Progress Software Corp (DE) 2026 Q3 Earnings Call

You may begin. Thank you, Tawanda.

It's nice to have you back with us. Good afternoon, everyone, and thanks for joining us for Progress Software's third fiscal quarter 2026 financial results conference call. Joining me on the call are Yogesh Gupta, our President and CEO, and Anthony Folger, our Chief Financial Officer. Before we get started, please consider our safe harbor statement. During this call, we will discuss our outlook for future financial and operating performance, corporate strategy, product plans, cost initiatives, our acquisition and integration of Domo, and other information that might be considered forward-looking. Such forward-looking information represents Progress Software's outlook and guidance only as of today and is subject to risks and uncertainties, and our actual results may differ materially.

For a description of the factors that may affect our future results and operations, please refer to the risk factors in our SEC filings, particularly the Risk Factors section in our most recent Form 10-K and the latest 10-Q filing, which was filed in conjunction with this announcement. Progress assumes no obligation to update forward-looking statements included in this call. Additionally, please note that all the financial figures referenced in the call will be non-GAAP measures unless otherwise indicated. You can find a reconciliation of the non-GAAP financial measures to the most directly comparable GAAP figures in our earnings press release, which also was issued at the market close today. This document contains additional information related to our financial results for the third quarter of fiscal year 2026, and I recommend that you reference it for specific detail.

We've also provided a slide presentation that contains supplemental data for our second quarter, or excuse me, for our third quarter, and provides additional highlights, financial metrics and information regarding the Domo acquisition. Both the earnings release and the supplemental presentation are available on the investor relations section of our website at investors.progress.com. Just a reminder that today's call is being recorded in its entirety and will be available for replay on the investor relations website shortly after we finish this call. Yogesh, we're done with that. We'll turn it over to you.

Thank you, Mike, and good afternoon, everyone. Thank you for joining us today to discuss the results of our third quarter of fiscal year 2026 and to also talk a bit about our acquisition of Domo, which just closed last week. We delivered another solid quarter as ARR was up over 1% in constant currency to $873 million, and net retention rate finished at 99%, within our expected range of 99%-100%, consistent over the last several quarters. Q3 revenue was $246 million, right around the midpoint of our most recent guidance, with notable strength again thanks to OpenEdge, DataDirect, MOVEit, and LoadMaster, among other products. Operating margins were exceptionally strong again, coming in at 43%, while earnings per share increased 13% to $1.69, exceeding the high end of our guidance.

Cash flow continued to be very strong in the quarter as DSOs improved significantly, and we continue to strengthen our balance sheet through aggressive debt paydown. We had a strong third quarter and our outlook for Q4 remains positive with the rest of the fiscal year on track. You'll hear more details from Anthony on our results and guidance later. Let me share some color on our Q3 results. Our performance again demonstrated the strength and durability of our portfolio, which deals across some of the world's largest enterprises and government agencies, reflecting the mission-critical role our software plays in their business. Several major customers across a wide range of industries and geographies recommitted to and expanded their relationship with Progress.

This included major financial institutions, health organizations, global energy leaders, technology companies, several state agencies in the U.S., as well as one of the largest European law enforcement agencies. We also continued to gain momentum in highly regulated and security-sensitive environments where trust and performance matter most. These organizations are using Progress products for mission-critical systems to securely manage and leverage their data and content, to automate complex processes, and to modernize their infrastructure. Customers consistently cite reliability, security, compliance, and operational efficiency as the key reasons for deepening their relationships with us. Most importantly, we continue to see growing interest in our AI-enabled capabilities as customers rely on Progress products to deliver the context and control for AI, so that they can achieve their business goals with confidence. Context grounds AI in trusted data, institutional knowledge, and business policies to produce reliable and dependable outcomes.

While control ensures security, governance, and the management of the infrastructure and the cost of their AI projects. Organizations that successfully bring these two elements together are the ones that can scale AI with confidence and realize lasting business value. That is one of the reasons we are so excited to add Domo's AI and data platform business to Progress, which was a defining strategic development during the third quarter. What makes the Domo business particularly exciting is its ability to connect data across the enterprise, apply AI to that data, and deliver trusted insights and actions directly into business workflows. Customers across all industries are using Domo to build AI-powered applications and agents, to automate decision-making, and to empower employees with self-service access to real-time intelligence. They are using Domo offerings to turn data into measurable business outcomes from accelerating growth to improving operational efficiencies.

For example, a leading sports broadcaster connects all fan social interactions, customer service conversations, and operational data using Domo, creating a real-time intelligence capability that provides the context to understand what fans are experiencing across live events and how to improve that experience. This allows the broadcaster to have the confidence to make real-time data-driven decisions, improve fan engagement, while resolving issues quickly and continuously enhancing the viewing experience of its audience. From a technology and product perspective, the strategic opportunity for integrating Domo's cloud-native AI and data platform with Progress' data platform is extremely compelling. As data and data platforms become increasingly important layers in the AI-enabled enterprise architecture, combining and integrating Domo's data transformation, analytics, and agentic workflow capabilities provide significant acceleration of our overall data platform.

Progress already provides critical elements of the AI-enabled data architecture, including ontology management, unstructured data management, semantic analysis, agentic RAG, intelligent decisioning, and AI-powered automated workflows. Domo adds real-time data integration and transformation, analytics and visualization, automation, and agentic orchestration. Together, we can deliver a far more complete AI-ready data layer that takes complex data in and delivers deeper insights, automation, and trusted AI-driven outcomes. Now that Domo is a part of Progress, we see significant opportunities to deepen our relationship with customers to help them realize even greater value from their data analytics and AI investments. We have already begun to engage with Domo customers who are eager to hear how we intend to help them accelerate their AI journeys.

Our General Manager of the data platform business, John Ainsworth, and I have spoken to several of these customers who have shared their excitement about this acquisition and what it could mean for them. We also met with Domo's customer advisory board yesterday, which represents a broad cross-section of their global customer base to share ideas, hear their input, and share our plans. We have launched a global customer meeting tour covering a dozen cities around the world, where at each event, our senior executives expect to meet with 50 to 100 Domo customers. The first of these customer events also took place earlier this week.

I want to especially thank the Domo team for continuing to stay focused on their business while dealing with the significant distractions and uncertainty this year, both prior to the announcement of the acquisition, as well as the period between the deal announcement and closing. Their dedication is truly commendable. For example, they completed all the work on a new release of the product, further extending the capabilities of the Domo offering, which we announced this morning. Anthony Folger will discuss in detail the financial aspects of the deal and the significant financial opportunity that Domo brings, but let me share some highlights. As you recall, we paid $400 million for Domo, and because it is an asset purchase, we expect meaningful tax benefits and other favorable adjustments. Because of this very attractive valuation, we are excited about the shareholder value creation opportunity that Domo represents.

I want to remind folks that the most exciting aspect of Domo's AI and data platform business is the part that is on the consumption-based model. Throughout our due diligence process, we have believed that the seat-based business of Domo will continue to see significant churn, and that we would also continue to de-emphasize Domo services business, something Domo itself had already started. As we manage the planned churn, the conversion of remaining seat-based customers to the consumption-based model, and begin the work of maximizing customer retention and ARR, we anticipate that the steady state revenue from Domo will stabilize in the range of $280 million to $290 million, which again, will largely come from the consumption-based model. Once Domo is fully integrated, which we plan to complete by the end of FY 2027, we believe that Domo will annually add well over $100 million of EBITDA to our business.