Operator: Hello, and welcome to Progress Software's second Quarter 26 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a Q&A session. To ask the question during the session, you will need to press *11 on your telephone. You would then hear an automated message advising your hand is raised. To withdraw your question, please press *11 again. I would now like to hand the conference over to Michael Micciche, Sir, you may begin.

Michael Micciche: Thank you, Tawanda. Good afternoon, everybody. Thanks for joining us for Progress Software's Second Fiscal Quarter 2026 Financial Results Conference Call. With me tonight are Yogesh Gupta, our president and CEO, and Anthony Folger, our Chief Financial Officer. Please note that all the financial figures referenced in this call tonight are non-GAAP measures unless otherwise indicated. Both the earnings release and the supplemental presentation are available on the Investor Relations section of our website at investors.progress.com. Yogesh, I'll turn it over to you.

Yogesh Gupta: Thank you, Mike, and good afternoon, everyone. Q2 was another strong quarter for Progress as our results exceeded our expectations and we were able to raise our guidance again for the full year. Our Q2 '26 results reflect the resilience of our product portfolio, strong execution by all our teams, and the continued loyalty of our customers. Revenue of $253 million was up 7% year-over-year, with ARR of $868 million, up 2% year-over-year in constant currency. Operating margin was 40% and earnings per share were $1.62, well ahead of the high end of our guidance. We also generated approximately $79 million of adjusted free cash flow and delivered a net retention rate of 100%. These results exceeded our expectations and guidance across every metric and were driven by broad-based strength throughout the portfolio. We saw particularly strong performance in our data platform products, as our customers increasingly leverage their business data to provide context for AI. We also saw strength across the rest of our portfolio, including infrastructure management and content-driven workflow automation. When viewed against the backdrop of the last several quarters, Q2 reinforces the strength and consistency of our business model. Over the past year, we have continued to demonstrate our ability to generate durable recurring revenue, strong margins and significant cash flows, while integrating acquisitions, reducing debt, investing in innovation, and navigating a rapidly evolving technology environment. Our view remains largely unchanged that AI represents an opportunity for Progress. While certain aspects of the software business are dramatically changing, enterprises have begun to realize that context and control are key to AI efficacy, outcomes and value. These realizations lead to the strengths of Progress. Our data platform and workflow automation products provide the context needed for AI to deliver reliable, verifiable and trustworthy outcomes. And these products, along with our infrastructure management offerings, deliver the control that AI needs for security, risk mitigation and cost control. Every modern enterprise runs on three foundational software layers: business logic and workflows, data and content, and security and infrastructure management. Progress has spent decades earning our place in that core. We are uniquely positioned in those three foundational layers, which continue to be critical in a world where AI is changing how businesses run. Just today, we launched Chef Enterprise Management for NVIDIA's DGX Spark — the world's smallest AI supercomputer as NVIDIA calls it. NVIDIA is bringing powerful AI computing out of the data center and into the hands of developers across the enterprise. As the adoption of these systems grows across offices, research facilities, edge locations and secure facilities, organizations will need to manage them with the same rigor as the rest of their critical infrastructure. Recognizing that, NVIDIA identified Progress and our Chef platform as a critical enterprise manageability partner to support DGX Spark deployments. This Chef capability extends the reach of Progress' infrastructure management control to a fast-growing class of persistent AI infrastructure at the edge and underscores our broader strategy to help organizations develop, deploy and manage AI securely and responsibly across their data, digital experiences and the underlying infrastructure. We're particularly encouraged about the Progress Data Platform. Last quarter, we highlighted a 7-figure deal amongst our wins, and we saw continued momentum through Q2. As organizations move beyond AI experimentation and into production deployments, they are increasingly recognizing that successful AI outcomes depend on leveraging data for context. AI agents are only as effective as the enterprise knowledge that underlies them — the context. Much of that knowledge lives in systems of record and unstructured content, documents, e-mails, support records and conversations, often disconnected from the systems where AI operates. Simply trying to provide all that context to AI is hard and extremely expensive — token expenses rise dramatically and accuracy worsens as the context window grows. Progress Agentic RAG and the data platforms transform fragmented business information into governed AI-ready intelligence, significantly improving tokenomics as well as the speed, accuracy and reliability of AI output. Organizations that lead and succeed with AI will be the ones that securely contextualize and operationalize enterprise knowledge at scale. Our data platform helps customers address these challenges while improving accuracy, reducing complexity and lowering the cost of AI deployments. You can see this across our business in many ways, and it is especially apparent on our balance sheet. In Q2, collections improved again and days sales outstanding declined significantly compared to where we exited fiscal 2025. Our balance sheet continues to strengthen, and we paid down another $50 million of debt. Combined with our first quarter actions, we have now reduced debt by approximately $110 million during the first half of the fiscal year, and we will continue to reduce leverage significantly through the rest of the year. Our capital allocation strategy remains unchanged. First, we will reduce leverage and strengthen our balance sheet. Second, we will repurchase shares when we believe that valuation presents an attractive opportunity. Let me reiterate our focus on our total growth strategy, which has three components. First, we innovate and invest in our products and our people, delivering new products and new capabilities faster than ever before. Second, we look to grow our product portfolio and customer base through disciplined M&A with a specific focus on future AI relevance. Third, continue an unrelenting focus on our customers to drive the net retention rate to 100%. On M&A, our perspective is gradually becoming more optimistic as we see signs of sellers beginning to adjust their expectations. Our strong balance sheet enables us to rapidly execute on the right opportunity, and we remain very active in evaluating potential targets while staying disciplined. Go-forward AI relevance continues to be one of the key criteria when evaluating acquisition targets. We have built significant shareholder value over many years through a thoughtful and deliberate acquisition strategy, and we will remain steadfast on our discipline and on our return thresholds. Turning to the outlook. Our strong first half performance gives us confidence to raise our full year expectations, as Anthony will go through next. While customer activity and deal size can vary from quarter-to-quarter, we're pleased with the momentum exiting Q2, and our updated guidance reflects both the strength of the first half execution and an optimistic and prudent view of the remainder of the year. In closing, we're very pleased with our Q2 results. We exceeded expectations on revenue, earnings and cash flow. ARR improved, collections strengthened, and we are continuing to pay down debt aggressively. We believe Progress remains committed to helping our customers navigate a period of unprecedented technological change. We continue to see healthy customer engagement across the portfolio, growing interest in our AI-enabled data and infrastructure offerings and strong demand for the mission-critical software our customers rely on every day. With that, I'll turn the call over to Anthony.

