Good day, and Welcome to the Progress Software Acquisition of MarkLogic Update Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising that your hand is raised. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Michael Micciche, Progress Software's Vice President of Investor Relations. Please go ahead. Okay, thank you, Cherie. Good afternoon, everyone. We're glad you joined us. With us on today's call is Yogesh Gupta, Progress' President and CEO, and Anthony Folger, our CFO. Earlier today, we announced our proposed acquisition of MarkLogic, along with some preliminary results for our fiscal fourth quarter ending November 30th, 2022, in a press release issued after the market closed. You can find this press release on the investor relations section of our website at investors.progress.com. Before we get started, I'd like to point out that any preliminary results for our fourth fiscal quarter are subject to revision until we report the full fourth fiscal quarter and fiscal 2022 results on January 17th. Details and instructions for accessing that call two weeks from now were issued in a separate press release today after the close. I'd also like to remind you that during this call, we may discuss items including our outlook for future and prospective financial and operating performance, corporate strategies, product plans, cost initiatives, and other information that might be considered forward-looking, including the timing and the potential results associated with our proposed acquisition of MarkLogic. This forward-looking information represents Progress Software's outlook and the potential impact of the MarkLogic acquisition and guidance only as of today and is subject to risks and uncertainties. Please review our safe harbor statement regarding this information, which is available in today's release, as well as on the Progress Investor Relations section of our website. Again, that's investors.progress.com. Progress Software assumes no obligation to update the forward-looking statements included in this call, whether as a result of new developments or otherwise. Additionally, we will make reference to several non-GAAP measures on the call, including annual recurring revenue, or ARR, and revenue and diluted earnings per share. We will include a reconciliation of non-GAAP financial measures, the most directly comparable GAAP numbers in our earnings release on January 17th. With that, let me turn the call over to Yogesh. Yogesh, go ahead. Thank you, Mike. Good evening, everyone, and a Happy New Year. Thank you for joining us today as we share some really exciting news about our latest acquisition. As you saw in our press release earlier this afternoon, we entered into a Definitive Agreement to acquire MarkLogic for $355 million in an all-cash deal. You know, MarkLogic was founded in 2001 and is the best-in-class provider of a proprietary multimodal NoSQL database, as well as robust semantic metadata management and AI capabilities. These technologies, along with MarkLogic's loyal customers and deep relationships with partners and resellers, will complement Progress's robust infrastructure software offerings and strengthen our commitment to delivering the best products to develop, deploy, and manage high-impact business applications. When the deal closes, we expect the acquisition to add more than $100 million in total annual revenue, pushing Progress past the $700 million in annual sales and closer to the goal we laid out in 2019 of doubling our size in five years. To pay for this transaction, we expect to utilize cash on hand and draw approximately $200 million from our existing revolving line of credit. Although this is the largest acquisition since we embarked on our Total Growth Strategy four years ago, for us, this deal simply marks the latest step in the consistent and disciplined execution of our Total Growth Strategy. We are thrilled to discuss why we're so excited about welcoming MarkLogic's employees, customers, and products into the Progress family. We have always been transparent in our assessment of the M&A landscape and how it's evolving. We have also consistently reaffirmed our commitment to remaining patient and to make acquisitions only if they meet our strict criteria. We are committed to remaining disciplined and to deploying shareholder capital in a way that provides the best possible returns. The base metric for that is achieving a return on invested capital that exceeds our weighted average cost of capital. In addition, there must also be clear potential for the acquired business to reach operating margin targets at or above 40% after synergies. In our search for good acquisition candidates, we look for infrastructure software businesses with great products, a sticky customer base with high retention rates, significant recurring revenue, strong cash flows, and the potential to leverage our existing sales, support, and go-to-market platform. In addition to our target's product, customers, and go-to-market fit, as well as its financial merits, we look for alignment across people and culture. That is why we're so excited about MarkLogic. It hits the mark on every one of these measures. MarkLogic is a pioneer in multimodal data platforms, data integration, and the semantic analysis of structured and unstructured data, all