Progress Software Corporation (NASDAQ:PRGS) has reported a strong start to the year, with Q1 2024 financial results exceeding the high end of its guidance. The company announced a 12% year-over-year growth in total revenue, reaching $185 million, and a robust operating margin of 42%.
This performance was attributed to solid top-line growth and efficient cost management. Progress Software also revealed an acquisition proposal for open-source database company MariaDB at $0.60 per share.
The company's financial position remains solid with a cash and cash equivalents balance of over $133 million, following the successful refinancing of its credit facilities to boost liquidity and support its growth strategy.
Key Takeaways
- Progress Software's Q1 revenue hits $185 million, a 12% increase year-over-year.
- Operating margins reached 42%, surpassing expectations.
- A potential acquisition offer for MariaDB at $0.60 per share has been announced.
- The company's balance sheet is strong with $133 million in cash and equivalents.
- Refinancing of credit facilities completed to enhance financial flexibility.
- Q1 saw a share repurchase of $25 million and ended with total debt at $698 million.
- Q2 revenue is projected to be between $166 million and $170 million, with full-year 2024 revenue anticipated to be between $722 million and $732 million.
- Operating margin forecast for the full year is between 39% and 40%, with adjusted free cash flow expected to be $205 million to $215 million and earnings per share between $4.65 and $4.75.
Company Outlook
- Progress Software expects Q2 revenue to range from $166 million to $170 million.
- Full-year 2024 revenue is projected between $722 million and $732 million.
- The company is confident in delivering strong results throughout 2024.
Bearish Highlights
- Executives noted inflationary pressures in the market but are managing margins effectively.
- A slight decrease in net retention rate due to customer loss and timing of contract renewals.
- Seasonal trends have led to a sequential decline in ARR, though not indicative of significant churn.
Bullish Highlights
- ARR growth driven by steady demand for products like OpenEdge.
- High net retention rates at 99% for Q1.
- The acquisition of MarkLogic contributed to revenue growth.
Misses
- Cross-sell efforts are described as modest, with no expected significant impact on business.
- No production customers yet for MarkLogic's new capabilities.
Q&A Highlights
- The company is managing well despite inflationary pressures.
- Steady product demand is maintaining growth momentum.
- The decline in ARR is viewed as a seasonal pattern, not a sign of customer turnover.
- MarkLogic's capabilities in semantic analysis and contextualization are still in the exploratory phase with customers.
Progress Software Corporation has positioned itself for continued growth with a strong first quarter and strategic moves such as the proposed acquisition of MariaDB and the refinancing of its credit facilities. The company's focus on annual recurring revenue and cost efficiency appears to be paying off, as evidenced by the positive financial results and optimistic outlook for the rest of the year.
InvestingPro Insights
Progress Software Corporation's (PRGS) recent financial results and strategic initiatives paint a picture of a company on the rise. Delving into the data provided by InvestingPro, we can further understand the financial health and market position of PRGS.
With a market capitalization of $2.31 billion and a reported revenue growth of 15.35% for the last twelve months as of Q4 2023, Progress Software is showing signs of robust growth. Additionally, the company's gross profit margin stands at an impressive 86.12%, highlighting its ability to manage costs effectively and maintain profitability.
InvestingPro Tips for PRGS indicate that analysts are optimistic about the company's future. They expect net income to grow this year, which aligns with the company's strong start in Q1 2024.
Furthermore, with a low price volatility, PRGS presents as a stable investment opportunity. The company has been profitable over the last twelve months, which is a testament to its solid business model and operational efficiency.
For investors looking to delve deeper into Progress Software's potential, there are additional InvestingPro Tips available, offering more nuanced insights into the company's performance and projections. With the use of coupon code PRONEWS24, investors can get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro, which includes a total of 5 InvestingPro Tips for PRGS.
Progress Software's forward-looking approach, as evidenced by its acquisition proposal for MariaDB and strong financial results, suggests that the company is well-positioned to continue its growth trajectory. The data and insights provided by InvestingPro reinforce the bullish sentiment surrounding PRGS, making it a noteworthy company for investors to consider.
