Progress Software (PRGS) 2026财年第三季度业绩电话会：Domo交易与上调业绩指引

要点速览

• Progress Software（纳斯达克代码：PRGS）2026财年第三季度结束时的年经常性收入（ARR）约为8.73亿美元，按形式固定汇率计算同比增长超过1%。净留存率保持在99%。
• 第三季度营收为2.46亿美元。营业利润率达到43%，同比提升300个基点；每股收益（EPS）增长13%至1.69美元。
• 调整后自由现金流增长17%至8700万美元。在前三季度强劲的回款和持续向好的经营业绩支撑下，今年迄今调整后自由现金流增长44%至2.65亿美元。
• Progress完成了对Domo人工智能及数据平台业务的收购，名义收购价格为4亿美元。在扣除收购所获得的现金并承担相关交易费用后，实际现金支出为3.90亿美元。
• 管理层预计，在计划缩减专业服务和传统按席位付费的合同后，Domo的营收将稳定在2.80亿至2.90亿美元之间。在2027财年底前实现完全整合后，预计Domo每年将贡献远超1亿美元的EBITDA。
• Progress上调了2026财年业绩展望，预计营收为10.44亿至10.52亿美元，每股收益（EPS）为6.15至6.23美元，其中包括Domo的部分季度业绩贡献。

关键财务数据

除非另有说明，管理层讨论的财务数据均为非GAAP数据。

Progress在第三季度偿还了6000万美元循环信贷额度，使今年迄今的债务偿还总额达到1.70亿美元。公司还在本季度回购了约1700万美元的股票，今年迄今累计回购7200万美元。现有回购授权下仍剩余约1.31亿美元额度。

业务与经营表现

ARR增长主要由OpenEdge驱动，LoadMaster、WhatsUp Gold、DevTools和MOVEit也做出了贡献。管理层还提及OpenEdge、DataDirect、MOVEit和LoadMaster带来的强劲营收表现。

客户活动继续集中在关键任务和受监管环境中。Progress报告称，金融机构、医疗保健机构、能源公司、科技客户、美国州政府机构以及欧洲某大型执法机构均实现了续约与业务扩展。

管理层表示，数据量的增长和日益复杂的架构正在支撑对按容量计费的数据、可观测性和安全产品的需求。公司还在评估是否可以将Domo按用量付费的定价模式推广至Progress产品组合中的更多产品。

Domo按用量付费的平台占其ARR的85%以上，且其净留存率明显高于按席位付费的业务。管理层认为，Domo的实时数据集成、转换、分析、可视化以及智能体编排能力是对Progress现有数据及人工智能产品组合的有力补充。

管理层业绩指引

对于2027财年，随着全年协同效应逐渐显现，管理层预计Domo的营业利润率将略低于30%。公司明确表示，这并非Domo预期的稳定状态利润率；在整合完成后，管理层预计其盈利能力将接近Progress的历史水平。

Progress在提取3.90亿美元循环信贷以资助收购后，预计2027财年将增加约2100万美元的利息支出。管理层计划迅速降低该债务余额，并表示Domo的收益贡献应当能够覆盖并超过相关的利息支出。

风险与关注事项

• Domo传统的按席位付费合同预计在续约时面临显著的转换或流失。随着交付工作逐步转向合作伙伴，专业服务收入（目前约占Domo营收的10%）预计也将有所下降。
• Domo目前的年化营收约为3亿美元，但管理层预计其最终将稳定在2.80亿至2.90亿美元之间。该区间未计入交叉销售所带来的收益。
• 由于SaaS产品的毛利率相对较低，来自Domo、ShareFile及其他产品的SaaS收入占比上升，可能会对毛利率和营业利润率造成轻微压力。
• 2027财年的利润率将取决于Domo整合协同效应的时机和执行情况。管理层计划在2027财年底前完成整合。
• 管理层提醒称，2026财年的现金流受益于ShareFile账单及回款问题的解决，而该问题此前曾抑制了2025财年的业绩。预计明年现金转换效率将恢复正常。
• 传统的按席位付费分析业务仍面临人工智能带来的冲击风险，在偏重展示的商业智能（BI）领域尤为明显。管理层认为，数据准备、转换和确定性分析仍将保持重要性，但也承认分析市场的某些领域持续承受压力。

分析师问答精选

Domo成本协同效应：管理层预计，通过消除上市公司重复成本、整合一般及行政费用系统、调整市场拓展支出以及将更多专业服务工作转交给合作伙伴，可实现成本节省。Progress对整合完成后Domo能够达到公司整体利润率水平保持信心。

按用量计费模式：管理层表示，数据增长和人工智能工作负载正推高对涵盖数据、基础设施管理和安全产品能力的需求。Progress已花了大约90天时间研究Domo的按用量模式，并认为有潜力将其推广至产品组合中的其他产品，包括目前按席位或按容量计费的部分产品。

