Progress Software Corp /Ma Q3 FY2022 Earnings Call

Welcome to the Progress Software Corporation Q3 2022 Earnings Call. My name is Darryl, and I will be your operator for today's call. I will now turn the call over to Mike Micciche, VP of Investor Relations. Mike, you may begin.

Thank you, Darryl. Good afternoon, everyone, and thank you for joining us for Progress Software's third quarter 2022 financial results conference call. With us today are Yogesh Gupta, President and Chief Executive Officer, and Anthony Folger, Chief Financial Officer. Before we begin, I want to remind you that we will be discussing our outlook for future financial and operational performance, corporate strategies, product plans, cost initiatives, the impact of the COVID-19 pandemic on our business, and other forward-looking information. This information reflects Progress Software's outlook and guidance as of today and is subject to risks and uncertainties. For details on the risk factors that could impact our results, please refer to our recent SEC filings, particularly the Risk Factors section in our most recent Form 10-K. Progress Software does not have an obligation to update the forward-looking statements made during this call, whether due to new developments or otherwise. Additionally, the financial figures we will discuss are non-GAAP measures unless stated otherwise. A reconciliation of these non-GAAP financial measures to the closest GAAP numbers can be found in our financial results press release issued after the market closed today, which is also available on our website. This document provides the full details of our financial results for the fiscal third quarter of 2022, and I encourage you to refer to it for specific information. We have also prepared a presentation that includes supplemental data about our third quarter 2022 results, highlighting additional financial metrics. Both the earnings release and this presentation can be accessed in the Investor Relations section of our website at investors.progress.com. Today's conference call will be recorded in its entirety and available for replay on the Investor Relations section of our website. With that, I will hand it over to Yogesh to get started.