Full transcript - Progress Software (PRGS) Q1 2024:
Operator: Good day and welcome to the Progress Software Corporation Q1 2024 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Mike Micciche, Senior Vice President of Investor Relations. Please go ahead.
Michael Micciche: Okay. Thank you, Sherry. Good to have you back with us. Good afternoon everybody and thanks for joining us for Progress Software's first quarter 2024 financial results conference call. On the line with me this afternoon are Yogesh Gupta, President and CEO; and Anthony Folger, our Chief Financial Officer. Before we get started, let's go over our Safe Harbor statement. During this call, we will discuss our outlook for future financial and operating performance, corporate strategies, product plans, cost initiatives, 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. For a description of the risk factors that may affect our results, please refer to the risk factors in our filings with the Securities and Exchange Commission. Progress Software assumes no obligation to update the forward-looking statements included in this call. Additionally, please note that all the financial figures referenced on this call are non-GAAP measures unless otherwise indicated. You can find a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP figures in our financial results press release, which was issued after the market close today. This document contains additional information related to our financial results for the first quarter of 2024 and I recommend that you reference those for specific details. We've also prepared a presentation that contains updated supplemental data for our first quarter 2024 results, providing highlights and additional financial metrics. Both the earnings release and the supplemental presentation are available on the Investor Relations section of our website at investors.progress.com. Today's conference call will be recorded in its entirety and will be available for replay on the Investor Relations' section of our website. And with that, I will turn it over to you, Yogesh.
Yogesh Gupta: Thank you, Mike. Good afternoon everyone and thank you for joining us today as we announce the results of our first quarter of fiscal 2024. It was a busy quarter for us, so let's jump right in. Total revenue of $185 million in the first quarter came in above the high end of our guidance and represents 12% year-over-year growth. Once again, our top line benefited from steady demand across geographies and products. ARR came in at $571 million, which was up slightly year-over-year in constant currency and NRR was 99%, which again reflects the resiliency of our business and the strength of our customer relationships. Our operating margins were 42% ahead of our expectations and were driven by our strong top line performance, coupled with solid cost management and the realization of efficiencies as the result of the completion of the MarkLogic integration. EPS of $1.25 came in $0.09 above the high end of our latest guidance and adjusted free cash flow was $72.2 million. As you saw in our press release, we are raising guidance for both these metrics as our existing business remains strong on the top line, and we continue to run in [ph]. Our balance sheet remains strong and we finished the quarter with cash and cash equivalents of over $133 [ph] million. DSOs were 50 days versus 62 last quarter, which is reflective of the timing of collections we mentioned on the fourth quarter call in January. In other news, as you might have seen, we also announced a possible offer to acquire MariaDB, a New York Stock Exchange listed Irish open source database company, who reported fiscal 2023 revenue of around $53 million. MariaDB is used by over 600 enterprises around the globe for their mission-critical applications. As we've repeatedly demonstrated when we've acquired other enterprise software companies, we focus on serving the needs of our customers as evidenced by our net retention rates of around 100%. This makes us the right home for MariaDB. Our possible offer of $0.60 a share represents an enterprise value multiple of under 1.5 times revenue. We believe that this valuation would represent a truly compelling offer for MariaDB's shareholders as it is a significant premium to their recent stock price. We are disciplined buyers and will only proceed with the terms to generate value for Progress shareholders. Turning to our products and markets. We're seeing customers respond positively to our AI-powered products as these products enable them to rapidly realize the business benefits of AI technologies. For example, MarkLogic and Semaphore enables sophisticated generative AI applications through RAG or retrieval-automated [ph] generation. The retrieval-augmented generation, RAG, is becoming the most popular method to contextualize and to dramatically improve the accuracy of generated responses. MarkLogic and Semaphore enable our customers to leverage their own proprietary data and content to augment the Gen AI capabilities of LLS. We continue to make advances with AI in our digital experiences products as well. Sitefinity 15 introduced out-of-the-box generative AI capabilities based on Azure OpenAI that allows content editors and marketers to generate, improve, optimize, and personalize content at the click of a button. And last quarter, we released our AI-powered observability product, Flowmon ADS for anomaly detection to help cybersecurity professionals detect, understand, prioritize, and quickly respond to security events. IT operations managers are facing an ever-growing volume of increasingly sophisticated cyber-attacks. Flowmon ADS