交叉销售机遇：Domo 2.80亿至2.90亿美元的稳态营收预期未计入交叉销售。管理层将Domo与Progress数据平台之间的交叉销售视为潜在的上行空间，但表示在看到客户采用的具体成效之前，不会对该机遇进行量化估算。

Domo在AI分析中的定位：管理层将易受人工智能影响的展示型分析与生成可靠业务输出所需的数据准备、集成、语义和治理工作进行了区分。与传统的按席位付费BI合同相比，管理层预计Domo按用量付费的平台具备更强的抗风险韧性。

研发投入：Progress计划将对Domo的研发投入保持在或高于其典型的产品开发水平。管理层表示，全公司范围内的研发支出约占营收的10%高段至接近20%。

业绩电话会议纪要全文

完整财报电话会议逐字稿

管理层陈述

Operator

Hello, and welcome to Progress Software's third quarter earnings conference call. [Operator Instructions] I would now like to turn the call over to Michael Micciche, SVP of Investor Relations. You may begin.

Michael Micciche

Thank you, Tawanda. It's nice to have you back with us. Good afternoon, everyone, and thanks for joining us for Progress Software's third fiscal quarter 2026 Financial Results Conference Call. Joining me on the call are Yogesh Gupta, our President and CEO, and Anthony Folger, our Chief Financial Officer. Before we get started, please consider our safe harbor statement. During this call, we will discuss our outlook for future financial and operating performance, corporate strategy, product plans, cost initiatives, our acquisition and integration of Domo, and other information that might be considered forward-looking. Such forward-looking information represents Progress Software's outlook and guidance only as of today, and is subject to risks and uncertainties, and our actual results may differ materially. For a description of the factors that may affect our future results and operations, please refer to the risk factors in our SEC filings, particularly the risk factor section in our most recent Form 10-K, in the latest Form 10-Q filing, which was filed in conjunction with this announcement.

Progress assumes no obligation to update forward-looking statements included in this call. Additionally, please note that all the financial figures referenced in the call will be non-GAAP measures unless otherwise indicated. And you can find a reconciliation of the non-GAAP financial measures to the most directly comparable GAAP figures in our earnings press release, which also was issued at the market close today. This document contains additional information related to our financial results for the third quarter of fiscal year 2026, and I recommend that you reference for specific detail. We've also provided a slide presentation that contains supplemental data for our second quarter, or excuse me, for our third quarter, and provide additional highlights, financial metrics, and information regarding the Domo acquisition. Both the earnings release and the supplemental presentation are available on the Investor Relations section of our website at investors.progress.com. And just a reminder that today's call is being recorded in its entirety and will be available for replay on the Investor Relations website shortly after we finish this call.

So Yogesh, we're done with that. We'll turn it over to you.

Yogesh Gupta

Thank you, Mike, and good afternoon, everyone. Thank you for joining us today to discuss the results of our third quarter of fiscal year 2026 and to also talk a bit about our acquisition of Domo, which just closed last week. We delivered another solid quarter as ARR was up over 1% in constant currency to $873 million, and net retention rate finished at 99% within our expected range of 99% to 100% consistent over the last several quarters. Q3 revenue was $246 million, right around the midpoint of our most recent guidance, with notable strength again thanks to OpenEdge, DataDirect, MOVEit, and LoadMaster, among other products. Operating margins were exceptionally strong again, coming in at 43%, while earnings per share increased 13% to $1.69, exceeding the high end of our guidance. Cash flow continues to be very strong in the quarter as DSOs improved significantly. And we continue to strengthen our balance sheet through aggressive debt payout.

So we had a strong third quarter and our outlook for Q4 remains positive with the rest of the fiscal year on track. Hear more details from Anthony on our results and guidance later. Let me share some color on our Q3 results. Our performance again demonstrated the strength and durability of our portfolio, which deals across some of the world's largest enterprises and government agencies, reflecting the mission-critical role our software plays in their business. Several major customers across the wide range of industries and geographies recommitted to and expanded their relationship with Progress. This included major financial institutions, health organizations, global energy leaders, technology companies, several state agencies in the U.S., as well as one of the largest European law enforcement agencies. We also continue to gain momentum in highly regulated and security-sensitive environments where trust and performance matter most. These organizations are using Progress products for mission-critical systems to securely manage and leverage their data and content, to automate complex processes, and to modernize their infrastructure.

