anthony Folger: This overperformance relative to our expectation was driven by strong cost management across the business, coupled with solid top line Moving on to a few balance sheet and cash flow metrics, we ended the quarter with cash and cash equivalents of $102 million and total debt of $1.47 billion for a net debt position of $1.37 billion. On a post-synergy basis, we expect our net leverage ratio to be approximately 3.4 times. Our DSO for the quarter was 53 days compared to 48 days last quarter. An unlevered free cash flow of $52 million was driven by the strength of our operating performance, coupled with strong collections in our base business.

Anthony Folger: The slight bump in our DSO in Q2 was the result of transitioning the ShareFile business onto Progress' billing This was a significant milestone on our integration roadmap. and with billing. Fulfillment, Credit, and Collections, now fully under Progress' control. we expect to significantly improve the ShareFile customer experience. also during Q2. We repaid $40 million against the revolving line of credit that was drawn down to partially finance the share file acquisition. This brings our total first half debt repayment to $70 million and keeps us on schedule to pay down a total of $160 million during fiscal 2025.

Anthony Folger: At the end of Q2, our evolving line of credit has a balance of $660 million.

Anthony Folger: Finally, during Q2, we repurchased $20 million of Progress stock, bringing our first half total to $50 million and leaving $57 million remaining under our current share repurchase authorization.

Anthony Folger: Okay, now I'd like to turn to our outlook for Q3 and the full year 2025. Our outlook reflects continued strength in the demand environment for our solutions. It reflects recent changes in foreign exchange dynamics.

Anthony Folger: and it reflects continued confidence in our team's ability to I'd also like to mention that our acquisition of Nuclea is not expected to have a material impact on our financial results in the second half of 2025. In other words, our second half outlook is the same with or without the nuclear acquisition. For the third quarter of 2025, we expect revenue between $237 and $243 million and earnings per share of between $1.28 and $1.34. For the full year 2025, we are increasing our outlook across the board and expect revenue between $962 and $974 million, an increase of $4 million from our prior guidance.

Anthony Folger: an operating margin of 38 to 39 percent, an increase of roughly 50 basis points from our prior guidance. Adjusted free cash flow between $228 and $240 million and unlevered free cash flow of between $285 and $296 million. an increase of $2 million from prior guidance for both. Finally, we expect earnings per share between $5.28 and $5.40, an increase of 3 cents from prior guidance. Our guidance for full-year EPS assumes a tax rate of 20%, the repurchase of 50 million in progress shares that's been done to date. and total debt repayment of $160 million. In terms of the total share count in our EPS assumption, we're assuming approximately 45 million shares outstanding.

Anthony Folger: And this includes approximately 500,000 shares associated with potential dilution on our 2026 convertible note. I'm sure you'll recall that we purchased a call spread on our 2026 convertible notes to hedge the economic impact of dilution up to approximately $89 per share. Accounting regulations require that recognition of any benefit from that call spread be excluded when calculating shares outstanding. Because of this added nuance, we will continue to provide the number of shares that we've assumed for dilution each time we provide an outlook on earnings per share.

Anthony Folger: For more details, I'd recommend you refer to the supplemental financial presentation filed with our press release, which includes detailed information on our outstanding debt.

Anthony Folger: In closing, we're excited to deliver another strong quarter of financial results across the board. really a continuation of the trend we saw in the first quarter and we believe we're very well positioned to deliver against our improved outlook for the remainder of 2025 and beyond.

Operator: With that, I'd like to open the call for Q&A. Thank you. And as a reminder, to ask a question, simply press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, simply press star 1 1 again.

Ittai Kidron: Our first question is from Ittai Kidron with Oppenheimer. Please proceed.

Ittai Kidron: Hi, this is Nolan Genovine on FortiTi. I really just want to get a little bit more color about the Nuclea acquisition. And this is a little bit of a divergence from what we generally see as the profile company that you guys go after, being more mature software company. So maybe just give us a little bit more color on Nuclea. And yeah, thank you for taking the question. Sure, happy to. And Anthony, feel free to add if you like. So, you know, you're right that this is not like some of our more recent acquisitions that we have done.

Yogesh Gupta: This acquisition was primarily driven as an investment in our product portfolio. As many of you know, Progress has had a long history over many, many decades of continuing to invest in our portfolio to make sure that the portfolio stays current and our customer retention stays high. You know, when and I know this is probably maybe before some folks on the call may even be aware of this. But before the Internet came around, Progress was primarily a client service software company. Internet came along, cloud came along. You know, we basically invested heavily in making open edge multi-tenant, which allowed the open edge business to continue extremely strong and stable.

