Progress Software Corporation (PRGS) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by and welcome to the 2020 Annual Meeting. [Operator Instructions] It is now my pleasure to turn the call over to Steve Faberman to begin. Please go ahead.

Good morning, everyone, and welcome to the Progress Software Corporation Annual Meeting of Stockholders. Today's presentation may contain forward-looking statements, which are predictions, projections or other statements about future events based on current expectations and assumptions. Actual results may differ materially from these forward-looking statements because of a variety of risks and uncertainties about our business, which are discussed today or described in our filings with the Securities and Exchange Commission, including our annual report on Form 10-K and our quarterly reports on Form 10-Q. We do not undertake any duty to update any forward-looking statements. Additionally, in this meeting, the operating margin and earnings per share amounts we refer to are on a non-GAAP basis. You can find a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP numbers in our fourth quarter 2019 and first quarter 2020 earnings releases, which are available on the Investor Relations section of our website at investors.progress.com. Please welcome Progress's President and Chief Executive Officer, Mr. Yogesh Gupta, who will be chairing today's meeting.

Thank you, Steve. Good morning, and welcome. I'm Yogesh Gupta, President and CEO of progress. As previously announced, due to the public health impact of the ongoing COVID-19 pandemic and to support the health and well-being of our stockholders, employees and the community, today's annual meeting is being held in a virtual meeting format only. For those of you joining our live audio webcast, I would like to welcome you to this annual meeting of the stockholders of Progress Software Corporation. I'm joined today by Steve Faberman, our Chief Legal Officer and Company Secretary. I will address the business portion of the meeting first. Once all votes are taken, we will adjourn the formal part of the meeting, and I will review the company's strategy and recent results. Following my remarks, I will answer questions from stockholders relevant to the meeting, which can be submitted at any time during the meeting by following the instructions on the virtual meeting website. I would now like to introduce the nominees for the Board of Directors who are joining us virtually today: Jack Egan, Chairman of the Board; Paul Dacier; Rainer Gawlick; myself, Yogesh Gupta; Charles Kane; Sam King; David Krall; Angela Tucci; and Vivian Vitale. In addition to our directors, joining us virtually today is George Sommer, representing Deloitte & Touche, our independent auditors. I would now like to call the 2020 Annual Stockholders Meeting to order. I will begin by turning the meeting over to Mr. Faberman who will attend to a few formalities.

Thank you, Mr. Gupta. The Board of Directors has fixed March 20, 2020, as the record date for this meeting. A copy of the notice of this meeting has been mailed to all stockholders of record on or about March 27, 2020, together with the proxy statement mailed with such notice, and a certificate of mailing will be filed with the records of this meeting. Broadridge Financial has been appointed the inspector of elections for this meeting. The inspector is with us here virtually today. Most of you have already voted your proxy, and your proxy votes have been tallied. As was pointed out in the proxy materials, proxies filed will be counted as present and will be voted as instructed on the matters set forth in the notice of this meeting. Stockholders intending to vote virtually at today's meeting rather than by proxy can do so by following the instructions on the virtual meeting website. Should you have any technical difficulties, instructions for requesting technical assistance can be found on the virtual meeting website. It is not necessary for any stockholder, who has already filed a proxy and he does not intend to change their vote, to vote again through the virtual meeting website. There were 44,769,310 shares of common stock issued and outstanding as of the close of business on March 20, 2020. Of this number, the holders of 41,752,371 shares are present at this meeting in person or represented by proxy, constituting more than a majority of the total number of shares outstanding and a quorum for the transaction of business at this meeting. All the proxies are duly recorded, and none of the proxies are dated more than 6 months before the date of this meeting. As Mr. Gupta previously noted, during today's meeting, stockholders will be able to submit questions germane to the meeting, subject to time constraints, by following the instructions on the virtual meeting website. Out of consideration for others, please limit yourself to one question. Please note that this meeting is being recorded. However, no one attending via the webcast is permitted to use any audio recording device. And now I will hand the meeting back over to Mr. Gupta.