Customers consistently cite reliability, security, compliance, and operational efficiency as the key reasons for deepening their relationships with us. Most importantly, we continue to see growing interest in our AI-enabled capabilities as customers rely on Progress products to deliver the context and control for AI so that they can achieve their business goals with confidence. Context grounds AI-infused data, institutional knowledge, and business policies to produce reliable and dependable outcomes. Control ensures security, governance, and the management of the infrastructure and the cost of the AI projects. Organizations that successfully bring these two elements together are the ones that can scale AI with confidence and realize lasting business value. That is one of the reasons we are so excited to add Domo's AI and data platform business to Progress, [corrected word?] which was a defining strategic development during the third quarter. What makes the Domo business particularly exciting is its ability to connect data across the enterprise, apply AI to that data, and deliver trusted insights and actions directly into business workflows. Customers across all industries are using Domo to build AI-powered applications and agents to automate decision making and to empower employees with self-service access to real-time intelligence.

They are using Domo offerings to turn data into measurable business outcomes for and accelerating growth, improving operational efficiencies. For example, a leading sports broadcaster connects all fan social interactions, customer service conversations, and operational data using Domo. A real-time intelligence capability that provides the context to understand what fans are experiencing across live events and how to improve that experience. This allows the broadcaster to have the confidence to make real-time data-driven decisions, improve fan engagement while resolving issues quickly and continuously enhancing the viewing experience of its audience. From a technology and product perspective, the strategic opportunity for integrating Domo's cloud native AI and data platform with Progress's data platform is extremely compelling, as data and data platforms become increasingly important layers in the AI-enabled enterprise architecture. Combining and integrating Domo's data transformation, analytics, and agent workflow capabilities provides significant acceleration of our overall data platform. Progress already provides critical elements of the AI-enabled data architecture, including ontology management, unstructured data management, semantic analysis, intelligent decisioning and AI-powered automated workflows. Domo adds real-time data integration and transformation, analytics and visualization, automation, and agent orchestration. Together, we can deliver a far more complete AI-ready data layer that takes complex data in and delivers deeper insights, automation, and trusted AI-driven outcomes.

Now that Domo is a part of Progress, we see significant opportunities to deepen our relationship with customers to help them realize even greater value from their data, analytics, and AI investments. We've already begun to engage with Domo customers who are eager to hear how we intend to help them accelerate their AI journeys. Our General Manager of the data platform business, John Ainsworth, and I have spoken to several of these customers who have shared their excitement about this acquisition and what it could mean for them. We also met with Domo's customer advisory board yesterday, which represents a broad cross section of their global customer base. Their ideas, hear their input, and share our plans. And we have launched a global customer meeting tour covering a dozen cities around the world that each event our senior executives expect to meet with 50 to 100 Domo customers. The first of these customer events also took place earlier this week. I want to especially thank the Domo team for continuing to stay focused on their business while dealing with the significant distractions and uncertainty this year, both prior to the announcement of the acquisition as well as the period between the deal announcement and closing.

Their dedication is truly commendable. For example, they completed all the work on a new release of the product, further extending the capabilities of the Domo offering, which we announced this morning. Anthony will discuss in detail the financial aspects of the deal and the significant financial opportunity that Domo brings. But let me share some highlights. As you recall, we paid $400 million for Domo, and because it's an asset purchase, we expect meaningful tax benefits and other favorable adjustments. Because of this very attractive valuation, we are excited about the shareholder value creation opportunity that Domo represents. I want to remind folks that the most exciting aspect of Domo's AI and data platform business is the part that is on the consumption-based model. Throughout our due diligence process, we have believed that the seat-based business of Domo will continue to see significant churn, and that we would also continue to deemphasize Domo's services business, something Domo itself had already started.

As we manage the planned churn, the conversion of remaining seat-based customers to the consumption-based model, and begin the work of maximizing customer retention in ARR, we anticipate that the steady state revenue from Domo will stabilize in the range of $280 million to $290 million, which again will largely come from the consumption-based model. Once Domo is fully integrated, which we plan to complete by the end of FY '27, we believe that Domo will annually add well over $100 million of EBITDA to our business. In the meantime, our immediate priorities are to apply our proven integration playbook to integrate Domo's business into ours, to strengthen the customer retention, and deliver our operating targets for the business by end of FY '27. In closing, Q3 was another impressive quarter for Progress with a lot going on. Delivered strong results, expanded margins, exceeded earnings expectations, and again generated excellent cash flow. At the same time, we executed on an integral component of our Total Growth Strategy, completing yet another acquisition that adds significant scale to our business. Stands for AI opportunity, and one which will contribute meaningfully to earnings and free cash flow. We're confident in the value Domo brings to Progress and in our ability to deliver that value to customers and to our shareholders. I want to thank our employees around the world for this quad, especially for delivering strong results while helping us make the largest acquisition in history.

I continue to be in awe of their continued dedication and outstanding work.