of which helps customers meet modern complex data needs. MarkLogic's technology and expertise will allow Progress to deepen its data offerings and enable customers to connect, create, and consume data grounded in analytics, informed search, and fact-based intelligence. MarkLogic products complement Progress' DataDirect by extending data capabilities for our enterprise customers. Beyond structured data integration to natively manipulate, store, and manage non-relational data such as graph data, triples, and other unstructured data, as well as perform semantic metadata analysis and apply AI capabilities to all data to glean insights. The company has over 300 customers and strong relationships with key partners and resellers, and has offices in Redwood City, Chicago, Paris, and Tokyo. MarkLogic customers and partners will gain access to our expansive product portfolio, which will enhance their digital experiences and elevate their infrastructure management. They will also deepen their ability to drive value from any data, any application, in any architecture, in any workflow. MarkLogic's customers and partners will also benefit from Progress' unparalleled track record of customer success. With our financial strength, global presence, and a history of being the trusted provider of Mission-Critical infrastructure software to organizations around the globe, MarkLogic customers can have greater confidence in the long-term investment in its products and services. MarkLogic employees share a culture of product innovation and customer success that is very similar to ours. They have built a great business by offering strategically important and innovative Mission-Critical products, as have we. Like us, they focus on the success of their customers, which has led to impressive loyalty and high retention rates. As I mentioned earlier, we expect that by the time we fully integrate MarkLogic, this deal will add more than $100 million in total annual revenues and over $75 million in ARR. With the addition of strong cash flows, world-class operating margins, and solid recurring revenue made stronger by our proven integration processes, we expect to achieve solid returns for our shareholders. The transaction is subject to Customary Closing Conditions and regulatory approvals, and we currently expect the deal to close in the first half of February. As with previous acquisitions, we expect to complete the integration of MarkLogic within 12 months of closing. Before wrapping up, I'd also want to mention that our press release today included a reaffirmation of the guidance provided on our third quarter conference call in September, and a preliminary look at our fourth quarter 2022 ARR. Based on our most recent assessment, ARR ended the fourth quarter of FY2022 at approximately $497 million, which is a 3.5% increase over the prior year. We also expect non-GAAP revenue and earnings per share to be within or above the high end of our guidance. We look forward to discussing all the results of the fourth quarter and full year FY2022 on our earnings call scheduled for January 17th. To conclude, we believe that our acquisition of MarkLogic creates significant demonstrable value for shareholders, customers, and employees. We can't wait to close the deal and get started on the integration. With that, I'd like to open the lines for questions. Operator? Thank you. As a reminder, to ask a question, you will need to press star one one on your telephone. Due to time restraints, we ask that you please limit yourself to one question and one follow-up question. Please stand by while we compile the Q&A roster. Today's first question will come from the line of Ittai Kidron with Oppenheimer. Your line is open. Thanks. I have two questions, Yogesh. Maybe starting on the technology side, can you give us a little bit more detail how does this technology fit with your portfolio? What I mean by that, more specifically, is this just an upsell to existing install-based type of an exercise, or there is a deeper technology integration process? How does this technology coexist with OpenEdge, for example? Yeah. You know, Ittai, great question. So OpenEdge, of course, is a relational database, and DataDirect is really our data integration capability that supports this relational or structured data, right? What this does, it really complements, right? MarkLogic has a NoSQL database that can deal with unstructured data, and triples. It also has the capabilities to take both structured and unstructured data, do semantic metadata modeling on it, and, you know, basically effectively create an enriched data set of sources that can then be used for all kinds of analysis and consumed in a variety of ways, whether it is for informed search or whether it is for contextual applications or fact-based intelligence, those kind of things. Let me give you a customer example, maybe that could be helpful. You know, a very, very large global manufacturer uses this to look at, for example, the entire set of parts that go into what all they manufacture. This manufacturer has hundreds of thousands of parts that they use coming from thousands of suppliers. Often the same part can be named different things. Tying that all together and making sense of it is extremely difficult. By using MarkLogic's capabilities, they're