Progress(PRGS) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For fiscal year 2025, the company reported annual revenue of $978 million, representing a 30% increase year-over-year, and earnings per share of $5.72, up 16% from fiscal year 2024 [5][18] - In Q4, revenue reached $253 million, an 18% increase year-over-year, with earnings of $1.51, exceeding the high end of guidance [7][19] - The company achieved a net retention rate of 100% and a year-over-year ARR growth of 2% to $852 million, which now constitutes over 87% of total revenue [7][17] Business Line Data and Key Metrics Changes - The growth in ARR was driven by multiple products, including ShareFile, OpenEdge, WhatsUp Gold, and DevTools [17] - ShareFile and OpenEdge outperformed internal expectations, contributing significantly to revenue growth [17][18] Market Data and Key Metrics Changes - The company noted strong performance in the second half of FY25, particularly due to customer investments in AI projects [5][8] - The U.S. Department of Defense added Progress Federal Solutions Group to its TradeWinds Solutions Marketplace, enhancing the company's market presence [11] Company Strategy and Development Direction - The company completed the integration of ShareFile and Nuclia, which are expected to enhance product offerings and customer value [8][9] - The company is focused on maintaining a disciplined M&A strategy, looking for infrastructure software vendors with solid technology [15] - The company plans to continue investing in AI innovations to meet customer needs and drive growth [6][8] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in FY26 guidance, anticipating revenue between $986 million and $1 billion, with an operating margin of 39% [23] - The management highlighted that fears regarding AI disruption in the software industry may be overblown, emphasizing the continued need for reliable software solutions [30][31] - The company expects to see a gradual increase in AI-related investments from customers, similar to the early internet era [43] Other Important Information - The company maintained strong cash flow, with adjusted free cash flow of $62 million for Q4 and $247 million for the full year, marking a 16% increase over the prior year [21] - The company repurchased $40 million in stock during Q4 and $105 million for the full fiscal year [21] Q&A Session Summary Question: How does Progress view the evolution of AI in software? - Management acknowledged the hype and fear surrounding AI but emphasized that businesses will continue to rely on established software solutions rather than developing their own [27][30] Question: Why hasn't there been a more significant uptick in net retention rates despite AI investments? - Management indicated that most AI investments are currently limited to a small number of tech companies, and broader business spending on AI is still developing [42][43] Question: What is the outlook for free cash flow and seasonality in FY26? - Management expects free cash flow to grow significantly in FY26, with no major changes in seasonality compared to previous years [44][46] Question: What drove the strong sequential increase in SaaS revenues in Q4? - Management attributed the increase to strong performance in ShareFile and other SaaS offerings, but noted that growth would be more consistent with overall business growth in FY26 [52][53] Question: Have retention rates changed for potential acquisition targets? - Management observed a softening in growth and retention rates among smaller companies, indicating a cautious approach to acquisitions [56][57]