Anthony Folger

Great, thanks Yogesh, and good afternoon, everyone. Q3 was another quarter of strong execution. We delivered ARR growth of more than 1%, an operating margin of 43%, earnings per share well above the high end of our range, and adjusted free cash flow growth of 17%. We also closed our acquisition of Domo's AI and data platform business last week and the integration process is already well underway. I'm going to spend a little more time on Domo today and provide some detail on what we bought and what it means for our longer term model. With that, let's get right into the numbers. I'll start with ARR, which remains our key metric for assessing top-line performance. We closed Q3 with ARR of approximately $873 million, representing more than 1% pro forma year-over-year growth on a constant currency basis. For clarity, our pro forma results include ARR from acquired businesses in all periods presented and our Q3 results exclude Domo, which closed after quarter end, and will be included in our ARR beginning next quarter.

The year-over-year growth in ARR was led by OpenEdge, along with contributions from LoadMaster, WhatsUp Gold, our DevTools products, and MOVEit. In addition, our net retention rate for the quarter was again strong, coming in at 99%. Q3 revenue of $246 million was within our guidance range, and with the timing of contract renewals affecting quarterly revenue, I think it's worthwhile to point out that our year-to-date constant currency revenue growth of 2% maps very closely to our ARR growth rate, both squarely in the low single-digit range. Turning to expenses, total cost and operating expenses were approximately $141 million for the quarter, down approximately $10 million, or 6%, compared to the year-ago quarter. This decline reflects disciplined cost management across our business and it contributed significantly to our earnings outperformance in the quarter. Operating income of $105 million increased 6% year over year, resulting in an operating margin of 43%, up 300 basis points from a year ago. Earnings per share of $1.69 came in well above the high end of our guidance range and grew approximately 13% on a year-over-year basis.

Turning now to a few balance sheet and cash flow metrics, we ended the quarter with cash and cash equivalents of $114 million and total debt of approximately $1.24 billion for a net debt position of approximately $1.1 billion. Our net leverage ratio at the end of Q3 was approximately 2.7 times on a trailing 12-month basis. DSO for the quarter was 42 days, an improvement of 13 days, compared to 55 days in the year-ago quarter, substantial improvement from 73 days at the end of fiscal '25. Deferred revenue was approximately $406 million at the end of Q3, an increase of approximately $25 million compared to the year-ago quarter. Adjusted free cash flow is $87 million for the quarter, an increase of 17% compared to the prior year quarter, and unlevered free cash flow is $101 million, an increase of 21%. On a year-to-date basis, adjusted free cash flow is $265 million, an increase of 44% over the same period last year, reflecting materially improved collections along with continued strong operating performance. As for capital allocation, during the third quarter, we repaid $60 million against our revolving credit facility, bringing our year-to-date debt repayment to $170 million, and we repurchased approximately $17 million of Progress stock, bringing our year-to-date total to approximately $72 million. At the end of Q3, we had approximately $131 million remaining under our current share repurchase authorization.

Okay, now let me turn to Domo. As mentioned, we closed our acquisition of Domo's AI and data platform business last week and the integration process is already well underway. The headline purchase price was $400 million in cash, and if you include the minimum cash balance we received at closing and the net effect of assumed transaction expenses, our actual cash outlay was $390 million, which we funded by drawing on our revolving credit facility. We again intend to delever quickly and aggressively as we've done following all of our prior acquisitions. In his prepared remarks, Yogesh mentioned planned churn among some of Domo's products. So let me provide a little more detail around that. Domo's top line today annualizes at approximately $300 million and includes a strong and stable consumption-based revenue model, along with seat-based revenue and a services business, both of which were in decline prior to the acquisition.

In our model for Domo, we anticipated continued seat-based churn and declines in services revenue. Now that the deal is closed, our outlook for Domo is that we expect the top line to settle at a steady state of approximately $280 million to $290 million. To elaborate further, we view Domo's top line as the combination of three elements. First, roughly 10% of Domo's revenue is professional services, and that revenue has been declining and will decline further as we shift delivery towards partners. This is what we do often in acquisitions, and it's margin accretive. Second, a portion of Domo's customers sit in legacy seat-based agreements, and we plan for a significant amount of that to convert to a consumption-based model or to churn at renewal. Third, and most important, is Domo's consumption-based platform, which, as Yogesh outlined, is strategically aligned to Progress's AI data platform, represents more than 85% of Domo's ARR, and carries significantly higher net retention rates.

Yogesh covered the strategic rationale for buying Domo's AI and data platform business, but from a finance perspective, it's worth highlighting the math because profitability is one of the key tenants in the M&A pillar of our Total Growth Strategy. Using the steady state revenue range I provided, Progress paid roughly 1.4 times revenue, and from an earnings perspective, roughly 3.5 times pro forma EBITDA. At Domo's scale, that is a significant addition to our earnings power and cash flow. We will provide formal guidance to fiscal '27 in January, but given the size of this transaction, we think it'll be helpful to highlight two mechanical effects of the transaction and how they'll show up in our numbers next year. The first is operating margin. For the full year '27, Domo will likely run slightly below 30% operating margin as the synergies ramp. And that will result in some compression of Domo's overall '27 operating margin, 100 to 200 basis points. So a gross margin in the range of 38% to 39% might look more like 36% to 37% as the integration proceeds. I want to be clear about this, any '27 margin compression is the result of integration timing, and it reverses as the synergies are fully realized. The second point I want to highlight is interest expense.

