Progress Software Corp (PRGS) 2021 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Progress Software Corporation Q2 2021 Investor Relations Call.

At this time, I'd like to turn the conference over to Michael Micciche, Vice President of Investor Relations.

Please go ahead.

Thank you, Keith.

Good afternoon, everyone, and thanks for joining us for Progress Software's Second Quarter 2021 Financial Results Conference Call.

With us today is Yogesh Gupta, President and Chief Executive Officer; and Anthony Folger, Chief Financial Officer.

Before we get started, I'd like to remind you that during this call, we will discuss our outlook for future financial operating performance, corporate strategies, product plans, cost initiatives, our integration of Chef, the impact of the COVID-19 pandemic on our business and other information that might be considered forward-looking.

This forward-looking information represents Progress Software's outlook and guidance as of today only and is subject to risks and uncertainties.

For a description of risk factors that may affect our results, please refer to our recent SEC filings, in particular, the section captioned Risk Factors in our most recent Form 10-K.

Progress Software assumes no obligation to update the forward-looking statements included in this call, whether as a result of new developments or otherwise.

Additionally, on this call, the financial figures we discuss are non-GAAP measures, unless otherwise indicated.

You can find a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP numbers in our financial results press release, which was issued after the market closed today and is also available on our website.

This document contains the full details of our financial results for the fiscal second quarter of 2021, and I recommend you reference it for specific details.

We also have prepared a presentation that contains supplemental data for our second quarter 2021 results, providing highlights and additional financial metrics.

Both the earnings release and this presentation are available in the Investor Relations section of our website at investors.progress.com.

Also today's conference call will be recorded in its entirety and will be available via replay on the Investor Relations section of our website.

With that, Yogesh, I'll turn it over to you.

Thank you, Mike.

Welcome, everyone, and thank you all for joining our Q2 2021 financial results conference call.

We're very pleased with our second quarter performance, which exceeded our guidance across the board.

We again benefited from increased demand and investments in IT and infrastructure software projects.

The positive momentum we carried over from Q1 into Q2 is a validation of our strategy and confirmation of the strategic mission-critical nature of a comprehensive product portfolio.

With growing confidence in the strength of our business and 2 consecutive quarters of strong results under our belt in fiscal 2021, we are again raising full year guidance for revenue, operating margin, EPS and cash flow.

I will provide a summary of the second quarter and some comments on how we're executing on our strategy, followed by an in-depth discussion of our results and outlook by Anthony.

Demand for our solutions was again strong in Q2.

We saw a continuation of improving demand in all markets in which we do business and across nearly every product line as our customers and partners continue to invest in systems, build on Progress technology to run their businesses.

As more companies shift to cloud-first and mobile-first strategy for their applications, data and content, our Chef, OpenEdge, Sitefinity, DataDirect, DevTools and MOVEit products provide key technologies to address their challenges and support their efforts.

What more's, the role of developers continues to grow in importance and complexity within the enterprise.

Our applications development, DevOps and data and infrastructure management products equip developers to develop, deploy and manage mission-critical applications through their entire life cycle.

We're proud to serve this critical ecosystem of over 3 million developers who rely on our products for their ongoing needs.

In terms of our top line performance in Q2, OpenEdge once again led the way as the mainstay of our revenue, driven by continued strength among our many ISV partners and direct sales efforts.

Our other core products saw strength as companies like news and data giant, Thomson Reuters, and global shipping company, MSC, made meaningful additional investments in our DevTools product.

While our revenue performance for this quarter was again driven primarily by our core products, led by OpenEdge and the Ipswitch product MOVEit and WhatsUp Gold, our year-over-year top line growth was driven primarily by the continued success we're seeing with Chef.

With the tremendous growth in DevOps and DevSecOps spaces Chef landed and expanded key relationships with marquee customers.

New customers for our Chef products include a competitive win at a major U.S. insurer and several significant renewals and expansions with customers in financial services and manufacturing industries as well as cloud-native companies such as Yahoo!