Thank you, Mr. Faberman. Now I will present the matters to be voted on. Please note that we will give stockholders an opportunity to comment on the proposals after all proposals have been presented. Proposal 1 is the election of 9 directors. The nominees are: Paul Dacier, John Egan, Rainer Gawlick, Yogesh Gupta, Charles Kane, Sam King, David Krall, Angela Tucci and Vivian Vitale. Proposal 2 is a proposal to approve, on an advisory basis, the compensation of the company's named executive officers for the fiscal year ending November 30, 2019. Proposal 3 is the ratification of the selection of Deloitte & Touche LLP as the company's independent registered public accounting firm for fiscal year 2020. If any stockholder would like to make a comment regarding any of the proposals, please submit your comment through the web portal. We will pause to address any comments. Thank you. There are no comments. So the polls are open now. Any stockholder who hasn't yet voted or wishes to change their vote may do so by following the instructions on the virtual meeting website. Stockholders who have sent in proxies or voted via the telephone or Internet and who do not want to change their vote do not need to take any further action. [Voting]

Now that everyone has had an opportunity to vote, I now declare the polls for the 2020 Annual Stockholders Meeting closed. Mr. Secretary, do we have the preliminary voting results?

Mr. Gupta, we do. We have been informed by the inspector of elections that the preliminary vote report shows that the nominees for election to the Board have been duly elected. The compensation of the named executive officers have been approved by advisory vote, and the selection of Deloitte & Touche LLP as the company's independent registered accounting firm for fiscal year 2020 has been ratified. We expect to post the details of the final voting results on all these matters on our Investor Relations website as well as report results in a Form 8-K that will be filed with the Securities and Exchange Commission within 4 business days.

If there is no further business to come before the meeting, I will entertain a motion to adjourn the formal part of the meeting. Is there any further business? There being none, do I hear a motion to adjourn?

I so move.

I second the motion.

It has been duly moved and seconded that the meeting adjourn. All those in favor, please say aye.

Aye.

Aye.

Aye.

Aye.