We drew $390 million on our revolver to fund this transaction and the incremental interest expense in '27 is expected to be approximately $21 million. And that will decline as we pay the revolver down. Net both of those items, we still expect fiscal '27 to be a year of substantial earnings growth because Domo's earnings contribution meaningfully exceeds the interest cost of funding. And as synergies fully ramp into fiscal '28, both the margin dilution and a good portion of the interest drag, reverse and deliver even more earnings growth. Okay, turning now to our outlook for the fourth quarter of 2026, Domo will contribute approximately 2 months of activity to our results. We expect revenue to be between $297 million and $305 million, and earnings per share between $1.24 and $1.33. For the full year 2026, we're raising our outlook and now expect revenue of between $1.044 billion and $1.052 billion, an increase of more than $50 million from our prior guidance, driven by the addition of Domo for a partial quarter, together with solid underlying performance in our base business. We expect an operating margin for the year of 38%, which includes the impact of taking on Domo's business, which was running roughly break-even at close. We expect adjusted free cash flow of between $275 million and $283 million and unlevered free cash flow of between $330 million and $338 million, both slight increases from our prior guidance. And finally, we expect earnings per share of between $6.15 and $6.23, an increase from our prior guidance. Our guidance for full-year EPS assumes a tax rate of 20% and approximately 42 million weighted shares outstanding. In closing, Q3 again demonstrated the durability of our business. Strong margins, strong cash generation, and continued improvement in our balance sheet and collections. And to echo Yogesh, we're extremely excited to welcome Domo to Progress, and we're looking forward to continuing to execute on our Total Growth Strategy. With that, I'd like to open the call for questions.

Thank you.

Operator

[Operator Instructions] Our first question comes from the line of John DiFucci with Guggenheim Securities. Your line is open.

Unknown Speaker

Hey, this is Lawrence Fenske for John DiFucci. You've proven that you can improve margins following an acquisition. And as we think about Domo and the journey to Progress margins, where do you expect to gain the most leverage? How much leverage will you essentially get from redundant public company cost elimination or G&A, sales and marketing or restructuring? And I just have a follow-up for Anthony.

Yogesh Gupta

So, hey, Lawrence, you know, as you know, we look at, first of all, public company, you know, two public company expenses versus one. There's some savings there, as you already recognized. Definitely, G&A is an area where there are significant savings because because we're able to leverage our existing G&A structure, integrate their business into ours, use our financial systems, use our HR systems, and all that stuff, right? So there is significant synergies there. Also, when it comes to go-to-market expenses, the reality is that Domo had a strategy around trying to grow the top line very aggressively. We expect the top line of Domo to be mostly stable, maybe grow somewhat, but it is not the same level of focus on top line growth that Domo had. So I think there are opportunities in multiple places. Anthony also mentioned that we would move the professional services efforts to some degree to partners because again, it is a lower margin business than our software.

So I think the opportunities are across the board. And you know, as we go into these acquisitions, we actually plan those extremely carefully and methodically and thoughtfully. We have done that. Our integration plans and strategy plans are not only in place, but we have begun to execute on those. And we are confident, and I am truly confident that we will get margins to the Progress range by end of FY '27.

Unknown Speaker

That's really helpful. Thanks, Yogesh. Both you and Anthony also talked about how free cash flow is very strong this quarter and it grew almost 20%, which is above where we were probably expecting. Just want to make sure, was there anything unique in cash flow this quarter that could have a negative effect on next quarter cash flow or was this more of just a reflection of just efficient management of the business? Thank you.

Anthony Folger

Thanks, Lawrence. Yes, there definitely is. And I would say it's it's been in place for the full year '26. If you recall last year, there was a lot of discussion about ShareFile and the integration that was underway and some of the billing and collection challenges we had because that was a, you know, it was an asset deal and it was a divestiture out of a larger organization. And so I would say in '25, our cash flow was probably light because of that. And in '26, we've seen because that operational backlog is gone. And because the systems and the processes have gotten a lot better, we've seen pretty meaningful improvement in cash flow and collections due to ShareFile. So it's more that last year was light.

This year we're, you know, probably a little bit heavier than we would otherwise be. It probably normalizes next year, you know, and you can look at a normalized, you know, EBITDA to free cash flow conversion ratio for us, you know, as opposed to trying to take this year's number for cash flow and map it out.

Operator

Thank you. Please stand by for our next question. Our next question comes from the line of Fatima Boolani with Citi. Your line is open.