Anthony Folger: All right. Thanks, Yogesh, and good afternoon, everyone. We're very pleased to report outstanding second quarter results, a quarter highlighted by terrific performance across all key metrics. We closed Q2 with ARR of approximately $868 million, representing 2% pro forma year-over-year growth. This growth was broad-based across our portfolio, including OpenEdge, LoadMaster, WhatsUp Gold, MOVEit, our DevTools products and ShareFile. Our net retention rate was strong, coming in at 100%, up from 99% last quarter. Q2 revenue of $253 million exceeded the high end of our guidance range and grew approximately 7% on a year-over-year basis, driven by broad-based strength across the portfolio, most notably DataDirect, Chef, MarkLogic and LoadMaster. The renewal timing of subscription contracts can have a meaningful onetime impact on revenue in any given quarter — that dynamic contributed positively in Q2. Beyond product line contributions, it's also worth echoing Yogesh's comments on the increased demand for our Progress data platform and the AI use cases that PDP solves for enterprises. Total cost and operating expenses were approximately $151 million for the quarter, up 6% compared to the year ago quarter. The year-over-year increase included higher variable costs associated with our strong top line performance. Relative to the revenue outperformance, our incremental margins were strong, demonstrating continued cost discipline across the business. Operating income of $103 million was well above our expectations, resulting in an operating margin of 40%. Earnings per share of $1.62 came in well ahead of our expectations, driven largely by our strong revenue performance. On a year-over-year basis, EPS grew by approximately 16%. On the balance sheet, we ended the quarter with cash and cash equivalents of $103 million and total debt of $1.3 billion for a net debt position of approximately $1.2 billion. Our net leverage ratio at the end of Q2 was approximately 2.9x on a trailing 12-month basis, a significant improvement from 3.4x at the beginning of the fiscal year. Our 2026 convertible notes matured in April and the $360 million in principal was paid using our revolving credit facility. Total debt is now comprised of $850 million drawn on our revolving credit facility and $450 million as convertible notes due in 2030. At the end of Q2, we had $650 million in unused revolver capacity, providing ample liquidity and flexibility to continue executing our total growth strategy. DSO for the quarter was 49 days, an improvement of 4 days compared to 53 days in the year ago quarter. Deferred revenue was approximately $423 million at the end of Q2, an increase of approximately $35 million compared to the year ago quarter. Adjusted free cash flow was $79 million for the quarter, a significant increase compared to $37 million in the prior year quarter, driven by strong collections and excellent operating performance. On a first half basis, adjusted free cash flow was $178 million, a reflection of strong operating performance and improved collections spanning both Q1 and Q2. On capital allocation, during the first half we repaid net $110 million of debt and repurchased approximately $55 million of Progress stock, leaving approximately $148 million remaining under our current share repurchase authorization. Our net leverage ratio now stands at 2.9x. Turning to our outlook. Revenue in the first half was exceptionally strong — year-over-year growth of more than 5%, including 7% in Q2. That said, our first half growth was partially influenced by deal timing, and the clearest read on our underlying top line momentum is ARR, which grew 2% year-over-year. On capital allocation, we've updated our full year plan to reflect approximately $220 million of net debt repayment and approximately $75 million of share repurchases. At current valuation levels, we believe our shares are an attractive value and have therefore allocated a little more towards repurchases while still maintaining aggressive deleveraging. We now expect to end the year with approximately $740 million drawn on our revolving credit facility and a net leverage ratio of approximately 2.8x. For the third quarter of 2026, we expect revenue between $244 million and $250 million and earnings per share of between $1.53 and $1.59. For the full year 2026, we are raising our outlook and now expect revenue between $990 million and just over $1 billion — an increase of $2 million from our prior guidance, reflecting approximately 1% to 2.5% growth over fiscal year 2025. We expect an operating margin for the year of approximately 39%, adjusted free cash flow of between $271 million and $283 million and unlevered free cash flow of between $323 million and $334 million, both meaningful increases from our prior guidance. And finally, earnings per share of between $6.09 and $6.21, an increase of $0.18 from our prior guidance. Our guidance for full year EPS assumes a tax rate of 20%, the repurchase of approximately $75 million in Progress shares, total debt repayment of approximately $220 million and approximately 42 million weighted shares outstanding. In closing, Q2 was an exceptional quarter that demonstrates the strength and resilience of our diversified product portfolio. We delivered revenue and earnings above expectations, generated strong free cash flow and continue to make excellent progress on deleveraging our balance sheet. We're entering the second half with confidence in our ability to execute and believe we remain well positioned to deliver on our raised outlook for fiscal 2026 and beyond. With that, I'd like to open the call for questions.