Japan, Rakuten, Etsy and Pinterest.

I'm very pleased that we've already reached the goals we set for expense synergies for Chef, several months ahead of the time line we set for the integration when we announced the acquisition.

Our progress to date validates our total growth strategy, which I will discuss in detail in a moment.

Before doing so, I'd like to spend a moment talking about annual recurring revenue and net dollar retention rate.

As you may recall, we introduced ARR and net dollar retention rate metric last quarter to provide investors better visibility into the recurring nature of our revenue and to provide more insight into our underlying performance.

ARR of $437 million was up 23% year-over-year on a constant currency basis, driven primarily by Chef.

Our net dollar retention rate exceeded 100% this quarter, driven again in large part by contributions from Chef as well as DevTools and OpenEdge.

These metrics highlight the strength, stability and durability of our business.

Turning to our total growth strategy.

We're actively evaluating dozens of opportunities in the infrastructure software space.

As we have discussed in other forums, our deal pipeline is very strong, although we recognize that the market is competitive and valuations remain high.

Despite these headwinds, we are pleased with the size, sourcing and breadth of our pipeline with the activity of our corporate development team and with the activity our corporate development team is generating.

We remain confident that our M&A strategy is the right strategy for us.

I also want to mention that during Q2, we took an important step towards improving our competitive positioning in M&A.

In April, we completed an offering of $360 million of senior unsecured convertible bonds, which further strengthened our balance sheet and made us even more competitive and nimble in our corporate development efforts, as it eliminates the uncertainty around financing.

I want to reiterate though that we remain committed to finding the right acquisition opportunities.

Any targets we consider must meet our strict financial criteria and include complementary products with a substantial mix of recurring revenue and high retention rates.

We have demonstrated that when we deploy capital for an acquisition, we maximize free cash flows, optimize expenses and margins and drive solid shareholder returns in excess of our cost of capital.

We remain committed to this strategy because we believe it will allow us to compound shareholder returns well into the future.

In addition to remaining patient and disciplined with our total growth strategy, we are committed to increasing shareholder value through focused capital allocation which balances M&A with a shareholder-friendly capital allocation strategy.

When we're not deploying capital for acquisitions, we use our significant free cash flow to return value directly to shareholders.

For example, we're one of the few software companies who pays the dividend.

We also have in place a meaningful share repurchase growth.

And as Anthony will explain, upon the execution of the convert, we purchased capital calls to minimize the potential dilution to current shareholders.

Consistent with our focus on shareholder value, our ESG efforts remain very important to us at Progress, as we recognize their growing importance to our investors.

We continue to monitor and evaluate new global standards for sustainability, metrics, measurement and reporting which enhanced our already noteworthy corporate social responsibility programs.

In fact, 2 weeks ago, we announced the addition of our new Chief Inclusion and Diversity Officer, who will lead our inclusion and diversity efforts and programs around the globe.

I'd like to close my formal comments by acknowledging the entire Progress team for their superb execution, while at the same time, preserving the inclusive culture and the positive environment that makes Progress a great place to work.

And I'm so proud of the recognition we have received very recently.

The Boston Business Journal highlighted Progress as one of the best places to work in Massachusetts.

This came on the heels of Progress being named by Forbes Magazine as one of America's best midsized employers.

And for the second time in a row, Forbes chose Progress as the best employer in Bulgaria, where more than 1/4 of our employees are based.

We received numerous additional awards, which we've highlighted in the investor deck on our website, and we are immensely proud to have received a 2021 Stevie for our Progress For Tomorrow corporate social responsibility program.

In all, it was an excellent second quarter, another proof point of the success of our total growth strategy.

We're continuing to execute well and see strong demand across industries, product segments and geographies as the world begins to move past COVID-19.

With that, I will let Anthony provide the details of our Q2 financial performance as well as our outlook for Q3 and the remainder of 2021.

Anthony?

Thanks, Yogesh.