分析师问答

Fatima Boolani

Yogesh, I wanted to ask you kind of a strategy leaning question as it relates to Progress dipping its toes in different modalities of pricing. So, historically, you've seen capacity growth with some of your core flagship products, your national products. Introducing and will be scaling the consumption modality by way of Domo. I'm wondering, you know, firstly, how much is just aggregate data growth and environmental growth with some of your customers as it relates to AI investments, how that is influencing maybe capacity growth trends kind of on a unit basis and then relatedly is there an opportunity to take some learnings from Domo's consumption model and maybe propagating that to other parts of the portfolio and why or why not and then I have a quick follow-up for Anthony please.

Yogesh Gupta

So, Fatima, I think those are really wonderful and strategically important questions. So let me go through them one at a time. So first of all, you're absolutely correct. Volume of data that businesses are trying to now consume and they realize the value of has suddenly become dramatically larger and it's growing larger. So it's showing up in two places. In places like obviously Domo products, it's showing up as greater consumption because it's on the use of the data. In products that we have that are more traditionally capacity based, it's showing up in greater capacity needs, bigger server needs, a larger number of servers, a larger compute capacity, therefore larger number of licenses on the server side. The vast vast majority of Progress products are either on, you know, the volume of infrastructure or volume of data in terms of capacity more than anything else, right? And that that also impacts our infrastructure management products positively, right? As the infrastructure gets more complex, as they bring in more compute infrastructure to deal with AI workloads, all of this leads to additional capacity needs when it comes to observability products or our security products and so on. So I think that we see this whole, you know, rising tide on the use of data, the rising tide of complexity because of new types of hardware coming in.

I mean, your people are buying, you know AI compute boxes to put on people's desktops and they're putting them in their own private clouds because they don't want to pay and run models on those rather than trying to pay some other AI company for their foundational models, etc. All of these things add to complexity and scale on the infrastructure side as well. So I think capacity growth will continue to be a driver for us and a positive trend for us. I think the second part of the question is really, really important. One of the things that we are doing is that we have been actually over the last 90 days analyzing Domo's consumption-based model and trying to understand how it can apply across a variety of our products across our portfolio. And I think there's a tremendous opportunity to do that because the vast majority of our products are something where the value is derived based on the amount of information, whether it is structured data or unstructured data, content, you name it, the amount workflows that go through those and therefore the consumption of those that content or the data. I think those are the right metrics because that's where the business value lies.

You know, the human seats are going to get replaced by automated AI agents. We all know that, which is why I think the seat-based models are under pressure out there. And which is why we've been talking about the fact that the vast majority of our business is not on seat-based models. And so we continue to look at how we can apply the consumption model to any of our businesses that are still on seat-based models as well. And also maybe some of our capacity models, we could basically use consumption as a metric for capacity as an alternate measure if customer wants those rather than actually just, you know, volumes of data managed. Right? They can say, no, we want to use the volumes of data used rather than managed because the volumes of data managed is actually right now growing extremely fast. As time goes on, the volumes of data being used is going to go up even faster, because the more the data becomes valuable because of AI, the more it's going to get consumed.

So I think this is a really positive trend for businesses who are on the consumption-based model, for businesses who are on the consumption-based model, on the capacity-based models, while they are a headwind, of course, for seat-based businesses.

Fatima Boolani

I appreciate that detail so much. Thank you, Yogesh. And just as a follow-up, Anthony, as the business maybe transition more towards a consumption orientation, as you evaluate the applicability of this model to more flagship products in the portfolio, is there something we need to consider or maybe reconsider as it relates to COGS profile or intrinsic profitability profile? Just because I noticed that you're talking about a post integration margin zip code around 38%, 39%. You delivering well above that, in the low 40s. So I'm wondering, as the business sort of transitions and incorporates more of this modality, does that sort of structurally change kind of the upside or put a ceiling, rather, on your ability to deliver kind of 40s post-integration operating margins. Thank you.

Anthony Folger

Sure, that's a good question and I've got a, you know, my knee-jerk reaction or my knee-jerk response is that we generally guide 38% to 39% and deliver above that. But in reality, the point you're making I think is true. Domo is another purely SaaS-based business that we're acquiring. This is the second one in a row. ShareFile was also pure SaaS. And the two of them together are going to be north of $500 million of revenue. And we also have other SaaS-based offerings within the portfolio that are growing. And so we do know that those SaaS-based offerings do have a slightly lower gross margin. I wouldn't say we're ready to sort of lower, you know, the margin outlook at this point, but we are certainly, you know, evaluating the pricing model and trying to understand from a COGS perspective with the significant mix shift towards SaaS now, is there a slight drag on gross margin and therefore on our operating margin? There's potential for that, but I think it's, you know, it's slight compression probably with better retention and a much higher mix of SaaS revenue as part of our overall revenue.

Operator

Thank you. [Operator Instructions] Our next question comes from the line of Lucky Schreiner with DA Davidson. Your line is open.