Thank you, Mike. Good afternoon, everyone, and thank you for joining us as we discuss the results of Progress' fiscal third quarter '22. We're excited to report that we again exceeded the high end of our revenue and EPS guidance and recorded another strong performance across virtually all products and geographies. We remain confident about our revenues, operating margins and free cash flow for the rest of the year. Despite strong foreign exchange headwinds, we are maintaining our revenue guidance and raising our EPS guidance for the full fiscal year '22. Our results continue to be driven by our Total Growth Strategy, which combines accretive M&A with a highly profitable and predictable business with strong recurring revenues and very high retention rates. Our disciplined execution of this strategy over the past several years continues to deliver consistent performance and meaningful returns to our shareholders. A very important aspect of our business is its predictability and stability. The mission-critical nature of our products results in steady demand from our customers. This steady demand forms the foundation of our business in good times and in challenging times, leading to a high-visibility business model and providing a degree of protection from uncertainties that may impact other types of software businesses. Our third quarter results speak to this strength. Annual recurring revenues continued to grow to $495 million, up approximately 13% year-over-year on an as-reported basis and 4% year-over-year on a pro forma basis. Net dollar retention rate was again over 100%, coming in at 101.4%. Revenue of $153.1 million was above the high end of prior guidance as was our EPS at $1. Free cash flow was also impressive for the quarter and our balance sheet continues to strengthen. Two things to note: recall that in our third quarter last year, several very large deals closed at the end of the quarter, giving us a huge beat and a tough comparison. And of course, foreign exchange has had a very strong negative impact of over $5 million in this quarter alone. So in that light, our third quarter results are even more impressive and show that Progress is managing well in a challenging macro setting. Demand for our products continues to be strong as do our renewal rates. Our execution to meet this demand remains strong with noteworthy strength in this quarter in Chef, OpenEdge, DataDirect and Sitefinity. Anthony will provide more details on our numbers, including details on the impact of foreign exchange. But before that, let me share some commentary about our business and the macro environment. As we have discussed before, the three pillars of our Total Growth Strategy are: number one, strengthen our profitable core businesses by investing in product innovation and customer success to maximize retention and drive organic ARR growth. Number two, focus on operational excellence to successfully execute and integrate acquisitions, run efficiently and deliver world-class margins and cash flow. And number three, deploy capital to produce the highest shareholder returns, preferably through accretive acquisitions that fit our disciplined criteria. We also returned value to shareholders through share repurchases. We buy back our stock, both as a calculated element of our capital allocation policy as well as opportunistically if Progress shares offer meaningfully better returns. In the third quarter, we bought back shares worth $24 million. Expanding a bit on our acquisition strategy, we have been steadfast in our commitment to only doing deals that meet our strict criteria. That means identifying strong enterprise software businesses with a durable, recurring revenue model, high retention and renewal rates, and once we are confident that we can rapidly integrate them within our operating model. It also means acquiring them at the right price, such that the expected return on invested capital exceeds our cost of capital. As a result of our stringent standards, we have passed on a number of deals that did not meet recurring revenue or retention rate criteria. Some sellers have tried to reengage at significantly lower asking prices, but we'll remain disciplined because any business we buy must deliver strong returns that are sustainable over the long haul. And while deteriorating macro factors are working in our favor with respect to valuation multiples, private company valuations are still not where we believe they should be. While lower than a year ago, their valuation expectations remain out of line with public markets. So we will be patient and not overpay for the assets we acquire. We continue to be an extremely active contender in the M&A market and seek to be a buyer of choice for companies looking to sell. In order to enhance our ability to efficiently integrate acquired businesses and better serve our customers, we're working to realign our go-to-market product and operational teams. This will improve collaboration among the teams that develop, sell and support our products. The work we're doing to realign some of our teams will also centralize some shared services, lead to greater systems uniformity and increased operating efficiency. All of this also supports an important element of our Total Growth Strategy, which is operational excellence. Switching to the topic of macroeconomic conditions and inflation. The largest expense drivers in our business are employee-related expenses. And we've worked hard to ensure that we can pay our employees competitively while at the same time managing costs across our business in order to protect our margins. We've done this by focusing on employee engagement. Elevated employee turnover can increase expenses in the business significantly because hiring and training new employees is much more expensive than retaining the great talent we have. We continue to work hard to make Progress the kind of place where employees find the work fulfilling, the environment inclusive and authentic. Our employee engagement scores continue to be in the top quartile in the tech industry. And we're proud that our employee turnover remains significantly below the industry average. I want to thank our employees for their ongoing commitment to the success of the company and for making Progress such a great place to work. On top of all this, we continue to diligently manage other costs to ensure that we can sustain our margins during this unprecedented inflationary period. For example, earlier this year, we sold our headquarters building and reduced our fixed costs significantly. We also continue to maintain some of the benefits of pandemic-era reductions in travel and marketing expenses. Our focus on employee engagement and our efforts to continually streamline operations will help us retain our talent while at the same time positioning us well as we move forward towards 2023. Let me wrap up with a few highlights from our recent global customer event. Just a couple of weeks ago, we hosted Project 360 in Boston, our largest event in the last three years. CIOs and other executives from our customers and partners as well as developers, IT ops, and Sec-ops practitioners from around the globe joined Progress team members for two days of strategy discussions, training and education, product demonstrations and collaboration. For me, personally, it was wonderful to connect face-to-face with technologists and business people who use our products to make a positive impact in the world. Most importantly, it was a reaffirmation that our customers love our products and are as enthusiastic as ever about working with us. So to wrap up, Progress is having an excellent year so far. I'm pleased with these outstanding results for the third quarter. And I'm confident we will finish FY '22 on a strong note as our guidance reflects. And with that, I'll now turn it over to Anthony.