Operator: Our first question comes from the line of John DiFucci with Guggenheim.

John DiFucci: I have a question for you, Yogesh, and then another for Anthony. You said you're starting to see potential sellers beginning to adjust their expectations. We're more than 1.5 years now after the successful ShareFile acquisition. Given this experience, what's your appetite for similar acquisitions of size or pure SaaS like ShareFile was? And can you give a little more color on your comment that sellers are beginning to adjust their expectations?

Yogesh Gupta: Absolutely. I think we are comfortable doing a transaction at the same scale in terms of size — our criteria historically has been companies about 10% to 25% of our scale and size on revenue. Given that we are now about $1 billion in revenue, ShareFile is just about a 25% contributor. So another ShareFile-size acquisition is very well within that range. We're also comfortable buying businesses that are cloud-based. However, just like we did with ShareFile and with other acquisitions including MarkLogic, we're very cognizant of the fact that AI relevance and what the future holds for the business has to be something that we get very comfortable with. That is such a critical thing — we want to make sure that anything we pick up continues to have a great future ahead in the world of AI. In terms of my comment about sellers adjusting their expectations — over the last few quarters, I have mentioned that when we talk to sellers, their expectations were still sort of not yet reset. I wouldn't say they have been completely reset, but we're beginning to see some change in tone. We're beginning to see folks going, yes, we understand that the software industry is being reset in terms of valuations. We speak to 50 to 60 targets every quarter, and across several conversations, not just 1 or 2, there is movement — meaningful movement towards in line with reality.

John DiFucci: Anthony, fiscal Q3 revenue guidance was a touch below the street. We saw sequential acceleration in your SaaS business this quarter. Was that more seasonal? Something similar happened last year and then SaaS growth sequentially wasn't the same into Q3. Is that how we should be thinking about the guidance?

Anthony Folger: We certainly saw some strength in SaaS revenue this quarter — sequentially, there was a nice step-up. In prior quarters, we've had some cleanup to do on ShareFile, and the further away we get from close date, the smaller that cleanup becomes. So we're just not completely normalized yet in terms of that business, but certainly getting to much smaller numbers and smaller impact. I wouldn't expect it to bounce around materially. Things should be moving like you would expect with a typical SaaS business. It's more of a cleanup in the past that we've been dealing with in prior quarters — this one felt a bit cleaner and a bit stronger.

John DiFucci: The sequential revenue guidance is just a little bit below the street at the midpoint. Is there anything to think about there?

Anthony Folger: It was just the timing. I mentioned we had a little over 5% growth in the first half and 7% growth in Q2, and some of that was timing. We had some deals we had expected in Q3 that came in, in Q2 — probably a little more than half the beat for Q2 was timing. That pulls from Q3 into Q2. I don't think it diminishes the strength we saw in Q2, but it certainly causes us to slide some numbers around from quarter-to-quarter. What we're seeing for the full year is maybe 1% to 2.5% revenue growth, which starts to map a little more closely with the ARR growth we've been seeing.

Operator: Our next question comes from the line of Ittai Kidron with Oppenheimer & Company.