able to take that information and make sense out of it, apply AI and machine learning to the unstructured data and structured data, and basically come up with, this is the same set of parts, even though they are being called differently and they're being supplied by different suppliers, et cetera, and make some sense out of what they have. Of course, then that can then lead to, you know, optimizing costs or optimizing number of suppliers they have or whatever business outcomes they wanna target. The way it complements both OpenEdge and DataDirect is that, you know, OpenEdge can be one of the structured data sources into this exercise. DataDirect, of course, allows for structured data from whole lot of other structured data sources as well, not just OpenEdge. So we see this as extremely complementary to what we have. Actually, the, you know, Those are the three products that go together in our portfolio with, you know, the two products we have and then the MarkLogic and Smart Mastering product that MarkLogic has. Got it. Okay. helpful. Then, on the financial side, I know you're limited in what you can say right now until the deal closes, but if I remember correctly from my previous interactions with MarkLogic, there's a very significant professional services component to this company, which is of lower than what your criteria is usually for operating margin threshold. Can you help me understand, is the gap between the revenue and the ARR professional services driven? How do I think about... If I remember correctly, this company also had a fairly lumpy revenue recognition model. Maybe it's a bit out of date. Help me understand, some of the dynamics here. You know, I don't need the numbers, but just conceptually speaking, how did the model fit into your model? Absolutely. Happy to share. A couple of things that I, you know, over time, I think percentage-wise, their professional services revenue, the contribution of professional services as a percentage has gone down. That's part A. It is not as high as maybe when you saw it. Secondly, the difference between ARR and the overall revenue is a combination of both professional services and some perpetual license that they do. There is that component to it as well. You are correct that there is some lumpiness to the actual reported revenue, which is why I think ARR is a better metric. you know, the lumpiness to the reported revenue is very similar to what we have with DataDirect, right? When your term license, the on-prem, you know, ASC 606 ends up forcing you to Rec, you know, multiyear term licenses all up front as opposed to looking at it from a annualized perspective. Yes, there is some lumpiness, we will get into more detail when we do the call once the deal closes. We actually see a clear line of sight to the 40+% operating margin for this business. You know, it is, you know, we at this point... Again, we'll talk more when we close the deal. You know, the business is really a solid business, and we see a clear line of sight to our targets. Thanks. Maybe just before we open up, can you tell me if this company had any growth over the last two, three years or it's just? Yes. -sideways essentially? Yeah. It had. The ARR has been growing steadily over the last two years. Okay. Thank you. You're welcome. Thank you. One moment for our next question. That will come from the line of Fatima Boolani with Citi. Please, your line is open. Good afternoon, and happy New Year. Thank you for taking my questions. Yogesh, a technology question for you. Appreciate the synergy that you've talked about with respect to the capabilities of MarkLogic being added to the portfolio. You know, in a pretty crowded field of database layer options for both developers and app architects, what is it that makes the MarkLogic technology and the intellectual property there really stand out in, you know, what appears to be, to us anyway, just a surplus and a surfeit of options in the marketplace for database technologies? Just a follow-up on. So- company, if I may. Sure. I mean, I think, you know, part of it is the... With database technology, Fatima, at this point, you're right, there's a whole lot of options out there. The question becomes how well integrated is it, how easy it is to implement, how robust it is, how reliable it is, how scalable it is. I think those are some of the differentiators. They... Actually, even though they say NoSQL, the reality is that what that really stands for in MarkLogic language is not only SQL, so they do SQL and unstructured as well. The other part really is, I mean, Fatima, as you know that in our acquisition modeling and in our approach, right, new customer acquisition is a very small part of what we focus on, right? Our in general, our focus is on, you know, retention, and expansion of existing customers, if possible, maybe a little bit of cross-sell. Really, you know, that's what we build our models on, and that's what we do our planning on. You know, if there is, you know, some significant new customers to win, that is great. As you know, with database products, customers who once they start using the product and they build their business on top of it, whether it is an application of some kind or an analysis system of some kind, they end up with a Mission-Critical system that the