Thanks, Mike.

Good afternoon, everyone, and thanks for joining our call.

Q2 was indeed another strong quarter for Progress.

Our results reflect the continuation of the improving demand environment we mentioned in Q1.

And again, in Q2, we saw stronger-than-expected results across virtually all of our product lines.

Total revenue for the second quarter was $129.2 million, reflecting 26% growth over the year ago quarter, and was $6.2 million above the high end of the guidance range we provided back in March.

On a year-over-year basis, Chef is the biggest contributor to our growth.

However, many of our other product lines also contributed to growth, most notably our OpenEdge and Ipswitch products, MOVEit and WhatsUp Gold.

In addition, we closed the second quarter with approximately $437 million in annualized recurring revenue, representing growth of 23% on a constant currency basis and 3.1% on a pro forma basis.

Pro forma results include Chefs ARR in all periods.

Our Q2 growth in ARR although not as significant as our Q2 revenue growth was still better than expected and primarily driven by our Chef, OpenEdge, Sitefinity and DevTools products.

The mission-critical nature of the applications we power and our consistent focus on improving the customer experience have resulted in a very stable and durable top line.

At the end of Q2, our trailing 12-month net retention rate was slightly above 100%, with improvement coming from multiple products, including OpenEdge, DevTools and Chef.

Turning now to expenses.

Our total costs and operating expenses were $79.5 million for the quarter, an increase of $16.6 million compared to Q2 of 2020.

This year-over-year increase is the result of 2 primary factors.

First is the addition of Chef to our business, which makes up more than half of the year-over-year increase.

And second, are variable costs, such as commissions and bonuses that are associated with our performance on the top line.

Operating income was $49.7 million for the quarter, up approximately 26% compared to the year ago quarter, and our operating margin was approximately 38% compared to 39% in the year-ago quarter.

On the bottom line, our earnings per share of $0.82 for the quarter was $0.08 above the high end of our guidance range and approximately 30% above our earnings per share of $0.63 in the year-ago quarter.

Moving on to a few balance sheet and cash flow metrics.

I'll start with an overview of the convertible notes offering that we completed during the quarter.

The total offering amount, including the overallotment option was $360 million.

The notes carry an interest rate of 1%, a 5-year maturity and with privately negotiated capped call transactions, they have an effective conversion premium of $89.88 or 100% of the closing price of our shares on April 8.

The net proceeds from the offering and capped call transactions are $306.1 million.

We utilized $20 million of these proceeds to repurchase shares and then used $83.5 million to repay our existing revolving credit facility after the transaction closed.

I'd also like to mention that our ending debt balance for Q2 does not reflect the early adoption of ASU 2020-06, the new convertible accounting debt standard.

Because of our November 30 fiscal year-end, we're precluded from adopting this standard in fiscal 2021.

As a result, the fair value of the conversion premium on the notes will initially be classified as shareholders' equity and over time, will flow through our GAAP P&L as noncash interest expense and at the same time, gradually increase the face value of the debt on our balance sheet.

We expect to adopt ASU 2020-06 using the full retrospective method on December 1, 2021 and expect the updated standard will have the effect of reducing our GAAP net interest expense in our income statement and increasing the carrying value of our convertible debt on our balance sheet to the principal value less any unamortized debt issuance costs.

Adoption of the new standard in fiscal 2022 will have no impact on our reported non-GAAP net income or cash flow from operations.

We ended the quarter with cash and short-term investments of $363 million and having paid down our revolving credit facility during Q2, we also have approximately $100 million in untapped capacity for total liquidity in excess of $460 million.

DSO for the quarter was 44 days, an improvement of 3 days compared to Q2 of last year.

Adjusted free cash flow was $55 million for the quarter, up $17 million or 44% from Q2 of last year.

The increase in free cash flow was driven primarily from increased profitability and improved collections in the quarter.

As mentioned previously, we repurchased $20 million of stock during the second quarter.