Thanks, Yogesh. Good afternoon, everyone, and thanks for joining our call. As Yogesh mentioned, the third quarter was another exceptionally strong one for Progress. Even more impressive is the fact that these results were delivered in the face of significant foreign exchange headwinds and general economic uncertainty, further demonstrating the incredible strength and durability of our business. Jumping right into the financials, I'd like to start with ARR, which we believe provides the best view into our underlying performance. As a reminder, our calculation of ARR is presented on a pro forma basis to include the results of acquired businesses in all periods presented and in constant currency, with all periods presented at our current year budgeted exchange rates. ARR at the end of Q3 was $495 million, representing approximately 4% organic growth on a year-over-year constant currency basis. The growth in ARR was driven by virtually all our products and was again bolstered by net retention rates, which in Q3 reached a record high, exceeding 101%. In the past, we've talked about the investments we've made in our products, which are aimed at improving the customer experience and our net retention rates in Q3 illustrate the continuing benefit of those investments. Revenue for the quarter was $153.1 million, which is approximately $3 million above the high end of the Q3 guidance range we provided in June. Relative to our guidance, we saw better-than-expected results from our DataDirect, OpenEdge, Sitefinity and Chef Product lines. Moreover, movements in foreign exchange rates during the third quarter alone resulted in a revenue headwind of approximately $1.5 million without which, we would have landed $4.5 million above the high end of our guidance range. On a year-over-year basis, revenue increased slightly. However, there are multiple factors that make the year-over-year comparison difficult, including the timing of revenue recognition and contract duration, which we covered in last year's Q3 earnings call, movements in foreign exchange rates and the addition of Kemp to our 2022 results. When we consider all these factors, our year-over-year revenue growth in Q3 is reasonably consistent with the growth in ARR mentioned previously. We've provided additional details on the Q3 year-over-year revenue comparison in the slide presentation accompanying our press release. I'd encourage you to look at Slide number 11 in that presentation for a clear illustration of this point. Turning now to expenses. Our total costs and operating expenses were $93 million for the quarter, an increase of $11.6 million compared to Q3 of 2021. The year-over-year increase is the result of two primary factors. First is the addition of Kemp to our business, which makes up the vast majority of the year-over-year increase; and second, our increased wages and travel costs. Like most other companies, we are experiencing wage inflation. However, cost management in other parts of our business is helping to offset those increases. Also, we're seeing travel return to a more normalized level in 2022, not quite where it was pre-pandemic, but certainly elevated from 2020 and 2021. This is something we anticipated coming into the year, and just like wage inflation, solid cost management in other parts of our business is helping to offset these increases. Operating income was $60.1 million for the quarter, and operating margin of 39% compared to 47% in the year-ago quarter. As previously mentioned, our results in the third quarter of 2021 were significantly impacted by the timing of revenue recognition and as such, year-over-year comparisons are less meaningful. Turning to the bottom line, our earnings per share of $1 for the quarter were $0.02 above the high end of our guidance range. Moving on to a few balance sheet and cash flow metrics. We ended the quarter with cash and short-term investments of $225 million and approximately $300 million in untapped capacity under our revolving line of credit for a total liquidity of $525 million. DSO for the quarter was 48 days, an improvement compared to 54 days in the year-ago quarter. Deferred revenue was $251 million at the end of the third quarter, down slightly from the second quarter, reflecting normal seasonality in our business, coupled with the impact of foreign exchange rates on deferred revenue. Adjusted free cash flow was $39 million for the quarter, up $4 million or 11% from the year-ago quarter. During Q3, we repurchased approximately $24 million of Progress stock. And at the end of Q3, we have approximately $80 million remaining under our current share repurchase authorization. In the fourth quarter, we will continue to evaluate the market price of our shares, along with other factors in determining whether to make additional share repurchases. In the first three quarters of 2022, we have repurchased a total of $75.5 million of Progress stock. Okay. Now I'll turn to our outlook. At different times in my remarks, I've mentioned the impact of changes in exchange rates on our reported results and I'd like to provide a little more insight. The primary point I'd like to highlight is the mix of currencies in which we transact is different than the disclosed geographic mix of our business. So when it comes to transacting in different currencies, it's worth noting that more than 70% of our revenue and approximately two-thirds of our expenses are denominated in U.S. dollars. This mix of currencies results in a hedge on our operating margins. Meaning, our operating margin is generally much less exposed to movements in foreign exchange rates than our revenues, and this has been the case during 2022. Now shifting back to our outlook and starting with the full year 2022. We're maintaining our revenue guidance to be between $609 million and $617 million. This outlook includes an increase to our revenue guidance of approximately $4 million, which is offset by a $4 million foreign exchange headwind. To help illustrate this point, we've included a slide in the presentation that accompanies our press release. And I'd encourage you to look at Slide number 14 for a clear illustration of this point. We're maintaining our outlook for operating margin for the year at approximately 39% to 40%. We're maintaining our outlook for adjusted free cash flow to be between $185 million and $190 million. And we're increasing our outlook for earnings per share to be between $4.08 and $4.12. Our guidance for full year EPS assumes a tax rate of 20% to 21% and approximately 44 million shares outstanding. For the fourth quarter of 2022, we expect revenue between $157.6 million and $165.6 million and earnings per share between $1.06 and $1.10. In closing, we're thrilled with our financial performance and our outlook for the balance of 2022. And we believe the clear strength in our business and our balance sheet positions us very well to continue to execute on our total growth strategy. With that, I'd like to open the call for Q&A.

And our first question comes from Fatima Boolani from Citi. Go ahead, Fatima.