uses AI to analyze the increasingly complex network operations data to pinpoint issues and to provide context around the potential intrusion to help inform an effective response. This product has only been available for a few months and it's already on the short list in two categories of 2024 Cloud Security awards, namely Cloud Security Innovator of the Year and Best Network Security Solutions. We also continue to offer new SaaS AIOps products to complement our existing portfolio. For example, Loadmaster 360 is a SaaS control plane for large Loadmaster deployments. The product provides telemetry data that will allow customers to realize the value derived from Loadmaster deployments, which in turn will lead to expansion opportunities and greater renewal rates. Released only a quarter ago, the subscription product is already seeing meaningful customer adoption. And Chef SaaS, which was released in the second half of 2023, has also been embraced by many enterprise customers. Amazon (NASDAQ:AMZN) recently announced that the AWS OpsWorks platform will be discontinued, and several of those customers have moved to Chef SaaS. Lastly, we also released a subscription-only version of WhatsUp Gold, which our partners have embraced enthusiastically. We had several customers sign up within a month of launch and expect that the product will drive adoption of WhatsUp Gold even further. And as always, our workforce product, OpenEdge, performed extremely well as revenues remain robust and customers remain steadfast in their commitment to that platform. Turning to other recent news, at the very end of the quarter, you likely saw that we announced a convertible notes offering, which was upsized to $450 million and a new $900 million revolving credit facility. These transactions will lower our interest rate and give us more flexibility and greater scale for accretive M&A by fortifying our balance sheet even more. To provide a bit of detail, we used the proceeds of the convertible notes to pay off all of our previously existing bank debt, which carried a variable interest rate slightly above 7%. With bank debt refinanced into lower-cost convertible notes, we were able to amend our bank facilities and put in place a new $900 million revolving line of credit. This new revolving line of credit is 3 times the size of our prior revolver and has less restrictive terms, which reflect our solid recurring revenues, durable cash flows, and strong record of executing well on acquisitions. Anthony will go through both transactions in more detail. While I want to share that we are very pleased with the outcome and how it positions us to continue executing our strategy going forward. I want to emphasize that while we now have access to more capital, which we can deploy with greater flexibility, our discipline around our total growth strategy will remain unchanged. We will still target infrastructure software companies that have excellent technology, a sticky customer base, solid recurring revenues, and opportunities for synergies that will allow us to quickly reach our operating margin targets. Likewise, we intend to remain extremely disciplined with respect to how much we pay for a company to ensure that our return on invested capital exceeds our weighted average cost of capital and be watchful of our net leverage ratio. So, while we have access to more capital and the ability to move quicker on opportunities, we do not intend to change the model that has been working well for us so far. The opportunities for M&A remain robust and we remain active, betting deals within our target areas. We continue to feel confident, not only in the availability of quality companies, but also in our ability to execute more than one transaction in a year. Before handing off to Anthony, I'd like to take a moment to talk about MOVEit. As you know, we have been very transparent about the MOVEit vulnerability in our disclosures, including our recent 10-K. As we have previously shared, the attack primarily impacted the on-prem version of MOVEit, which is deployed in our customers' environment and where we have no insight. Nevertheless, we rapidly patched and proactively communicated to our customers to help them defend against the attack on their MOVEit environments. And while MOVEit represents less than 4% of our total revenues, for Progress, every MOVEit customer is important. We have received very positive feedback regarding our response to the situation and I believe that our customer-first approach to everything that we do has helped us navigate a difficult situation and minimize the impact to our business. It is also important to note that while the SEC and other governmental entities are conducting fact-finding inquiries into the attack on MOVEit, the investigations do not mean that Progress or anyone else has violated any laws or that these entities have a negative opinion of Progress. Progress has been fully cooperating with the SEC and other governmental entities in their investigations. While we are currently unable to quantify any potential impact from future proceedings or government investigations, we're grateful for the continued support of our customers, partners, and employees, and we will continue to be transparent, proactive, and cooperative. So, to finish up, it was another solid quarter for Progress and our outlook remains positive. Accretive M&A, combined with solid execution, remains our top priority, and we look forward to the rest of the year with confidence. As always, I want to thank my fellow Progresses for their hard work and our investors for their continued support. With that, I'll turn it over to Anthony.
