Progress Software CEO on Earnings & Monetizing the AI Shift

0:00It's time to spotlight progress software, the company posted a beat on the top and bottom line and raised suggested earnings outlook for the full year, joining us now to take a closer look at the numbers and the company's outlook is Yogesh Gupta, the CEO at progress software. Yogesh, great to have you with us today. You take us through this latest report, some really standout numbers, but I'd love to start with what you think that the key takeaways are. Well, thank you for having me, Marley, you know, we, as you noticed, we exceeded our revenue and EPS for our first quarter when we had exceptional margins. We came in at 41% operating margin and we had record cash flows of $99 million for the quarter. What's driving this is really the AI projects that our customers are trying to do and all of the products that we have that support their journey. And these are customers that are large fortune 500 companies as well as small, you know, 5, 10, 20 person organizations. And so it is, it is wonderful to see the businesses leveraging our products and using them and helping us grow and getting business benefits from it.

1:11And another thing stood out to me, your EPS more than doubled year over year on a gap basis. How much of that is operational versus one time or non recurring factors? So it, some of it because in gap results, the, some things get offset a little bit in some quarters and the other. It is, it is meaningfully higher. I think part of it is, is just last year, I think the gap results had a muted EPS to be honest. So, but you know, we're delighted about our results and we're delighted about our guidance. You know, we raised guidance on EPS as well as revenue for the remainder of the year as well. And you mentioned the free cash flow as a standout there, you know, really being driven by this AI investment, but you also highlighted your margins. I think they're about 41%. How are you balancing AI investment right now with trying to maintain those high margins? So Marley, what is fascinating is that we are leveraging AI internally, extremely extensively. And so as we do that, we're finding that we are getting benefits of it from an internal operational efficiency perspective.

2:23And we are putting that investment back into R&D and we're putting that investment back into innovating our products. So that is it. That's the virtual cycle of AI that I'd mentioned. And I think even last time that continues to bear fruit for us. And what do you see as the biggest potential monetization opportunity for AI across your products we over the next year? Is it that reinvestment into R&D? It is. And we actually see the fact that the products that we have, especially products related to managing people's data, managing people's workflows around content. I mean, this is where AI really shines, right? When you think about AI, it needs business data to give meaningful, verifiable trustworthy answers to questions that businesses have. It is the content that is in the business that needs to be leveraged for automated workflows. And so our entire product portfolio that serves the data platform aspect of what our customers needs are.

3:30That serves the content aspect of what the customers needs are. And then the security and reliability aspects of the customer needs. They are all essential in the AI journey that our customers are embarking on or have embarked on. So we are really excited about what lies ahead. And obviously your customers, you know, the driver of all of these results. So while we have you, I'd love if you could give us a concrete example of how AI is translating into wins for your customers. Or even higher spending. Let me give you a concrete example, right? About 18 months ago for the first time, one of the US state governments became a customer of ours. And what they wanted to do was tackle the waste fraud and abuse in the state and prevent that. And so over the last 18 months, they have come up with more and more use cases to leverage all the data they have that is in different parts of their business, different parts of the state government.

4:31Bring it all together and be able to identify areas where there is fraud, where there is abuse of government funds. And they are looking to potentially save tens of millions of dollars today. They are annually paying us more than a million dollars a year for our products to do that. And so over 18 months, we've gone from zero to over a million dollars of value to us and tens of millions of dollars of value to our customer. And I know you didn't know that question was coming, but great example that you had on hand there. Before we have to say goodbye, I'm sure you did think this question was coming. So I have to ask you about the SaaS apocalypse or the SaaS occur or whatever you want to call it, but this punishment of software that we've seen so far this year. What are your feelings about it and also how do you think progress is positioned to withstand it? So, you know, Marley, I think the challenge I think that everybody all investors have is that no one is really sure which companies might get disrupted with AI and which companies might not.

5:32So I think the reaction across the market has been let's us sell everything. When I look at progress, right, you look at our last six quarters, we have consistently delivered not just results that we were expecting, but actually exceeded our results. And we are actually benefiting from the AI tailwind. So I think there'll be winners and maybe not so many winners, but from our perspective, we see ourselves as one of the winners. We continue to deliver and continue to see even stronger forecast going forward. Well, you guys just been wonderful to talk to you. Always a pleasure to have you on the show. Thanks for being with us today. And again, thanks for that great example there of putting progress software to work. You'll get scooped up to the CEO of progress software.