Good afternoon. Thank you so much for taking my questions, gentlemen. Yogesh, I'll start with you. Last quarter, you did allude to or offered an inclination towards increasing prices across your portfolio. So I just wanted to get a quick update on that in terms of how you're thinking about the parameters of these price increases and particularly in the context of the inflationary environment where you're absolutely managing costs, but just curious on sort of the top line inputs from just outright pricing increases across your suite of solutions? And then I have a follow-up for Anthony, if I could.

Hi Fatima, thank you. And yes, we did talk about what we could do with respect to price increases. And let me share with you sort of the three parts to that answer. Part one is that we have long-term relationships with many of our software vendors who embed our software in their software. We have a revenue share relationship where effectively, we don't really change prices or can't really change prices. It's a percentage of what revenue they get, and we collect a percentage of that. So there is a segment there that we can't touch at all. There is a second segment where some of our customers have multiyear contracts. When those contracts come up for renewal, we basically continue to look at opportunities, and we are increasing prices. But again, I would like to make folks aware that we have a larger number of multiyear contract customers than one-year contract customers. So Fatima, we have made changes to some of our product prices. We do have a third category of products, which are in what I would call extremely price-competitive markets. And there, we are careful about increasing prices. We sometimes reduce our discounts and so on. So we're trying to use the lever on price the best we can. But I do want to point out that it isn't as though we can take our entire business and go, hey, let's increase price this percentage across the board and see that percentage show up in the next 12-month cycle. Does that explain it a bit?

That's very helpful. So we should more or less expect a gradual visible impact versus anything pronounced or anything seasonally pronounced.

Exactly.

Okay. Excellent, thank you. Anthony, just for you, just on the net retention rates, a record high, as you mentioned. Can you remind us of the key vectors of expansion on this metric? And maybe sketch out the priority sequence of factors that will help drive and even sustain net retention rates in excess of 101%. And that's it for me. Thank you.

Sure. Thanks, Fatima. Yes, the big driver on net retention really is upsell. We upsell within existing relationships and we continue to grow relationships with customers. I think we tend to be very, very close to our customers. We've got a very strong account-based management model in place, a good customer success organization, and we invest in the technology so that we understand where our customers are going. So most of what we're doing to drive improvement in net retention rates has to do with continuing to grow with customer relationships and making the right investments in our products so that we're not giving customers an excuse to churn out. So really, I think we're increasing the gross retention rate slightly. And then we're continuing to grow relationships with our existing customers. And really that for us, there may come a time in the future where we're able to do more with cross-selling products. We don't do a lot of that right now. The focus really is on a level of intimacy with our customers that helps us know where they're going. We make the right investments in our products and continue to grow those relationships. And so I think that's what our organizations are designed around, and we'll continue to focus there going forward.

I appreciate that detail. Thank you.

And our next question comes from John DiFucci from Guggenheim. Go ahead, John.

Thank you. So I think this is for you Yogesh or maybe, Anthony, you might want to chime in, too. You beat the high end of the revenue guidance by easily this quarter and you maintained guidance. I get the $4 million foreign exchange impact since you gave guidance, but you actually beat our numbers by more than that. I guess, what does that say about your views on the macro backdrop? I just want to get your sense on that. I know your business is really steady, but I'm sure you're still close to your customers and you talk to them about what they're doing.

So John, we feel really confident about the way our business is shaping up. I think Anthony mentioned, I think Slide 14 or something that shows how every quarter the foreign exchange has continued to negatively impact what we wanted to guide. Even though the expectation at midpoint looks at the same point, the numbers have gone up in constant currency quite a bit. So we are seeing healthy demand. We are not seeing demand fall off, which I mean, if you think about it, right, over the last three quarters, every single quarter, especially in constant currency, we have raised our top-line guidance every single time. To me, that's just an indication of that. Speaking to our customers, we have this great customer conference. People are really engaged. The products they're using from us are solving real business problems for them that are mission-critical. And that means they stick with us and continue to expand as their needs expand. So I am really positive and bullish about where our business is going. Obviously, can't say too much about foreign exchange, but that's the way the world goes. Anthony, do you want to add anything?

Yes, I would just say, John, as has been the case with Progress for a number of years, we probably don't experience the same peaks and valleys as other software companies. So when money is available and everything is thriving, Progress may not see the same upside or growth in terms of our customer base. However, the flip side is that during tough times, due to the mission-critical nature of our products, the impacts tend to be less severe for us as well. I believe that's what we're observing currently. We're certainly aware of the macro environment and are staying closely connected with our customers. The essential nature of our products and our strong relationships with clients have allowed us to continue growing alongside them. We'll keep monitoring things closely, and Progress will continue to do so as well. But that's where we stand for 2022.