Ittai Kidron: Solid numbers. Yogesh, you talked about the data platform, workflow and infrastructure management as important vehicles for AI. Can you quantify roughly what percent of your revenue is positioned within those portfolios? And with AI now in place, is there a case that over the next 2 to 3 years you could drive 2 to 3 to 4 points of organic growth from the portfolio associated with AI?

Yogesh Gupta: We don't do guidance for 2 to 3 years out, but joking aside — when you think about our data plus content business, it's actually more than 2/3 of our total business. People forget how much we are in data and content and the workflows around that, the whole thing around keeping information under control, connecting to information, integrating information sources together, leveraging that for AI. It is truly the bigger part of our business. And I think you're right that over time, we expect that to be a healthy part of our business. To me, the fact that we are growing ARR 2% organic — we've shared over and over again over the last couple of years that that's where we see us landing. We feel good about that going forward. Part of the reason is that the data and content business is going to be more and more important. The question further out is how adoption grows. We would love nothing more than to have great organic growth, but at this stage where we feel confident is the 2% range that we've talked about.

Ittai Kidron: Is the 2% volume driven, or do you think with AI you can drive better price increases?

Yogesh Gupta: I think it's a combination. A lot of the data platform business is somehow related to consumption of data. If you're a data platform, the more data you store, the more data you access from it, the more you need greater capacity. So it is an indirect connection to consumption. In that sense, for now, it is a capacity/consumption-driven growth among the existing customer base. We have won new customers with our data platform business, which is an interesting early set of indicators. Pricing is a secondary lever that we have not pulled on yet — if we get to a stage where we start seeing an opportunity there, we absolutely will. But right now, what we're talking about is not really pricing based, but more consumption volume of information and really the amount of work that they get out of the platform.

Ittai Kidron: Anthony, very good free cash flow in the first half — $178 million. You talked about $110 million for the second half. I understand part of that $178 million was better collections, which probably has a limit on how much you can squeeze. How comfortable are you with that $110 million? What are the opportunities for upside?

Anthony Folger: The first half was definitely an exceptional half for free cash flow. If you go back to last year, after we acquired ShareFile, there was a lot of cleanup we had to do. We had to move billing systems, and in Q2 of last year, we had a really low cash flow quarter because of that transition. Our DSOs got extended last year and some of those receivables built up. The team did a good job breaking through a lot of those issues in Q3 and Q4 last year and really driving accelerated collections this year in the first half to clean that up. So we're very confident in the second half outlook around free cash flow. We like to put numbers out that we think we can beat. The first half is definitely a bit of an outlier because of last year's cleanup situation.

Ittai Kidron: On M&A capacity — you've got $650 million on the revolver and $100 million on the balance sheet. Do you envision an acquisition that would require increasing your revolver even more, or are you thinking within the capacity available to you?

Yogesh Gupta: We believe we want to stay within the revolver. One never says never, but in general, we feel good about what we can do with that. Valuations are coming our way a little bit, so we should be able to do whatever we are looking to do within that revolver. That is our intent at this point. If some unique phenomenally wonderful opportunity comes up and it makes sense, we will obviously do what's right for the business. But I don't expect us to do anything where going beyond the revolver is required. Existing capacity is very good, and it continues to get better every quarter as we pay down debt.

Operator: Our next question comes from the line of Lucky Schreiner with D.A. Davidson.

Lucky Schreiner: I'm curious if you've noticed any change in duration of contracts, especially as customers evaluate their SaaS portfolios in the age of AI. Are you seeing any change in the contract durations you're signing with customers?

Anthony Folger: We're not seeing a change. For the most part, deals that were coming in at 3 years or 5 years on the last cycle are getting renewed for similar duration. There are a lot of companies out there reevaluating everything based on AI dynamics. You would think maybe we'd see a shortening in term or duration, and we're not. We continue to see good strength across the portfolio in that regard. It's been a really strong quarter and a really strong first half.

Lucky Schreiner: With retention rates improving, the strong demand is clearly showing. Anything to call out from a vertical perspective? Previously you called out a nice one with a semiconductor company. Are there any tailwinds within certain customer bases worth calling out?

Yogesh Gupta: Lucky, I don't think there's any specific one. There is a fair bit of business in those industries that have regulatory pressures and regulatory needs — we see good traction there. We see good traction with the government sector in some aspects of it, obviously not all. Our business is way more horizontal than most businesses, so we don't see a strong trend in any vertical that I would say will be great for the next quarter or two. If it were, we would share that. But there isn't a specific one to call out.

Operator: Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Yogesh Gupta for closing remarks.

Yogesh Gupta: Thank you for joining us this evening, and we look forward to speaking with you in the near future. Have a good night.

Operator: Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.