All opposed, say nay. The motion has been carried, and I declare this meeting adjourned. Thank you for your attention. I would now like to take a few moments to review the state of our business in light of COVID-19, the company's strategies and recent results. I'm happy to have this opportunity to address our stockholders, even though we've had to change the format of this year's meeting to a virtual gathering due to the ongoing impact of COVID-19. This health crisis has disrupted lives all over the world, and our thoughts are with the first responders and those individuals and families who have been impacted by this virus. At Progress, we're focused on keeping our employees healthy and safe, on preventing the spread of the virus in the communities where we live and work, and on serving the needs of our customers and partners. I'm very proud of the flexibility and dedication of our employees who have continued to provide the high level of product and services Progress is known for, despite working remotely for over 2 months now. As a management team, we are focused on rapidly assessing and resolving any internal operational challenges as well as understanding changes in the broader economic environment. We're in frequent contact with our Board of Directors to keep them informed and to get their feedback on the steps we're taking to keep our business strong as we manage through this crisis. We're also constantly monitoring our customers and partner ecosystems for potential impacts from the virus, but remain confident in the durability of our business and in the long-term opportunity ahead of us. The Annual Stockholders Meeting is always a good opportunity to review significant accomplishments from the prior year as well as some more recent achievements. Let's start with a recap of our strategy. Our mission is to create long-term stockholder value by building an increasingly stronger business. And to deliver on that mission, our corporate strategy has 3 key elements: number one, continue to operate a lean, highly profitable business; two, innovate and strengthen our market position and customer base by investing strategically in our business; and three, capitalize on our established operating model to acquire complementary businesses and operate them more efficiently. Our strategy is what drives our operational goals and financial results. So let's take a moment now to review some of the key accomplishments for the last 12 months in support of this strategy. We continue to be focused on operating a lean, highly profitable business. We expanded our operating margins to 38% in 2019, an increase of more than 200 basis points year-over-year and are targeting another 100 basis point expansion to 39% in 2020. We achieved revenue growth of 14% for 2019, accompanied by an impressive 23% increase in earnings per share, an even faster pace that demonstrates the significant leverage we have in our business. And we achieved record cash flows of $129 million, a testament to our strong cash conversion, which we are targeting to continue in 2020. We also continue to innovate our product and services offerings, strengthening our market position and customer base and supporting the second element of our strategy. During 2019, we released OpenEdge Release 12, which featured a 3x improvement in database performance, and we were the first to market with our set of UI components for Microsoft Blazor, the new Microsoft framework for .NET developers. And we released new versions of both WhatsUp Gold and MOVEit within months of acquiring Ipswitch, which I'll discuss in greater detail shortly. On the professional services front, we recently launched Progress Accelerate, a global program to provide channel partners with the tools they need to accelerate their growth and customer success. This program centralizes and expands training and enablement and provides a dedicated account manager and joint marketing planning and support, helping all of our partners maximize the value of their relationship with Progress. These products and services investments are all designed to keep our partners and customers competitive, driving better retention and continued stability in our recurring revenue streams. As a reminder, over 70% of our revenue is recurring, which gives us confidence in our business's ability to weather the uncertainty and disruption of COVID-19. The final element of our strategy is to complement our strong and stable business with accretive mergers and acquisitions. In 2019, we acquired Ipswitch, a perfect example of the type of complementary business we are targeting within the software infrastructure space. Ipswitch was right in our revenue sweet spot, and after realizing $15 million of planned synergies, this acquisition met all of the disciplined financial criteria we adhere to, ensuring a healthy return for our stockholders. During our success with Ipswitch, we demonstrated that accretive M&A can drive meaningful inorganic growth, along with increased scale and cash flows. Successful execution of this strategy can produce 10% to 20% annual inorganic revenue growth with a goal of doubling our revenues over 5 years, driving real shareholder value over the long term. While accretive M&A remains our focus, our stockholder-friendly capital allocation policy also includes dividends and share repurchases. We continue to execute on both in 2019, including $25 million of share repurchases and a 6% dividend increase. In January 2020, our Board increased our repurchase authorization to $250 million, and we bought back an additional $20 million of our stock during Q1. While we continue to focus on executing our strategy, at the same time, we aim to be socially responsible and improve the positive impact we make in our society and the world. Corporate social responsibility has always been something we have strived for at Progress, and we appreciate that this is important to our stockholders as well. Beginning in 2019, we formalized our CSR efforts through Progress for Tomorrow, ensuring that we will continue to have a purposeful positive impact on our people, our community and our world. We urge all stockholders to review our recently issued CSR report, which details our complete CSR program. But I'd like to focus today on our efforts at inclusion and gender diversity. During Q1 2020, we launched a Women In STEM scholarship for women pursuing a degree in computer science, CIS, software engineering or IT. The scholarship was created to honor Mary Székely, one of the founders of Progress, who served as our lead software engineer for over 30 years and was one of the original architects of OpenEdge. We recently selected the first recipient for this scholarship, a well-deserving future tech entrepreneur, and we will be watching her career closely. At Progress, we believe having women like Mary in leadership positions makes us a stronger company, and I'm proud of our history and continuing efforts to make Progress a more inclusive and diverse business. In October 2019, Vivian Vitale joined our Board of Directors, increasing the number of women on the Board to 3. During 2019, we also added Katie Kulikoski and Jennifer Ortiz to our leadership team as Chief People Officer and VP of Corporate Marketing, respectively. Earlier this year, Loren Jarrett, the General Manager of our Application Development and Deployment business segment; and Sam King and Angela Tucci, 2 of our Board members, were recognized by Women's Inc. magazine as influential women in business and technology. We believe that gender diversity is critical for our long-term health and success, and we're proud to have these exemplary women as part of Progress's leadership. In closing, we had another productive and rewarding year in 2019 and are off to a strong start for 2020 despite the uncertainty created by COVID-19. We have a highly capable management team focused on maintaining a strong, stable business and continue to search for additional accretive M&A opportunities in the software infrastructure space. We have strong support from our diverse board, which continues to be focused on our strategy and governance and from the broad network of customers and partners we serve. We actively solicit investor feedback on our strategy, operations and governance and look forward to continued engagement as we execute on a clear strategic plan that is driving sustainable, long-term value for all of our stockholders. Now we would like to open things up for stockholder questions that have been submitted today on the virtual meeting website. Please note that we will attempt to answer as many questions as time allows, and only those questions that are germane to the meeting will be addressed. As there are no questions, this brings this year's annual meeting to a close. We want to thank you for joining us today. We are grateful for your continued support of Progress. Thank you very much. Stay healthy, and stay safe.