Anthony Folger: Thanks Yogesh. Good afternoon everyone and thanks for joining our call. As Yogesh mentioned, we're very pleased with our Q1 results, which again exceeded the high end of our guidance range on revenue and earnings per share. We're also very pleased to have recently completed a refinancing of our credit facilities and believe the amended facilities provide Progress with significantly more liquidity and flexibility to continue the execution of our total growth strategy. More on that in a few minutes. Turning to our results and starting with the top line, we closed the first quarter with ARR of $571 million, which represents modest growth on a year-over-year basis. This growth in ARR was driven by steady demand for several products across our portfolio, especially OpenEdge. Another factor that continues to contribute to the resiliency of our top line is strong net retention with Q1 net retention rates coming in at 99%. In addition to our solid ARR results, revenue for the quarter of $185 million was above the high end of our guidance range, with the over performance, driven by strong demand for multiple products in our portfolio. On a year-over-year basis, revenue growth of 12% was driven by a full quarter contribution from MarkLogic compared to only one month contribution in Q1 of 2023, and this growth was partially offset by the timing of renewals on multiyear subscription contracts. As I've noted on previous earnings calls, the timing of subscription contract renewals, especially multiyear subscriptions, can have a significant impact on our revenue in any given quarter and SKU results higher or lower. Using Q1 of 2024 to illustrate this point, if we were to exclude both MarkLogic's contribution and the impact from the timing of renewals on multiyear subscription contracts, our remaining business would have shown low single-digit revenue growth, generally consistent with our growth in ARR, and growth trends in recent quarters. We will, therefore, continue to focus on ARR as a barometer of our top line performance and as a reminder, our calculation of ARR is presented on a pro forma basis to include the results of acquired businesses in all periods and in constant currency, with all periods presented at our current year budgeted exchange rates. I should mention that consistent with past practice, we've updated ARR using our 2024 budgeted rates and as a result, the ARR that was reported in prior periods has changed slightly. The change isn't material and doesn't alter the trend in ARR growth or the net retention rates that we've been reporting over the past several quarters. And to illustrate this point, we've included some details in the supplemental presentation filed with our press release. Turning now to expenses. Our total costs and operating expenses for the quarter were $108 million, up 16% compared to the prior year and slightly lower than our expectations. The year-over-year increase was driven by the impact of a full quarter of MarkLogic when compared to last year and to a lesser extent, an expected increase in compensation costs across the rest of our business. Operating income was $77 million, up $5 million compared to the prior year quarter. Our operating margin was 42%, which was well ahead of our expectations and driven by our top line overperformance combined with strong cost management. On the bottom-line, earnings per share of $1.25 for the quarter is $0.09 above the high end of our guidance range. This overperformance relative to our expectations was again driven by solid cost management across the business, coupled with the previously mentioned overperformance on the top line. Moving on now to a few balance sheet and cash flow metrics. I'll begin with our recently completed refinancing and remind everyone that our 2030 convertible notes and the amended credit agreement were both completed in March and therefore, will not be reflected in our financial statements until Q2. At the outset, our goal was to refinance our previously existing bank debt into a lower-cost fixed-rate instrument and to amend our bank facilities so that they better support our business model and future growth. With that, here are some of the details. First, our convertible notes offering was complete on March 1st, 2024 and the total offering amount, including the overallotment option was $450 million. The notes carry an interest rate of 3.5%, a six-year maturity and with privately negotiated capped call transactions, they have a 75% effective conversion premium of $92.98. The net proceeds from the offering and capped call transactions were used to repay all existing bank debt, which totaled $338 million at the end of the quarter and to repurchase $25 million of Progress shares during the offering. With our existing bank debt repaid using proceeds from the convert, we were able to negotiate a new amended credit facility that provides a $900 million revolving line of credit. This new line expands our liquidity and provides significant flexibility as we continue executing our total growth strategy, and there are currently no revolving credit loans outstanding under this new facility. In closing, I'll reiterate these financing transactions and the $25 million in related share repurchases were completed after the end of Q1 and they'll be reflected in our balance