And at the end of Q2, at $155 million remaining under our current share repurchase authorization.

I'd now like to turn to our outlook for Q3 and for the full year 2021.

For the third quarter of 2021, we expect revenue between $129 million and $132 million, and earnings per share of between $0.81 and $0.83.

For the full year 2021, we are increasing our revenue guidance to be between $529 million and $535 million.

The increase is largely due to Q2 strength and our confidence in the remainder of the year.

We are raising our operating margin outlook to be approximately 39%, an increase of 100 basis points from our prior guidance.

We are projecting adjusted free cash flow to be between $158 million and $162 million, an increase of $2 million to $3 million from our prior outlook.

And we are increasing our guidance for earnings per share to be between $3.46 and $3.50 with the increase driven by continued top line strength and confidence in our ability to manage costs.

Our annual EPS estimate contemplates the tax rate of 20% to 21% and approximately 45 million shares outstanding with no additional share repurchases for the rest of 2021.

In closing, we're thrilled with our Q2 results and the resurgence of our -- that our business has demonstrated.

We're well positioned for the balance of 2021 and feel we can continue to execute our total growth strategy with great results.

With that, I'd like to open the call for Q&A.

(Operator Instructions) We'll take our first question from Ken Wong with Guggenheim Securities.

A solid quarter, guys.

I guess the first thing, I'm not sure if Yogesh or Anthony, it this makes more sense for either of you guys, but you highlighted Chef tracking ahead of schedule on both growth and profitability.

Just wondering kind of anything you've seen in the last couple of quarters that would potentially steer you in the direction of maybe fueling a little more growth or potentially kind of digging in and extracting more leverage?

Any color there would be great.

So I'll start, Ken.

Thank you, and I'll have Anthony follow-up.

From our perspective, as we said, we've actually accomplished the expense synergies that we were targeting with the Chef acquisition.

And we, of course, originally, the target was that we would get to that -- get to those synergies by end of this fiscal year.

We've gotten to them sooner.

From our perspective going forward, Ken, as you know, our overall business continues to be flattish.

That's where we characterize it.

And we might have some times when we do a little bit better than flat and sometimes when you do a little bit worse than flat.

But in general, it is a flattish business.

I don't think that over the long haul, at least at this point, we see any reason to change that.

We are tremendously confident of the way the rest of the year is shaping up, but I think that's about all I would like to say on that topic.

And Anthony, I don't know whether you have something to add?

Yes.

No, I think that's right, Yogesh.

I think we've kind of been on the positive side of flattish this year, which we'd certainly prefer to be on that side, and Chef has certainly been a contributor to that.

But as have some of our other products like OpenEdge and some of the Ipswitch products.

So I think we're continuing to execute our plan with Chef.

It's a really good quality asset.

It's got some growth characteristics.

It's ahead of plan on profitability.

I wouldn't say that we're necessarily deviating in any way with what we had originally set out to do there.

Got it.

Okay.

Super helpful.

And then perhaps just wanted to dive in a little bit on your net revenue retention.

Seeing that coming above 100%, that's quite positive, a nice step-up from last quarter.

Should we think that, that particular metric has a lot of volatility?

Or just any color on what you think kind of the right range is for that number?

Yes.

It's a good question, Ken.

We've been pretty consistently, let's say, in, I would say, 97% to 100%.

There hasn't been a lot of volatility, maybe it's been improving a bit over the past couple of years.

So I think you're right.

The way we calculate it, it is a trailing 12-month number.

So there won't be a lot of quarter-to-quarter volatility.

But obviously, if the trend changes, I think that will be apparent in the numbers.

But on the flip side, I think from a business perspective, it's been a very deliberate effort even since before I got here to invest in our technology, to invest in customer experience, and those types of investments are things we're going to continue to do.

And I think we're seeing some results from that in terms of some slightly better retention rate.

So I don't expect wild swings in the number.

And I think we feel pretty good about the investments we've made to get the number where it is.