database is extremely hard to replace. Fundamentally, you know, you and anybody that has used, you know, databases 30 or 40 years ago, they're still using those databases. Even databases like IMS and IDMS and Datacom, which nobody here probably remembers. To me, I think, you know, that's one of the beauty of database business is that it's a forever business. That to us, it is that retention and that expansion that happens with usage and capacity, that is really the fundamental principle driver on how we see the modeling of this. It is a competitively differentiated offering. We think that our DataDirect offering helps it differentiate even more. You know, that's how we see it. I appreciate that. Anthony, for you, just as a segue, just with respect to the customer overlap of the 300, can you share with us how many of those customers are sort of large enterprises versus some of your customers who tend to be using your product as an embedded and OEM solution? Just curious to get your views on how much of it is sort of direct to large enterprises versus, you know, ISV type relationships when looking at the body of the 300 customers that you're acquiring. Then, just as a follow-up, you know, your expectations of, you know, driving or actively driving cross-portfolio monetization versus independently trying to scale that $100 million base from here. That's it for me. Thank you. Yeah. I can just quickly say, you know, on the, on the second question, you know, I think the cross-portfolio sale sort of cross-sell is not something that we would put into our model, and generally not something that we would sort of build our outlook on. You know, some of those opportunities may come to pass internally, but it's certainly not a focus for the business. You know, in terms of the MarkLogic customer set, I think it's, you know, probably similar in size, and I mean in terms of dollar values and type and profile of customer to, say, OpenEdge, sort of that SME or maybe a little larger enterprise type customer. I think to Yogesh's point, there is a lot of opportunity, and a lot of complement within our product set and what MarkLogic brings to the table. I wouldn't necessarily assume that that's gonna lead to a lot of cross-sell in the portfolio. We may see that over time develop, but certainly not something we're modeling at this point. Thank you. Thank you. One moment for our next question. That will come from the line of John DiFucci with Guggenheim Partners. Your line is open. Thank you for taking my question. Yogesh, you said ARR is growing steadily over the last few years. I mean, I know MarkLogic's strength has always been to work with large, complex problems, but back to Ittai's, one of his questions. My memory is kind of like his, that they were about this size many years ago, and frankly, I thought they were bigger. Did they actually decline at one time? I don't know, can you shed a little bit of light over, you know, over the last, like, I don't know, five to seven years? What do you expect? I know it's not your focus to grow organically or grow new logos anyway, you mentioned that, but is this something where you're just gonna continue to maintain the product and farm the existing installed base and perhaps grow that? Yeah. You know, capacity, I guess. Yeah. Let me answer, you know, both those parts. John, you are absolutely correct. I think about seven years ago, this was a bigger business. I think they went through some tough times. I don't know why, but that was significantly long ago. Over the last three years, the business on the product side has been growing. As I said, the ARR has been growing very steadily. I also mentioned that professional services has been coming down as a percentage of the overall contribution. You know, that has been the trend. I think part of it was that actually, you know, back six, seven years ago, professional services was huge. I think they had extremely large professional services. I think that some of it that was that. I, you know, I don't really fully know, to be honest, six or seven years ago. What I do know is that over the last three years, ARR has been growing steadily. Professional services has been reducing, as a percentage contribution. By the way, the other interesting thing is that from our perspective going forward, I think retaining existing customers is critical. You know, we actually have demonstrated that we can drive net retention rates to over 100%. I think that is something that we believe that is doable with this portfolio. Then in addition to that, you know, we do expect some new sales. We do expect some sales, you know, by both winning new logos as well as by us being able to maybe do some little cross-sell. Not modeling that in a very large way within, you know, not modeling cross-sell at all and not modeling a significant new customer acquisition either, John. Just wanted to share that. That, you know, from our perspective, you know, if this business continues to grow, if it's ARR in line with what our ARR is growing and on an annual basis, we'd be very happy. Okay. You guys do that very well. We should expect this business to continue to grow ARR steadily in this industry? We are expecting the ARR to continue to grow, in low single digits. Yeah. Perfect. Okay. Thanks, Yogesh. You're welcome, John. One