sheet starting in the second quarter. Moving on, we ended up the quarter with cash, cash equivalents, and short-term investments of $133 million and total debt of $698 million for a net debt position of $565 million. This represents net leverage of 2 times using our trailing 12-month adjusted EBITDA. Our DSO for the quarter was 50 days, an improvement of 12 days when compared to last quarter and adjusted free cash flow was $72 million for the quarter, an increase of $25 million compared to the prior year quarter. As we discussed on our last call, the increase in free cash flow was aided by the timing of billings in Q4 and was also driven by stronger-than-expected Q1 collections and operating performance. During the first quarter, we also repurchased $23 million of Progress stock and at the end of the quarter, we had $171 million remaining under our current share repurchase authorization. Okay, now, turning to our outlook for Q2 and the full year 2024. When considering our outlook for Q2, it's important to reiterate the point I made earlier about the revenue impact of multiyear contract renewals and how their timing can impact our revenue in any given quarter, skewing results higher or lower. Despite this potential for volatility in quarterly revenue, we would expect ARR to be a good reflection of our fundamental top line performance and as mentioned on our last call, we expect ARR to grow slightly in 2024. With that, for the second quarter of 2024, we expect revenue between $166 million and $170 million and earnings per share of between $0.93 and $0.97. For the full year, we continue to see strength in the demand environment for our solutions and we're also aware that the macro environment may become more challenging. As such, for the full year 2024, we expect revenue between $722 million and $732 million, consistent with our prior guidance, and operating margin of between 39% and 40%, generally consistent with our prior guidance; adjusted free cash flow between $205 million and $215 million, an increase of $3 million compared to our prior guidance; and earnings per share of between $4.65 and $4.75, an increase of $0.07 compared to our prior guidance. Our annual EPS estimate contemplates a tax rate of approximately 20%, approximately 44.6 million shares outstanding, and the impact of $30 million in additional share repurchases, bringing our total share repurchase expectation to $78 million for 2024. In closing, we're excited to deliver strong financial results across the board in the first quarter, a continuation of the trend we saw for all of 2023. We're thrilled with the refinancing of our bank facilities and believe we're very well-positioned to deliver strong results for the remainder of 2024 and beyond. With that, I'd like to open the call for Q&A.
Operator: Thank you. [Operator Instructions] And our first question will come from the line of Ray McDonough with Guggenheim Securities. Your line is open.
Ray McDonough: Great. Thanks. Yogesh, maybe for you, MariaDB is obviously based on open source technology. And throughout history, there's very few examples of companies that were successful in scaling businesses supporting open source technologies. Why is MariaDB different in progress is control? And how confident are you that you can ramp margins? When I just look at the filings that they have there, it seems like they're burning a good amount of cash right now. So, I just want to understand kind of what you're seeing in that business in terms of your ability to drive success and drive free cash flow generation?
Yogesh Gupta: Sure, Ray. Thank you. So, two things, right? First of all, we do have Chef, which is also an open source product, and we have demonstrated that we can do well with a business like Chef, both from the perspective of customer retention, ARR growth, margin expansion, and so on. So, we have an example of an open source company that we have done this before with. With respect to MariaDB, a couple of points there, last year's financials actually do not reflect some of the restructuring that they announced at the very end of last year. So, they have done a significant restructuring. I think they publicly announced that they were eliminating at least 28% of their employee headcount. They have also talked about the fact that they have exited two very, very small, but highly unprofitable businesses. And they also have, to be honest, public company costs that if you can imagine a $50-something million revenue company, dealing with a full public company expense structure, which is further opportunity for us. We believe that we have tremendous opportunity here to create truly significant meaningful value for our shareholders Ray.
Ray McDonough: That makes sense. And then maybe just a follow-up for Anthony. In your comments around guidance, you mentioned you're aware the macro might become more challenging as we move forward. I'm just wondering, one, is there anything behind those comments in terms of what you're seeing out of your customer base in any sort of product category? And two, maybe just kind of help us understand what level of prudence you're putting in the guidance here and what could go wrong and what could go right or what could be better in the macro and what that would mean in terms of achieving your high end of your guidance?