Got it.

And then if I could just squeeze in one more and then I'll pass the mic to my peers here.

Yogesh just wondering as far as kind of the business or the product segment benefiting from just a return to normal on a macro basis, are there any particular areas that you would say are still lagging that we could potentially see some sort of a tailwind as we look to the back half of the year?

Ken, as we've said, right, actually the last -- the first 2 quarters of this year, in the first half, we've seen really outperformance across the entire product portfolio.

It has been a really sort of interesting to see that as businesses have gotten their head out of the challenges of trying to deal with COVID-19 and started looking forward as to how they want to invest in their longer-term IT projects.

We've seen the benefit across the board.

We are confident that we will continue to see that.

I don't think there's any particular area that is more or less.

Obviously, OpenEdge is our biggest product.

So from an actual individual dollar perspective, it has been the biggest contributor.

But overall, across the Board, we are seeing interest.

And we're seeing interest whether it is in our network management product with WhatsUp Gold.

As you know, one of the competitors has had some security challenges there and that has opened up the market for other products like ours.

And I think so -- so just -- it has been a set of tailwinds around our products as people move to the cloud, as people go mobile first, they're modernizing their applications.

And I want to reiterate Anthony's point right.

Over the last 5 years, we have talked about the fact that we invest in R&D, so that our products are ready, so that when our customers want to move forward, we have -- our products are available and ready to help them move forward.

And that investment, whether it was in OpenEdge 12 or whether it is in the prereleases that we do every year with DevTools or now prereleases we do every year with Chef and all those things are really, our investments in Ipswitch products such as MOVEit and WhatsUp Gold.

They're all sort of demonstrating that we have kept our products current and made it so that they truly benefit and address the challenges that our customers and users face.

So I think it's across the Board, good conditions and good demand for our products.

I don't think there's any specific area that I would highlight further.

Take our next question from Daniel Ives with Wedbush.

Great quarter.

So can you just talk about with Chef.

I mean what surprised you so far?

Because obviously, it seems like things coming out of the gate is really working a lot better than maybe even you thought too.

So as you're talking to customers, what you're hearing from the field.

I mean just give us some sort of anecdotal of what you're hearing?

Sure.

So I think a couple of really positive surprises, I shouldn't say surprises, but really sort of positive anecdotes that I want to highlight.

When one acquires a company like Chef, Chef is an open-source product.

There's a large community out there of open source developers that do a phenomenal job of continuing to innovate in the Chef ecosystem.

And so one of the concerns we had was how would both the community of our customers and the community of that open source community, how will they react to Progress.

And on both those fronts, we have been very pleased that those communities have embraced Progress's taking over Chef.

Some of the larger customers who we've had the pleasure of speaking with, I mean, they are all really, really happy that Chef is now backed by a publicly traded software company, that we are a profitable business, that they know that we invest in R&D, that we will continue to invest in Chef, and that we will continue to invest in the open source community as well.

And so really phenomenally positive things.

I mean, I think, by the way, just I think one of the -- SAP is a very large user of Chef, I think they publicly put out a blog that says that there are 11 million assets in the cloud.

And when I say cloud, I really mean plural cloud for SAP.

They are in every cloud, you can imagine, including SAP zone.

And so there are, I think, like 5 or 6 different clouds.

They're managing 11-plus million assets, and they have really, really been excited about the fact that, that Progress acquired Chef.

So I think to me, that part has been really positive.

And I think the open source community -- I think we had an open source community event just about a month ago, phenomenal success.

The open source contributors are continuing to contribute aggressively.

So I think, Dan, I'm really happy both on the sort of customer-facing side as well as on the product side.

The last part that I want to touch on is, and I know that this is quite often is ignored in the end it is our people that make this happen.

And the team that has come over from Chef and the team that we have at Progress that is working with them and the combined teams, the new joint Chef team at Progress, that has done an amazingly wonderful job across the board.

So I think to me, it's just been a very, very positive experience for us.

