Transcript: Progress Software Q3 2026 Earnings Conference Call

Progress Software (NASDAQ: PRGS ) reported third-quarter financial results on Wednesday. The transcript from the company's third-quarter earnings call has been provided below. This content is powered APIs. 69, exceeding expectations.

The company completed the acquisition of Domo for $400 million, integrating its AI and data platform to enhance their portfolio. Domo is expected to stabilize at $280-$290 million in revenue, contributing significantly to Progress's earnings. 33. For FY27, they anticipate Domo's integration to impact operating margins slightly but project significant earnings growth.

Key strategic initiatives include leveraging Domo's AI capabilities to expand offerings, focusing on consumption-based models, and exploring cross-selling opportunities with existing customers. Management emphasized strong cash flow generation, aggressive debt reduction, and continued investment in AI and R&D to maintain product competitiveness. Full Transcript OPERATOR Hello and welcome to Progress Software third quarter earnings conference call. At this time, all participants are in a listen-only mode.

After the speaker's 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 your hand is raised. To withdraw your question, please press star one one again.

I would now like to turn the call over to Michael Micciche, SVP of Investor Relations. You may begin. Michael Micciche, SVP of Investor Relations 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, and 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. com, and 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. So, Yogesh, we're done with that; we'll turn it over to you. Yogesh Gupta, President and CEO 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 to 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. 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. So 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, with 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 committed to and expanded their relationships with Progress. 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 the 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.

We 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's 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, transformation, analytics and visualization, automation, and agent 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've 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. And 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. 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 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's 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 deemphasize 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 arrangement, we anticipate that the steady-state revenue from Domo will stabilize in the range of $280 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 FY27, we believe that Domo will annually add well over $100 million of EBITDA to our business. In the meantime, our immediate priorities are to apply our proven integration playbook, to integrate Domo's business into ours, to strengthen the customer retention, and deliver our operating targets for the business by end of FY27. In closing, Q3 was another impressive quarter for Progress with a lot going on. We delivered strong results, expanded margins, exceeded earnings expectations, and again generated excellent cash flow.

At the same time, we executed on an integral component of our total growth strategy, completing yet another acquisition that adds significant scale to our business, expands our AI opportunity, and one which will contribute meaningfully to earnings and free cash flow. We're confident in the value Domo brings to Progress and in our ability to deliver that value to customers and to our shareholders. I want to thank our employees around the world for this work this quarter, especially for delivering strong results while helping us make the largest acquisition in history. I continue to be in awe of their continued dedication and outstanding work.

With that, Anthony, over to you. Anthony Folger, CFO Great. Thanks, Yogesh, and good afternoon, everyone. Q3 was another quarter of strong execution.

We delivered ARR growth of more than 1%, an operating margin of 43%, earnings per share well above the high end of our range, and adjusted free cash flow growth of 17%. We also closed our acquisition of Domo's AI and data platform business last week. I'm going to spend a little more time on Domo today and provide some detail on what we bought and what it means for our longer-term model. With that, let's get right into the numbers.

I'll start with ARR, which remains our key metric for assessing top line performance. We closed Q3 with ARR of approximately $873 million, representing more than 1% pro forma year-over-year growth on a constant currency basis. For clarity, our pro forma results include ARR from acquired businesses in all periods presented, and our Q3 results exclude Domo, which closed after quarter end and will be included in our ARR beginning next quarter. The year-over-year growth in ARR was led by OpenEdge along with contributions from LoadMaster, WhatsUp Gold, our DevTools products, and MOVEit.

In addition, our net retention rate for the quarter was again strong, coming in at 99%. Q3 revenue of $246 million was within our guidance range, and with the timing of contract renewals affecting quarterly revenue, I think it's worthwhile to point out that our year-to-date constant currency revenue growth of 2% maps very closely to our ARR growth rate, both squarely in the low single-digit range. Turning to expenses, total cost and operating expenses were approximately $141 million for the quarter, down approximately $10 million, or 6%, compared to the year-ago quarter.

The decline reflects disciplined cost management across our business, and it contributed significantly to our earnings outperformance in the quarter. Operating income of $105 million increased 6% year over year, resulting in an operating margin of 43%, up 300 basis points from a year ago. 69 came in well above the high end of our guidance range and grew approximately 13% on a year-over-year basis. 1 billion.

7 times on a trailing twelve-month basis. DSO for the quarter was 42 days, an improvement of 13 days compared to 55 days in the year-ago quarter, and a substantial improvement from 73 days at the end of fiscal 2025. Deferred revenue was approximately $406 million at the end of Q3, an increase of approximately $25 million compared to the year-ago quarter. Adjusted free cash flow was $87 million for the quarter, an increase of 17% compared to the prior-year quarter, and unlevered free cash flow was $101 million, an increase of 14%.

On a year-to-date basis, adjusted free cash flow is $265 million, an increase of 44% over the same period last year, reflecting materially improved collections along with continued strong operating performance. As for capital allocation, during the third quarter we repaid $60 million against our revolving credit facility, bringing our year-to-date debt repayment to $170 million. And we repurchased approximately $17 million of Progress stock, bringing our year-to-date total to approximately $72 million. At the end of Q3, we had approximately $131 million remaining under our current share repurchase authorization.

Okay, now let me turn to Domo. As mentioned, we closed our acquisition of Domo's AI and data platform business last week, and the integration process is already well underway. The headline purchase price was $400 million in cash, and if you include the minimum cash balance we received at closing and the net effect of assumed transaction expenses, our actual cash outlay was $390 million, which we funded by drawing on our revolving credit facility. We again intend to delever quickly and aggressively, as we've done following all of our prior acquisitions.

In his prepared remarks, Yogesh mentioned planned churn among some of Domo's products, so let me provide a little more detail around that. Domo's top line today annualizes at approximately $300 million and includes a strong and stable consumption-based revenue model along with seat-based revenue and a services business, both of which were in decline prior to the acquisition. In our model for Domo, we anticipated continued seat-based churn and declines in services revenue.