Yogesh Gupta: Then when mobile computing came along, we again invested heavily in that, made a small acquisition along the way to add mobile computing capabilities to that. And today, you know, we're doing something similar with AI, which is a sort of third major wave in the enterprise software that we see dramatically changing the landscape, probably even more than the first two did. And so so from our perspective, this is, you know, this is something that the company has a strong history of doing. You know, we believe that there is tremendous opportunity in ensuring that our customers continue to find great value with our products, that they stay with us.

Yogesh Gupta: You know, this is a rather modest purchase price for a leading edge technology around agentic rag solutions for Gen AI. So we feel really, really good about it, both for adding the technology as well as bringing on a strong team that can help us continue to move this technology forward, integrate it with our products and continue to go to market.

Ittai Kidron: Very much appreciate much appreciated and congrats on the quarter. Thank you so much. Thank you.

John DiFucci: One moment for our next question. And it comes from the line of John DiFucci with Guggenheim Securities. Please proceed. Thank you. I'm going to ask another question on Nuclea. I know it's a small acquisition, but it's really interesting in another way. You guys know you typically buy products that sort of stand on their own, and you run them, frankly, you run them a lot more efficiently. But Nuclea feels like it's something you can leverage across your portfolio of products, which is not what you'd normally do. I know that sometimes there's confusion over that. But can this one be a cross-sell opportunity or perhaps even something that can be embedded in other products?

John DiFucci: It seems like maybe it can.

Yogesh Gupta: John, you're absolutely right. Sorry, John, you're absolutely right. It is something that we expect to integrate across our product portfolio. I think it brings value not just to our data platform business, which is OpenEdge and MarkLogic and Semaphore, but I think it brings value to things like Sitefinity and ShareFile. I think it has all kinds of interesting opportunities to bring value to those companies that are dealing with leveraging their information that, in fact, as you know, ShareFile has. you know, 86,000 customers and their data is sitting in ShareFile, right? So, we see opportunity here. We see opportunity to, you know, integrate across the portfolio over time and create value for our customers.

John DiFucci: and their portfolio business. And that makes sense. It makes it a little different too, at least, you know, from ShareFile. It does.

John DiFucci: Okay, and if I could have follow up for Anthony, Anthony, free cash flow in the quarter was actually below what we had expected a little bit below what we were looking for. But you brought up annual forecast meaningfully. So could you just give us a little color on that? Like what happened this quarter? And why are expectations so much higher for the second half? Was it just some timing things happening? Just want to just make sure we understand Yeah, I think two things, John. One is, you know, a little bit of timing on on collections.

Anthony Folger: The second is, we did move, you know, we basically picked up ShareFile's business. which up to this point, we had still been on a transition service agreement with CSG. And we went live on the Progress billing platform for Shareify. And so, you know, that's basically picking up a $250 million business and cutting it over onto a new, you know, billing, fulfillment, and credit and collection system. And so I would say we are really happy with the result. We are really happy with the early returns on it. But any time you do a sort of a major lift and shift like that, there's always a little bit of, you know, you'll go a little bit slower to make sure that everything is working properly.

Anthony Folger: And I would say there was a little bit of that in the quarter in terms of, you know, how we were sort of batching up invoices and how we were handling collections. I think we were being much more careful and much more thoughtful about the customer experience and, you know, the long-term implementation of the system, and less so maybe about the DSO in the quarter. I view it as, you know, something that we sort of moved past very quickly here, but it's, you know, we were more excited just to get this. I mean, it was a big milestone, as you might imagine, on the integration plan.

John DiFucci: So it was a nice one to get done. Yeah, no, that's okay. That makes a lot of sense. And by the way, I mean, he sort of that's reflected in your your guidance for the year. So, but you know, that's such a, an important metric for especially for you guys. But anyway, that's, that's great, especially with ShareFile, given the size of that. It's nice to see that coming along so well. Thanks a lot, guys. Thank you, John.

Operator: Thank you, and as a reminder, if you do have a question, simply press star 11 to get in the queue.

Operator: All right, as I see no further questions in the queue, I will pass it back to management for final remarks. Thank you. Thank you again for joining our call today.

Yogesh Gupta: I'm truly excited about our performance in Q2 and pleased to share our confidence in the outlook for the rest of fiscal 2025. I'm especially proud of the dedication of our entire organization and their continued hard work which positions us well as we continue to execute our total growth strategy. We look forward to talking to you soon.

Operator: Thanks again and bye-bye.

Operator: And this concludes our program for today. Thank you for participating, and you may now disconnect.