Progress Software Corporation (PRGS) Earnings Call Transcript & Summary

Good morning, and welcome to the 2021 Progress Software Annual Meeting of Stockholders. The company's rules of conduct for the annual meeting are available to participants on the virtual meeting website console. Please note that this meeting is being recorded. However, no one attending the meeting is permitted to use any audio recording device. I would now like to introduce the first presenter, Steve Faberman, the company's Chief Legal Officer and Company Secretary.

Thank you, Mandeep. Welcome, everyone, to the 2021 Progress Software Annual Meeting of Stockholders. Before we begin, I'd like to thank everybody for joining the call. And as an initial matter, we have some initial housekeeping to take care of. 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 statement. Additionally, in this meeting, the revenue, operating margin, free cash flow 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 -- for our fourth quarter 2020 and first quarter 2021 earnings releases, which are available on the Investor Relations section of our website at investors.progress.com. Please welcome Progress' President and Chief Executive Officer; Mr. Yogesh Gupta, who will be chairing today's meeting.

Thank you, Steve. Good morning, and welcome, everyone. I am 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 2020 highlights. Following my remarks, I will answer questions from the 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: John 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 2021 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 19, 2021, as the record date for this meeting. A copy of the notice of this meeting was mailed to all stockholders of record on or about April 14, 2021, 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 who does not intend to change their vote to vote again through the virtual meeting website. There were 44,003,055 shares of common stock issued and outstanding as of the close of business on March 19, 2021. Of this number, the holders of 41,037,794 shares are present at this person -- 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 1 question. And now I will hand the meeting back over to Mr. Gupta.

Thank you, Mr. Faberman. Now I'll 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, 2020. The Proposal 3 is a proposal to approve an increase in the number of shares authorized for issuance under the 2008 stock option and incentive plan as amended and restated. Proposal 4 is a proposal to approve an increase in the number of shares authorized for issuance under the 1991 employee stock purchase plan as amended and restated. Proposal 5 is the ratification of the selection of Deloitte & Touche LLP as the company's independent registered public accounting firm for fiscal year 2021. If any stockholder would like to make a comment regarding any of these proposals, please submit your comment through the web portal. We will pause for a few minutes to address any comments. There are no comments or questions. The polls are now open. 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. I'm going to pause for any voting. [Voting]

Now that everyone has had the opportunity to vote, I now declare the polls for the 2021 annual stockholders meeting closed. Mr. Secretary, do we have the preliminary voting results?

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 has been approved by advisory vote. The increase in the number of shares authorized for issuance under the 2008 plan has been approved. The increase in the number of shares authorized for issuance under the employee stock purchase plan has been approved. And the selection of Deloitte & Touche LLP as the company's independent registered accounting firm for fiscal year 2021 has been ratified. We will post the details of the final voting results on all these matters on the Investor Relations section of the Progress website as well as report the results in a Form 8-K that will be filed with the Securities and Exchange Commission within 4 business days.

If there's 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.