That all makes sense. Anthony, I have a question for you. Last quarter, you mentioned that there was a significant renewal moved up in the prior year. As we think about the comparison, while you have delivered impressive numbers, should we be aware of anything similar as we look at guidance going forward? Are there any pull-forwards or anything unusual regarding the renewal base?

No, nothing unusual. Obviously, if you were to look at that Q3 comp last year, that was revenue that moved from Q4 of 2021 into Q3 of 2021. There's about $10 million of that. When we normalize for that, I think it provides a reasonably healthy outlook for '21 but also for Q4 of '22. You should think about the fact that Kemp was part of the business in Q4 of last year. So the incremental contribution from Kemp in Q4 is a lot smaller. Our view is that Q3 results are really strong when normalized, and the Q4 outlook is strong. As we think about 2023, obviously, we're not guiding there today, but we'll be sure to call out any anomalies in the revenue distribution when we get closer.

And our next question comes from Ittai Kidron from Oppenheimer. Go ahead, Ittai.

Hi guys. A couple of questions for me. Maybe Yogesh with you. I do want to go back to John's question on macro. Are you seeing any elongation in sales cycles and renewal activity? Do you see customers requiring a few more signatures on closing on renewals? Are you seeing customers maybe reconsidering renewals or pushing them out or downsizing as a result? Anything Yogesh you can see that you're seeing out there, would it be by region as well, if there's any specific color related to that, that would be greatly appreciated.

Ittai, to be honest, we're not really seeing much of that. I'm sure there's some internal scrutiny happening in organizations. However, from our perspective, we've had business close on time that we expected to close in Q3. Otherwise, our numbers wouldn't be possible. We've seen people expanding their relationships with us and they continue to do so. I've also heard this from other organizations and companies. The difference is that our business mainly focuses on renewals, and our expansions are primarily dependent on the capacity of the work people are trying to manage. For example, if someone is using Chef for their environment and it scales up because they are doing more with it, they will need more capacity for securely deploying software or managing infrastructure security with Chef. The deal with Chef then becomes larger with us. Our focus on IT operations and application development, which is more about runtime rather than creating new things, is driving solid business right now. I know that this may go against the prevailing sentiment, but for Progress Software, it highlights one of our core strengths: having mission-critical software that people rely on even in tough times contributes to our stability.

That's great. Great to hear. And then, Anthony, just on the operating margin. I guess you're closing on a year now in Kemp. Maybe you could talk about what's left to squeeze out there from a margin or cost standpoint? And before Kemp, you had higher operating margins; you're reiterating the same operating margin into the fourth quarter. What will it take for you to get over 40% again from an operating margin standpoint?

Yes. I think there's probably not much left to do with Kemp as we get into the fourth quarter here. I think from an integration perspective, we've done everything that we need to do. I think the business is performing well. As we look out and start to see the contribution for Q4, I think it's a solid contribution, probably generally in line with the business case that we've put out. Kemp will be affected by foreign exchange rates, just like the rest of our business will be. So we will keep an eye on that. Our business generally is impacted by those foreign exchange rates, and there's probably a little bit of a slight margin compression there, not anything like what we would see on the revenue line. I mentioned earlier, we have more of a natural hedge on the operating income line. We're probably 75% hedged, 75% to 80%, generally speaking, from the negative impact on revenue. But I think Kemp is pretty much chugging along on plan. We'll see how our margins evolve in Q4 and going into 2023. But I think we're feeling like the margin profile is as stable as it's been for us in a long time.

Very good. Excellent. Thank you.

Our next question comes from Anja Soderstrom from Sidoti. Go ahead, Anja.

Thank you for taking my questions. I'm just curious, you said you made investments in improving the customer experience, which seems to be very important for you considering you're dependent on your current customer base. Can you just elaborate on what kind of improvements you've done there and what we can expect from those?

Yes. We are always looking for better ways to connect with our customers. There are two main areas where we are investing. The first is in our products, focusing on innovation to ensure our offerings remain relevant and industry-leading. For instance, our DevTools products for Blazer are top of the line. We're seeing notable success stories from customers, such as the S&P Global Markets Intelligence team, which has shared how our tools have made their applications more engaging. They manage trillions of dollars in fundraising activities, including IPOs and other offerings. The second area of focus is on customer success and building strong relationships with our customers. Our efforts in customer intimacy help us maintain engagement. It's important to note that these are not new incremental investments; we have been making these commitments consistently and will continue to do so. So, I want to clarify that we are not increasing our investment levels; we are maintaining the same approach we have taken in the past.