And that has allowed us to do things like we said, get to the synergies, continue to do well on both customer retention as well as winning new customers and so on.

Now let me ask the question, does this set a pretty high bar for Anthony and the M&A team to make sure they continue to match it on the next one.

Because that's -- I mean for the next one, I feel like the bar is pretty high.

Is there a little more pressure on Anthony and team?

The good news is Dan, I think, we will.

I think the -- we've got Jeremy Segal leading the M&A group and Jeremy is fantastic.

I think the entire team is disciplined around what the requirements are and sort of what the financial criteria are for us to close on a deal.

And so I think the company is aligned around it.

And I think we'll be patient, we will find the right asset.

And the team has done a great job, really building out the pipeline.

And so our ability to source the number of companies we are tracking there's just been dramatic improvement in all of that over the past 12 months.

So the bar is high, but I think we've certainly got the team to get over it.

We'll take our next question from Anja Soderstrom with Sidoti & Company.

Congratulations on another great quarter.

I have a follow-up on the Chef success.

How much of that do you think is attributed to Chef-specific drivers rather than your playbook being more refined having done other acquisitions before Chef.

I think, Anja, there are 2 aspects.

On the expense synergy side and getting to them as quickly as we did, that is obviously our core competence.

I mean we have refined that.

We did Ipswitch.

We did a really good job with that.

We've continued to refine it since and we were able to do it with Chef as well and get it done faster.

So I think that's what we bring to the table.

I think there's also a core competence at Progress around certain interesting areas like how we do marketing and demand and so on and so forth.

That said, I think the Chef team itself is really remarkably good and strong.

And they have done a great job.

And it's in a good market.

I mean, the DevOps and DevSecOps market is a market that is growing, is a market where we see continued demand.

It is a market where as people move to the cloud and try to deploy their mission-critical systems in the cloud, they need products like Chef.

And we have an amazing product.

So I think it's a combination of things, Anja.

I think we at Progress can take some pride that you're bringing some things to it.

And I think the folks that came over from Chef can take pride that they are bringing something to the table.

And we happen to also have an asset in a really good market.

So I think it's an all-around being a really good asset for us.

Okay.

And also in terms of the M&A environment, how has that changed over the past couple of months?

And like with sort of a more warning about the inflationary environment and things like that.

Has that affected the M&A pipeline at all?

I'm not sure I understood the last part of your question, Anja.

What part of the environment?

No -- so the -- if there's going to be a more sustainable inflationary environment, is that affecting your M&A pipeline at all?

And what -- how has it evolved over the last couple of months?

Yes.

So I think as we said earlier, the valuations continue to be high.

And so what that means is that we continue to be disciplined.

And it's kind of an interesting thing.

This is one of the reasons why we feel confident about our strategy.

We have a strong pipeline and we have a team that is doing a great amount of deal flow and continuing to nurture and build that pipeline.

And at the same time, as Anthony mentioned, with a leadership team that is truly disciplined around making sure that we stick to our criteria and that we deliver the shareholder returns that our investors expect from us.

And I think that's really the key.

So we will continue to be patient.

We will look for the right asset, and we will make sure that we -- when we find the right assets that we execute on it with the same level of rigor that we have with Chef lately and Ipswitch before that.

Okay.

And then just last one.

Is there anything you can call out in terms of the performance in terms of the different geographic regions you are serving.

Yes.

So again, we saw strong performance across geographies.

I think if there is -- if you think about it, the U.S., I think, is actually probably in the best shape when it comes to moving beyond COVID.

I think Europe is coming along.

I think parts of Asia Pacific are still a little bit behind in terms of timing.

And I think Latin America is probably the slowest to recover because -- I mean, you -- I'm sure everyone heard the challenges in Brazil.

And Brazil is the single largest technology market in Latin America for Progress.

So I think -- but overall, I think if we look across the Board, I think we see improvements happening everywhere.

We'll take our next question from Mark Schappel with Benchmark.