moment for our next question. That will come from the line of Pinjalim Bora with JP Morgan. Your line is open. Oh, great. Hey, thanks for taking the questions, happy new year, guys. On the retention point, is it possible to understand? I think you said obviously you have done this before, bringing net retention above 100%, but what is the current kind of growth and net retention profile of the business at this point? The current, Anthony, please correct me if I've got this wrong. I believe the current growth retention is in the low nineties. It's above 90%. Mm-hmm. I think the historically over the last, you know, couple of years, the net retention is almost 100%. Or just about 100%. I mean, Anthony, I might be- Yeah. No, that's right. Net, at times, even slightly above 100 on the net retention side, Yogesh. It's been fairly steady and stable from a, you know, growth and net retention perspective. You know, not at, you know, at numbers that we think are pretty good from a performance standpoint. Not areas where we think we need to make some sort of wholesale improvement or change. Got it. The other question, Yogesh, is have they made the transition to cloud? What is the cloud mix at this point in time for the business? The business is by and large on-prem, Pinjalim. There is, you know, it is primarily an on-prem business. The cloud part of it is de minimis. Got it. Last question for me. A long time ago, I mean, I remember they were largely based on XML schema. They were trying to move to JSON, not sure if they have already done that. They have. You know, is that largely okay? Yeah, they have. Okay, perfect. There's a whole lot of other... Yeah, I mean, they're originally XML based, but yes. Okay. That's all I have. Thank you. Thanks, Pinjalim. Thank you. One moment for our next question. That will come from the line of Antonio Venturim with Jefferies. Your line is open. Hi. I just wanted to touch on the private markets. On the last earnings call, you guys talked about you had a robust pipeline of acquisitions down, but from a valuation standpoint, have we seen valuations come down in the private markets yet? Can you just touch on that, please? Anthony, the private market valuations I think are softening a little bit. You know, for us, you know, we look at this as a, you know, on a pro forma EBITDA multiple, what kind of a multiple we're paying for it. You know, we believe that this will be very similar to what we have paid for over the last three transactions that we have done. I think it's, you know, very, very similar in profile for us. We are being disciplined. I think broadly, I don't think the private markets have corrected as much as obviously the public markets, but I think they are beginning to see some areas of opportunity. Awesome. Thank you. You're welcome. Thank you. One moment for our next question. That will come from the line of Anja Soderstrom with Sidoti. Your line is open. Hi. Thank you for taking my questions. Most of my questions have been addressed already, but if you can just discuss how this deal came around, how you found it and sort of how long you've been looking at it before you decided to execute on it. Hey. Hi, Anja. Sure. Basically, the company did a sort of a very small outreach with a number of, limited number of, potential, acquirers. We were one of them. You know, they had a relatively small but a competitive process. You know, the process has gone on for a few months, as with anything. You know, we're really happy that we were able to get to a stage where both parties felt that the deal made sense for us, for each other. You know, in current environment, Anja, you know, almost everything has some competitive component to it. You know, it's. That's the sort of nature of what's going on in the market. Interestingly enough, I, you know, I think, you know, the big company was on the market a few years back as well, from what I believe. This was, you know, this time around, you know, they hired a banker, they had them reach out to a bunch of us, and we were one of them. Okay, thank you. Just, maybe to follow up quickly, what excited you most about this deal? I think to me, the combination, Anja, of both that it is a wonderful product fit, that it is a, you know, extremely sticky customer base and an extremely sticky product. The financial profile, right? The, the size and scale, you know, it fits right within our 15%-20% of our size in terms of revenue. You know, it's gonna make a meaningful impact to both our top line and bottom line, and therefore the shareholder value that it allows us to create is really, really exciting. In the end, you know, we wanna make sure that we are able to do the right thing for our customers, for our employees and for our shareholders. This one checks off all those boxes. Okay. Thank you. That was all for me. Thanks, Anja. Thank you. Speakers, I'm showing no further questions in the queue at this time. I would now like to turn the call back over to management for any closing remarks. Thank you everyone, again, for joining our call today. We wish you the very best for 2023 and actually look forward to speaking to you again in just two weeks. Have a wonderful evening. Bye-bye. Thank you all for participating. This concludes today's conference call. You may now disconnect.