Thank you. Could you share your perspective on the M&A market? Are you currently more active in pursuing opportunities, or are you waiting for prices to decrease? What is your current strategy regarding potential M&A?

So we are extremely active, Anja. An interesting thing happened this year, which was quite unusual. In July and August for a couple of months in the summer, it seemed like everybody wanted to take a vacation. In 2020 and 2021, people weren't taking summer vacations, so the deal flow slowed down. The amount of M&A activity in terms of even deals coming on the market slowed down. But that didn't mean that we didn't stay engaged; just fewer deals showed up. We've seen it already pick up this month. So we are extremely active. We are not waiting. We are looking at the right opportunities and the right type of businesses. Where it makes sense, we compete at the right value that we feel is appropriate for our shareholders. I think that's the fundamental process that we go through. So we are extremely active.

Okay. Thank you. That was all for me.

And our next question comes from Brent Thill from Jefferies. Go ahead, Brent.

Hi guys. This is Bill Yen on for Brent. Thanks for taking the question. I guess could you talk a little bit about the mix of enterprise versus mid-market customers on your platform today? And where do you want to see this trend over time?

The majority of our business can be divided into two main segments. Approximately one-third, or about 30%, comprises other software companies. We have around 1,700 software companies that build their products on our platform, embedding our solutions and licensing them to various organizations, ranging from large enterprises to mid-market firms. This group includes some of the most recognized names like Microsoft, Oracle, Adobe, IBM, and SAP, along with many mid-market software companies worldwide. The other segment of our business involves direct sales, and most of our revenue comes from mid-market customers. While we do work with significant enterprise clients—90% of the Fortune 500 are part of our customer base—the bulk of our revenue is derived from mid-market clients. We believe our strategy of engaging with mid-market businesses allows us to grow alongside them as they expand, providing resilience across different verticals and regions. Thus, enhancing our mid-market presence globally is a key priority for us.

That's very helpful. Thank you. And maybe just one more. Could you just remind us of the split between the contribution of ARR coming from existing and new customers? And what Kemp is anything different that you saw on Q3?

Yes, I don't think we've broken out the ARR contribution coming from existing versus new; obviously, with a business like ours, the vast majority is going to be coming from existing. So I would say significant majority. Kemp, I would say nothing unusual or different in the third quarter. When we acquired the business, we expected it to be close to $70 million in revenue. The mix of recurring revenue was a little bit lower than we have in our business, but that was known coming in. There was a drive to improve customer retention and net retention rates. I think we're seeing some success with the integration. So nothing unusual with their ARR model or their ARR makeup relative to the rest of our business.

Understood. Thank you.

And our next question comes from Pinjalim Bora from JPMorgan. Go ahead, Pinjalim.

Thank you, everyone. Congratulations on the quarter. I wanted to revisit the question about the price increase, which was one of the initial questions asked. When I analyze the sequential additions to the pro forma ARR, it appears to be around $9 million, likely the highest we've seen in the last eight quarters according to my calculations. Are you observing any influence from the price increase at this stage that may be contributing to that figure?

I believe the price increase has a very minimal contribution to it. I don't want to say it's nonexistent; I don't imply that it is. There is some impact, but it's quite small compared to the other factors. It's difficult for me to quantify that, but I think it's very minor.

Okay, got it. And then, Yogesh, I think you alluded to a go-to-market realignment in your script. I wanted to ask you if you can elaborate on that. Is that kind of folding Kemp's 2-tier sales motion into the broader organization? Is it something else? Help me understand what you're talking about?

Yes, I believe it's about finding a more effective approach to go to market. We have acquired three companies in the past three years, and we were initially operating them in a manner that doesn’t align with our ideal practices. We recognize that certain products can be introduced to the market more effectively, which allows us to better serve our customers. We also aim to be prepared for mergers and acquisitions, enabling us to execute them across our entire portfolio more swiftly and integrate them more efficiently. Both of these factors are influencing our current actions, which primarily involve realigning some of our functions.

Got it. Thank you.

Again, we have no more questions at this time. I'll turn it back to the speakers for final comments.

Well, thank you very much for joining us on our call today. We look forward to talking to you again soon, and have a wonderful evening. Goodbye.

And thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.