Anthony Folger: Yes, sure. I think -- we continue to see inflation still running through from a cost perspective, Ray. And so I think that was the -- probably the point that we were making is that that's still a bit of a challenge for us and for a lot of companies out there. I think we're pretty good at managing costs and being forward-looking in terms of how our cost profile is going to develop. And I think it's just a nod to the fact that we're going to have to continue with that because we still see some of the same inflationary pressures in the market and in our business. And we'll continue to stay disciplined in managing that and managing our margins.
Yogesh Gupta: And to sort of just to add a bit, I think from a demand side, we are not seeing, to be honest, anything different. We continue to see steady solid demand across the portfolio.
Ray McDonough: Great. Thanks for taking the questions.
Operator: Thank you. One moment for our next question and that will come from the line of Fatima Boolani with Citi. Your line is open.
Fatima Boolani: Hi, good afternoon. Thank you for taking my questions. Yogesh, I have one for you to start and a follow-up for Anthony. Over the course of last year, one of the themes that we had discussed was this opportunity for MarkLogic to enjoy some cross-sell synergies with your very sticky, very large OpenEdge installed base. I'm curious with now a full year under your belt and having been very conservatism -- or having been very conservative rather on your ability and expectation to kind of cross-sell -- or cross-pollinate into those bases. I'm curious if you're going to take any deliberate or material steps to actually derive behavior this year? And then just a follow-up for Anthony, please.
Yogesh Gupta: So, Fatima, our efforts around cross-sell are modest because, as you know, our efforts around go-to-market are in general, modest, right? I mean one of the things that the trade-off that we make is the trade-off between what happens on the spend on go-to-market efforts and what we deliver in terms of our margins. So, I think fundamentally, we continue to do what I would call targeted efforts around cross-sell. But we have always modeled every single one of our acquisitions with -- to be honest, right? And we said this publicly, no cross-sell is modeled in our modeling. We think of these businesses as having to standalone to deliver value for our shareholders and if we can actually do some cross-sell, then that's upside. So, from our perspective, Fatima, I don't see, to be honest, any real, meaningful cross-sell that sort of moved the top line needle in a meaningful way. We will continue to do some cross-sell, we are doing cross-sell. And it's not just actually cross-selling MarkLogic into OpenEdge, it's even cross-selling other products into the MarkLogic customer base. So, whether it is our Chef product for managing those environments and the deployment and DevOps for those environments, whether it is something like a Sitefinity and other digital experience products that end up front-ending a MarkLogic application. So, we see opportunities there as well as we see opportunities with MarkLogic going into OpenEdge customer base. But really, again, I keep saying this, and I guess I repeat myself over and over, we really don't see a meaningful impact from that on our business.
Fatima Boolani: I appreciate that Yogesh. And Anthony, can you -- on the net retention rate at 99%, now just a nitpick that is shy [ph] below your internal threshold at 100%. So, any nuances you can offer to us on why that step down? You've been pretty consistently at 100, 100-ish level, 100%-ish. So, just wanted to get maybe some additional context around that slight compression this quarter? Thank you.
Anthony Folger: Yes. Sure Fatima. The -- I would say the compression because we measure our net retention rates on a trailing 12-month basis, you sort of have to look back over that trailing 12-month period and figure out the ins and outs. And we mentioned in Q4 that we had a couple of contracts churn out. One of them was due to M&A, frankly, where we ended up losing a customer. And that impacted us in Q4, brought the net retention rate down a little bit. And that contract is still in the denominator of our calculation. It will be there for a couple more quarters. So, we're not surprised to see things at 100% or 99% for a little bit, certainly doesn't change our long-term outlook from a net retention and a target perspective of being 100% or better.
Fatima Boolani: Thank you.
Anthony Folger: Yes.
Operator: Thank you. One moment for our next question and that will come from the line of Brent Thill with Jefferies. Your line is open.
Antonio Venturim: Hi guys. Thanks for taking the question. This is Antonio Venturim for Brent Thill. It looks like you guys had an overall strong quarter on the top and bottom-line. Can you just give us your puts and takes on the delta between ARR growth sort of being flat to slightly up versus revenue growth growing in the double-digits? If you could just give us puts and takes on that, that would be great.