Lucky Schreiner

Maybe just to start back on the margins and the guide for roughly 30% operating margins around Domo. You know, given just how rapidly that the technology is evolving here. Is there a factor of you need to keep investing in the product and keep that product relevant today as the landscape evolves? Changes so quickly factoring into some of that or you know how much how quickly could we maybe see some of the upside around the operating margin? Thanks.

Yogesh Gupta

So, Lucky, let me start and then I want Anthony to follow up. I just want to clarify that what Anthony said is that for FY '27, because their margin currently was basically 0% when we acquired them. And the margin will ramp up over time as we go through the synergies. The margin contribution from the Domo side of the business will be around 30%, right? So that's not the steady state margin of the Domo business. The steady state margin of the Domo business we expect to be very similar to ours. So that's one clarification I just wanted to make. So once synergies are done, expect the same type of margins as we've had in our recent past, um, in terms of, you know, whether we would be investing more whether, you know, because of the market changes. The reality, Lucky, is that the competitive landscape is shifting across our entire portfolio. If you look at how much money we have invested in AI across our entire product portfolio with an R&D, it is truly, truly meaningful, right? And we have delivered strong capabilities that are tremendously beneficial to our customers doing that.

So we will continue to invest in Domo as well. We invest in our R&D expense every year. So it is a significant chunk of our operating expense line. And I actually think that that will continue because of that. And I think, we believe that, with the right focus and with the right set of, even the tools with AI are helping as well there on the other side, Lucky. You know, they're helping do more R&D work and do faster R&D work than one can do without it. So I think there's benefits to leveraging AI for our engineering teams as well.

So with all that, I think we are very comfortable. Saying that the overall margins with Domo once we have fully synergized it the steady-state margins will be very similar to the rest of Progress and we will be able to invest in the product the way we need to sustain its long-term its long-term viability and customer attractiveness and market competitive often that makes a lot of.

Anthony Folger

You know, I would just say that, thanks for pointing that out, Yogesh, if that, if it came across that Domo was only going to hit 30% margins, I should have clarified that that was really specific to '27, just to help people out with modeling in terms of how the synergies would progress through the year. For the full year of '27, they may hit 30%, but their exit rate's going to be a lot higher obviously. And your question on R&D, I think our model is telling us we're going to invest at or even above levels we normally invest in Domo. So the investment level absolutely is going to be there from a product standpoint, and we're, I mean, you know, we're in sort of high teens, close to 20% in terms of R&D as a percentage of revenue. So we do spend. I like to think that we spend in the right areas, and I think we'll do the same with Domo.

Lucky Schreiner

Understood. Yes, very helpful. Maybe then on cross-selling and with Domo, that asset purchase, the cross-selling motion is more practical and attractive today than previously. Is there any cross-sell factored into the $280 million to $290 million range that you gave for '27, or is that all potential upside? And does that, you know, how quickly can you roll this out to both customer bases? Yes.

Yogesh Gupta

Yes, so that is not factored into the $280 million to $290 million. As you know, I've said this before, our initial plan is to focus really on getting the business integrated, getting the synergies done, and so on and so forth. And by the way, improving retention of customers, paying attention to existing customers that Domo has, making sure that they recognize that it is a better home for Domo than maybe their previously felt that they had. So, therefore, we have not factored any cross-sell in the model. So it's all upside, Lucky, and I think that as time goes on, we will talk about it. You know us, until we see actual traction and proof, we don't like to sort of throw out expectations. We're just a different style that way and our style is to prove it out, see whether we are actually seeing that cross-sell.

That said, I am extremely excited about the cross-sell opportunity because you're right. The Progress data platform combined with the data platform and AI capabilities of Domo are truly compelling. And I just, I really, really do see processes opportunities over time. I think it's just premature right now for us to talk about sizing it.

Lucky Schreiner

Great. Makes a lot of sense. Congrats on the asset purchase.

Yogesh Gupta

Thank you, Lucky.

Operator

Thank you. Please stand by for our next question. Our next question comes from the line of John DiFucci with Guggenheim Securities. Follow up. Your line is open.

John DiFucci

Thank you. This is John DiFucci, not Lawrence. I apologize, guys, I'm on the road. But I was hoping to hear Yogesh's public comments about Domo a little bit here. Because as you guys know, we calculated you bought it for 1.1 times recurring revenue. And you talked about, I think both Yogesh and Anthony mentioned, there are other things that add value here too with Domo. And that's really unique, right? That kind of a of a multiple. And, you know, highly attractive at first look.

But at the same time, for a recurring revenue company, which this probably means the market. It was questioning how recurring that revenue stream really is in the era of AI. And Yogesh, I know you spoke about this a little differently, Domo. And I've watched Domo for a while, probably all of us have, but I never really officially covered it. But can you explain how you think of more traditional and I know Domo maybe is a little bit different, but it's also put in that bucket, in the era of AI. Is there still a place for it? Or are you changing Domo here? Or are the probabilistic derivations of AI likely to displace traditional analytics, even though a lot of what they do is deterministic, which seems to be the conclusion of the market, okay? And you guys obviously see something different. I'm going to shut up, go ahead.