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 and the company's strategy going forward as well as our fiscal 2020 financial results. I'm happy to have this opportunity to address our stockholders during the virtual meeting format for a second year in a row. We moved to this model last year due to the health risk of COVID-19. And we believe that in addition to protecting the health and well-being of our stockholders, employees and directors, hosting a virtual meeting facilitates stockholder attendance and participation by allowing for remote access from any location around the world. At Progress, we remain focused on keeping our employees healthy and safe, on preventing the community -- on preventing the spread of COVID-19 in the communities where we live and work and on serving the needs of our customers and partners. Our employees continue to show flexibility and dedication as they provide the high-quality products and services Progress is well known for, even while working remotely for over a year. Our 2020 performance serves as a reminder that our business is incredibly durable. Our customers and partners are loyal. And the commitment of our employees to serving the needs of our customers and partners is truly unsurpassed. The annual stockholders meeting is always a good opportunity to review significant accomplishments from the prior years 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. To deliver on that mission, our corporate strategy has the following 4 key tenets. Number one, we are the trusted provider of the best products to develop, deploy and manage high-impact business applications. Number two, we focus on customer and partner retention to drive recurring revenue and profitability. Number three, we're pursuing a total growth strategy, driven by accretive acquisitions of businesses within the software infrastructure space. And number four, we have adopted and are executing a stockholder-friendly capital allocation policy that utilizes dividends and share repurchases to return capital to shareholders. This strategy drives our operational goals and financial results. So let's take a moment now to review some of the key accomplishments from the last 12 months in support of this strategy. Our financial and operating performance in fiscal 2020 was strong despite the adverse impacts of COVID-19. We also remain solidly on course with execution of our strategic plan. Our acquisition of Chef Software, a global leader in the DevOps and DevSecOps markets in October 2020 advanced our total growth strategy of doubling our size in 5 years. We're proud of our operational performance in fiscal 2020. Our total revenue for the year was at or above the top end of our guidance range as we grew our revenue by 7% year-over-year. As a testament to the durability and predictability of our business, 80% of our revenue was recurring in fiscal 2020. These results would not have been possible without the continuing commitment to provide our customers and partners with the most modern products, reflected in our key product releases during the year for DataDirect, Sitefinity, MOVEit, WhatsUp Gold, OpenEdge and Telerik and Kendo UI. I'm thrilled by the work done by our product teams as we remain laser-focused on delivering on our product road maps and customers. With travel, marketing events and facilities expenses reduced in fiscal 2020 due to COVID, we also made sure to manage our other expenses tightly during the year in light of the global economic uncertainty. These efforts enabled us to expand our operating margin by 200 basis points in fiscal 2020 as we finish the year with an operating margin of 40%. Combined with our revenue performance, we exceeded the top end of our earnings per share guidance for fiscal 2020, delivering EPS of $3.09, which represented year-over-year growth of 15%. We also delivered record free cash flow of $142.5 million, which increased 11% over fiscal 2019. These results enabled us to return over $50 million of capital to stockholders in fiscal 2020, including more than $27 million in dividends with a dividend increase for the third consecutive quarter. We aren't just resting on our laurels and success for fiscal 2020. In Q1 of FY '21, we beat guidance across the board in revenue, operating margin, free cash flow and earnings per share. The strong performance of our Progress team and products, matched with a more positive economic outlook, also gave us confidence to raise guidance for fiscal 2021. I remain optimistic about our prospects for fiscal 2021 as well as our long-term outlook. Through our success with Ipswitch and Chef, we have demonstrated that accretive M&A can drive meaningful inorganic growth, along with increased scale and cash flows. We've built a strong corporate development team to source future M&A opportunities that meet our strict financial criteria. And our internal team has built a growing and impressive pipeline of potential future acquisitions in the infrastructure and DevOps space. Our track record of successfully executing on our accretive M&A strategy and our solid internal team capable of sourcing, executing and integrating acquisitions give us the confidence that we can achieve our long-term goal of doubling the size of Progress. We have a strong, flexible balance sheet, which enables us to utilize our capital in the most stockholder-advantageous manner. To bolster our balance sheet and finance our M&A strategy, we announced last month a private offering of $300 million in convertible senior notes due in 2026 with an interest rate of 1.0%. The notes were sold to qualified institutional buyers under Rule 144A. After upsizing the initial principal amount and exercising the greenshoe over allotment, the transaction was completed on April 23, 2021, in the aggregate principal amount of $360 million. We are very pleased with the terms of the convertible note offering. While we continue to focus on executing our strategy, our corporate social responsibility program remains at the forefront of our efforts as well. We strive to conduct our business in ways that will have a positive impact on our stockholders, employees, customers and partners, our communities and the rest of the world. In 2020, our CSR efforts were greatly influenced by COVID as we focus much of our attention on ensuring the health and safety of our employees, customers and partners and their families as well as the communities in which we all live and work. We also were impacted by the racial justice initiatives that arose out of the events of the U.S. last summer. In early 2021, we issued our second CSR report, which highlights the various initiatives we undertook during 2020. Some of our 2020 highlights include our significant donations to charities focused on, among other things, eradicating racial and social injustice as well as the launch of a charitable giving match where we match personal contribution of U.S.-based employees to preselected social justice organizations. We joined as a cofounding signatory to the Tech Compact for Social Justice. And we also became a supporter of Catalyst, a nonprofit dedicated to building inclusive workplaces. In 2020, we awarded the first Progress Mary Székely Scholarship for women in STEM to Acaya Dorogi, who is now attending Columbia School of Engineering and Applied Sciences. We also funded $12,000 Women in Technology Fund at the American University in Bulgaria to continue to support young women pursuing degrees in STEM disciplines. In support of our inclusion and diversity initiatives, we have multiple new employee resource groups, including Progress for Her, Blacks@Progress, Aspire for Asian and Pacific Islander employees, Military Veterans at Progress, and Plus which represents and supports our LGBTQ+ community. As part of our work towards environmental sustainability, Progress' global headquarters has been Energy Star certified by the U.S. EPA and has received LEED Gold Certification. We urge all stockholders to review the most recent CSR report, which details the many corporate social responsibility efforts of the company during the past few years. We remain committed to expanding our CSR program and other activities that enhance our governance and management of our environmental and social impacts. This includes continued focus on community engagement, inclusion in diversity, employee development and environmental responsibility. We intend to continue researching industry standards for corporate responsibility and for climate awareness and sustainability so that we can continue to implement additional plans and initiatives aimed at achieving and exceeding those standards over the next years and beyond. In closing, we had another productive and rewarding year in 2020, and we are off to a strong start for 2021. Our management team remains focused on maintaining a strong, stable business. And we continue to search for accretive M&A opportunities in the infrastructure software 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 to drive sustainable, long-term value for all our stockholders. Now we'd 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, but only questions that are germane to the meeting will be addressed.

[Operator Instructions]

As there are no for the questions, this brings this annual meeting to a close. We want to thank you for joining us today. We're grateful for your continued support of Progress. Thank you very much.

Thank you. The 2021 Progress Software Annual Meeting of Stockholders has now come to an end. Thank you for attending. You may now disconnect.