Anthony Folger: Yes, sure. Sure, Antonio. I can take that. So, for the quarter, MarkLogic if you sort of take a look at the year-over-year, we only got a month contribution from MarkLogic last year, and we get a full quarter this year. So, that drove the vast majority of our growth. But there was an offset to that, right? We did have some multiyear subscription contracts that executed last year. They renewed last year. We didn't have the same opportunity this year in the quarter. So, when you're looking at revenue on a year-over-year basis, I think the right way to reconcile it is you've got some growth from MarkLogic, it gets offset a little bit by the timing of contract renewals, some of those subscription deals. And so you can still sort of reconcile down to low single-digit growth on the revenue, but ARR just ends up being, I think, a more accurate reflection this quarter of what's going on in the business fundamentally.
Yogesh Gupta: And what's interesting is that when you look at ARR year-over-year, last year, the pro forma ARR of MarkLogic was included in last year's results. So, when you think about it that way, right, when we compare ARR, we include acquisition prior ARR as though it was part of our business. So, the growth in ARR is really sort of the real growth of the business or the real trajectory of the business, whereas until you have a full 12-month cycle, the actual reported revenue looks significantly higher because MarkLogic is adding to this quarter for a full quarter, whereas last year, as Anthony said, was just about a month.
Antonio Venturim: Thanks for taking the question and congrats on the quarter.
Yogesh Gupta: Thanks.
Operator: Thank you. [Operator Instructions] One moment for our next question and that will come from the line of Pinjalim Bora with JPMorgan (NYSE:JPM). Your line is open.
Pinjalim Bora: Great. Thanks for taking the questions. I want to ask you on MarkLogic, I heard throughout the word RAG along with MarkLogic, -- it's -- I know it's a document database, but can you remind us what has MarkLogic developed so far from a RAG standpoint? Have they created a Vector DB store? Is there a search layer in there? Maybe help us understand that -- are you seeing customers look at that more seriously as -- for their RAG use cases?
Yogesh Gupta: Great question, Pinjalim. So, what we have done -- so if you think about MarkLogic, of course, is really unstructured data. But Semaphore on top of that, right, is the semantic analysis of that information. And so the question becomes when you get information out of an LLM, how do you contextualize it? So, yes, we have actually created capabilities, and we have -- I don't want to say customers in production, but we have customers who are looking to figure out how to use it to actually leverage their content and their data using both MarkLogic and Semaphore on top of their information and then augmenting any receivable that they do through LLMs of any generative content, right? So, you get -- the LLM will do its thing. Basically, they augment the generation with information from MarkLogic/Semaphore and therefore, provide more contextual answers. I wish we get to the point where we have production customers, we can talk about it.
Pinjalim Bora: Interesting. Yes, thank you for that Yogesh. One for Anthony. I hear you on the comment that you made about kind of the customer churn -- you had a couple of customers churn last quarter, and that's kind of impacting NRR. But when I see the sequential decline in ARR seems like it's a little bit more than maybe a year ago or even maybe last quarter. Just want to make sure that there is no incremental gross dollar churn that you're seeing at this point? Thank you.
Anthony Folger: Sure, Pinjalim. Yes, I would say that the trends for us have been generally consistent. We do see sort of a seasonal move in ARR because we're a software company where contracts can lapse, we've generally seen a step down from Q4 to Q1. It's not uncommon for us in terms of ARR. And so we saw that again this quarter. I think it may be slightly higher than what it was last year. But from our perspective, in terms of what comes back into the tail [ph] in Q2 and just trends in the business, I don't see it as anything meaningful in terms of incremental churn in the quarter.
Pinjalim Bora: Got it. Thank you.
Operator: Thank you. I'm showing no further questions in the queue at this time. I would now like to turn the call back over to Mr. Yogesh Gupta for any closing remarks.
Yogesh Gupta: Well, thank you, everyone, for joining our call, and we look forward to speaking with you again in a quarter. Thank you. Bye, bye.
Operator: Thank you all for participating. This concludes today's program. You may now disconnect.
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