Yogesh Gupta

Go ahead, Yogesh. Yeah. Yeah, no. So, John, I think that the you are right that there is a segment of analytics that AI can and will disrupt, right? And especially when it comes to presentation. So when you think of analytics, there is the part of analytics that says, how do I bring data together from hundreds of different sources? How do I transform it? How do I rationalize it? How do I get semantics into it and apply ontologies to it? Hard, complex, and especially in a business context where you are trying to get dependable, reliable outcomes. Even though you understand some of it could be probabilistic, you still want dependable, reliable outcomes, and you want the same answer twice, you know, if you ask the same question twice, you know, there is a huge amount of work that goes in what was traditionally called data prep, combination of a lot of things. So I think there the value actually gets greater and because of the amount of AI being leveraged and that will be leveraged for basic analytics and reporting and what-if analysis will only need better and better quality data so high quality data with integrity data that is business specific is something that Domo is one of the companies that actually leads in that market and therefore, that's why I keep going back to the consumption side of the business, the business that is on the consumption model. And by the way, even, you know, you've heard Domo's own public comments about this. The consumption side business has much better net retention rates than the seat-based business. And that has been historic. And customers who start on their consumption business are actually net retention rate of over 100%.

And so it is really interesting to see that people who are leveraging Domo for truly just the AI portion, are actually expanding as they go forward. Folks that have converted over are much more stable in their net retention rate. And then of course, the seat-based business, which reflects more of the BI aspect of things or simple, what I want to call simple BI, where really the value is thought to be in the user experience rather than in the back end aspect of data aggregation, data transformation, and and applying, uh, you know, AI on top of that. You know, that's not reflected in the seat-based model, which is why the seat-based model has continued to see more meaningful churn, even at Domo. And which is why our comments about where we see the business ending at steady state, right? So you agree, I mean, you've known they just announced their last quarter, and when you analyze it, business has declined compared to what it was 2 or 3 quarters ago. And so we expect that decline to continue, and we expect it to get to that $280 million to $290 million range. Very comfortable about the stability of that part of the business. I think that's the question you're asking.

Yes, the multiple may not look as good as 1.1 or 1.2, it might look like 1.4. But you know what? 1.4 times ARR is still a darn good multiple. At least in our book, or 3.5 times the bid pro forma EBITDA as Anthony mentioned. So I think that's our rationale. I think what is interesting is that the public markets are right now pretty wonky and there is a lot of noise out there and so therefore I think Domo's valuation in the public market was really challenged and of course they also had other challenges in their business that led to significant share price erosion, which made the deal possible at the number it was. I mean, it's just a different environment. So I think some of the valuation challenges that Domo had were company specific, not product or market specific in which they play.

John DiFucci

Thank you, Yogesh. I'm not surprised. It's very thoughtful. So, if I could, just to summarize, I'm thinking about this. The data preparation part of Domo, you expect to actually continue to grow, whereas some of the traditional analytic components of Domo will see pressure, but it's not going to be a limited I mean, there are still, you still need that in certain instances with certain queries where you need a deterministic consistent response versus a probabilistic response that may be different every time. So this is really clear.

Yogesh Gupta

Yep. Go ahead. Yes, you're right, John. I mean, you know, the deterministic answers are so important. You know, you're doing your financial reporting, you're doing your, you know, business numbers. You're doing your, you know, forecasting of, you know, how much raw material you need to manufacture something. I mean, these things are, you need exact numbers. You need to manage a supply chain correctly, you need to manage your distribution chain correctly. You can't have a probabilistic system that says, I think I will need 100, but I really ended up needing 110, and now I can't manufacture cars.

I think there is tremendous value to the probabilistic answers in what if analysis, all kinds of and other things where you're forecasting, is approximate is good enough, but then there are other places where you need deterministic. So I actually think that the analytics market is stronger than what people think, will be stronger than I think what people think, but I think it will still be under pressure. It won't have the same level of value, but you're right. You're absolutely correct, John.

John DiFucci

By the way, I agree with that. And listen, if you guys, that multiple goes from 1.1 to 1.4 or 2.4, that's a good number. That is still especially when you guys do what you do with margins that that's still, you said a darn good multiple. I would think of a different word, but yes, that makes a lot of sense. I appreciate it. Thank you. Thanks. Thanks, Yogesh.

Operator

Thank you, John. Thank you. Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Mr. Gupta for closing remarks.

Yogesh Gupta

Thank you so much for joining, everyone. I'm really excited about what we have done and what lies ahead and I'm looking forward to our conversation. At the end of the fiscal year. Thank you, bye-bye.

Operator

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

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