Nice job again on the quarter.

Yogesh, starting with you.

With respect to the OpenEdge strength in the quarter, was it principally driven on the ISV side of the business?

Again, Mark, on both sides, of course, ISVs had a continued strength as well.

But even the direct side of the business.

It's an interesting thing, Mark, what is happening.

I think businesses are recognizing that they have a -- their mission-critical applications sitting in -- on a platform that is truly a lowest cost platform, the most efficient platform and a platform that we have continued to evolve and keep modern.

And so what we're seeing is, I think to some degree, I think actually COVID made people look at their sort of investments and say, where is it that we have investments that are truly delivering great results, and maybe we should do a little bit more with that.

So we're seeing both direct and ISVs.

Of course, ISVs are doing well.

So that's always wonderful.

But we're also seeing strength in direct.

Okay.

Great.

And then shifting to Chef.

If I recall correctly, when it was acquired, it was a mid-single-digit grower.

And based on the good 2Q results, is it fair to assume that the Chef continues to grow at at least that rate?

We -- as you know, Mark -- go ahead, Anthony.

No, I was just going to say, yes, we don't break it out separately, but I said the trend line really hasn't changed.

Chef continues to perform well.

And so on a year-over-year basis, I don't think we've seen a change in the trend line there.

Okay.

Super.

And then shifting gears to DataDirect.

Very little commentary about DataDirect, if at all, in the prepared remarks.

Any color on that business that maybe you could add.

So for example, renewals coming in as planned?

Absolutely.

business is performing very much as planned.

As you know, Mark, with DataDirect, there are -- the quarters are lumpy because of the fact that there are multiyear contracts with large ISVs.

And so in that sense, this was a relatively straightforward quiet quarter.

It did well.

but nothing to sort of highlight one way or the other.

It's -- we, by the way, in Q1, we had actually won a couple of new customers on the direct side -- on the direct enterprise customers, with DataDirect.

So -- which was a positive surprise and we talked about it.

This quarter was just a normal pretty straightforward quarter down the middle.

We'll take our next question from Ittai Kidron with Oppenheimer.

Great quarter.

Very nice performance there.

I just had one question for you, Anthony, on the free cash flow, great quarter, great performance there.

But your annual guidance suggests a big deceleration here in the second half of the year.

So help me think about the puts and takes of your annual free cash flow guide.

Yes, Ittai, it's a great question.

The free cash flow in the quarter was really strong.

And obviously, for the first half of the year, we've delivered about $102 million in free cash flow, which is a heck of a lot further along than we thought we would be.

And a little bit of that is sort of better collection activity.

And I think when we look out to the back half of the year, we're probably a little bit more cautious assuming that we may get back to things like travel and get back into the office a little bit.

So we felt comfortable taking that guide up a little bit, but probably also holding a little bit back, just wanting to see how much of the travel comes back and how much of the in-office operating expenses come back.

So it's -- if it's not sort of a linear move maybe with margin or something like that, I think that's really the reason why.

Got it.

So it sounds like you're expecting, I guess, margins to -- you actually raised your outlook on margin actually for the year though to 39%.

It doesn't sound like you're modeling much in your assumptions as a decline in operating margin in the second half of the year.

Yes.

No, not from where we are now, perhaps a little bit relative to where the back half of 2020 margins shook out.

Ladies and gentlemen, this does conclude today's question-and-answer session.

At this time, I'd like to turn the conference back to Yogesh Gupta for any additional or closing remarks.

Thank you.

Thank you for joining our call today.

I'm genuinely excited about our performance in Q2, and I'm pleased to share our confidence in the outlook for the rest of 2021 with you.

I'm especially proud of the dedication of our entire organization and their continued hard work, which really positions us well as we continue to execute our total growth strategy.

I look forward to talking to you all soon.

Thanks again, and goodbye.

Ladies and gentlemen, this does conclude today's conference.

We appreciate your participation.

You may now disconnect.