Progress Software Corporation (PRGS) Q1 2022 Earnings Call Transcript

Progress Software Corporation (NASDAQ: PRGS) Q1 2022 earnings call dated Mar. 29, 2022

Corporate Participants:

Michael Micciche — Vice President, Investor Relations

Yogesh Gupta — Chief Executive Officer

Anthony Folger — Chief Financial Officer

Analysts:

Ittai Kidron — Oppenheimer & Co., Inc. — Analyst

Pinjalim Bora — J.P. Morgan Securities LLC — Analyst

Tyler Radke — Citi — Analyst

Anja Soderstrom — Sidoti & Co. LLC — Analyst

Presentation:

Operator

Welcome to the Progress Software Corporation Q1 2022 Earnings Call. My name is Daryl, and I’ll be your operator for today’s call. [Operator Instructions]

I will now turn the call over to Mike Micciche. Mike, you may begin.

Michael Micciche — Vice President, Investor Relations

Okay. Thank you, Daryl. Good afternoon, everyone, and thanks for joining us for Progress Software’s fiscal first quarter fiscal 2022 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 and operating performance, corporate strategies, product plans, cost initiatives, our acquisition of Kemp, 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 only as of today and is subject to risks and uncertainties. For a description of the risk factors that may affect our results, please refer to our 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 a result of new developments or otherwise. Additionally, on this call, all 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 close today and is also available on our website. This document contains the full details of our financial results for the fiscal first quarter of 2022, and I recommend you reference it for specific details. We also have prepared a presentation that contains supplemental data for our first quarter of 2022 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. Today’s conference call will be recorded in its entirety and then will be available via replay on the Investor Relations section of our website.

And so with that, Yogesh, I will now turn it over to you.

Yogesh Gupta — Chief Executive Officer

Thank you, Mike. Good afternoon, everyone, and thank you all for joining us. I’m pleased to be with you today to discuss Progress’ first quarter fiscal 2022 earnings. We’re extremely happy with our results, which continue to demonstrate the value creating power of our total growth strategy. We have assembled an impressive product portfolio to develop, deploy and manage high impact applications and to help accelerate the digital transformation efforts of organizations. We started off fiscal 2022 continuing the robust momentum from FY ’21, which was our best year ever.

We experienced strong demand for our products across the board and we had outstanding execution across all regions. As you will see from our increased guidance, we expect the positive momentum from last year to continue in fiscal 2022. In fact, excluding the impact of the Russia embargo and the FX headwinds, our increasing revenue guidance is greater than the beat in our first quarter. More details from Anthony in his remarks. We are now four months into the integration of Kemp, which continues to be on track, and the business is performing very well.

We remain confident about the synergies we expect to achieve and the resulting shareholder value this acquisition will create. Before I get into the details of the quarter, I think it’s important to take a moment to talk about the situation in Ukraine. We are truly horrified by the humanitarian crisis caused by the Russian invasion. Thankfully, we have no employees in harm’s way in the region. Our hearts and best wishes are with the friends and families of our employees, particularly those in Bulgaria and the Czech Republic, and we hope for a quick and peaceful end to the suffering of the people of Ukraine.

Many of our employees around the world are directly helping with the refugee crisis in many ways. I couldn’t be more proud of our Progress team members for the speed and generosity of their response. And as a company, we recently pledged $100,000 to the World Health Organization emergency appeal for Ukraine. From a business perspective, Progress has stopped doing business in Russia and Belarus in accordance with the U.S. government sanction, and the impact is not material to our overall results or our longer-term outlook.

Turning back to our first quarter results; as you probably have seen already from our press release, we again beat top and bottom line expectations. Revenue of $147.5 million exceeded our guidance of $139 million to $142 million. Earnings per share were equally strong at $0.97 versus guidance of $0.83 to $0.85. Annual recurring revenue and net dollar retention rate improved once more with ARR up over 12% year-over-year to $479 million and our net dollar retention rate was again over 100%.

The strengthly sign our first quarter was exhibited across products and geographies driven by; one, the impact of the first full quarter of revenue from Kemp; two, sustain demand from the strong economy and fully funded IT budgets; and three, the ongoing trends toward digital transformation as companies and workers adapt to the new post-COVID paradigms. OpenEdge once again proved itself as the mainstay of our product revenues, while virtually all other products in particular DataDirect, Flowmon, Corticon, File Transfer and DevTools products contributed to the outperformance.

In our OpenEdge ISV partner business, we saw several large deals around the world from a long time partners; QAD in North America, COINS in EMEA, and Revolution in Asia-Pacific. Our DevTools business continues to do well with increasing customer accounts, strong retention rates and increasing average deal sizes as customers deploy these products more broadly within their organizations. DevOps and DevSecOps remain a high priority among customers as they automate the deployment and management of cloud and on-prem infrastructures and our Chef products continue to be the industry leading choice to do so.

WhatsUp Gold and our most recent additions from Kemp, the Flowmon and LoadMaster offerings present a sought after step, set a full stack observability products that help our customers deliver high quality application experience. We are very pleased with the way these products have added robust capabilities to our offerings and furthered our goal, as we continue to be the trusted provider of the best products to develop, deploy and manage business applications. We achieved strong operating margins in the first quarter.

Thanks again to good expense control. We achieved strong operating margins in the first quarter, thanks again to good expense control, the temporary dampening effect of Omicron on travel and return to office at the very end of the year, and the timely and seamless integration of Kemp. We expect that the travel budgets and other expenses will not sustain the artificially favorable levels we have — saw over the last two years, as we again start seeing our customers, partners and especially our employees face-to-face in the coming months. Closer to home, recent inflationary pressures present some new, but so far manageable challenges. The biggest challenge all companies are seeing is employee recruitment and retention across all geographies.

To-date, the inflationary impact has been manageable, and while we anticipate seeing more in the coming months, we are prepared to adapt, which includes the potential to raise prices on select products. We expect strong margins to continue to be one of our hallmarks. Turning now to our total growth strategy and our outlook for M&A. M&A is another area where for Progress, the spike in inflation and recent pullback in the capital markets is an advantage. We have mentioned in the past that rising interest rates could put Progress in a more competitive position in the market for deals, as other players are less likely to use leverage as heavily in a higher interest environment.

We’re seeing some signs of a more promising M&A environment, as infrastructure software companies in our target zone seek alternatives to public market exit or private funding strategies. At the same time, potential competitors who formerly were much more aggressive when money was cheaper are becoming more cautious. As a result, we expect our disciplined approach to bear more fruit in the future. Our radar scope remains dotted with many possible targets, and we are working daily to get an increasing number of quality acquisition candidate.

Progress means well-capitalized due to a strong and predictable cash flows, a sturdy balance sheet and ample ability to finance possible transactions. As we announced in January, we refinanced our existing credit facilities at a very favorable rate with over half of our current debt. It’s fixed at 1%. Our discipline model of buying the right kinds of companies at the right price and the right multiple has served us well so far. We believe that doing smart accretive acquisitions has proven to be the best way to deploy our capital to create shareholder value.

So no matter how much the market for deals changes one way or the other, we have no plans to deviate from a strict M&A criteria. We also see market pullbacks as an opportunity to buy back stock as we did in our first fiscal quarter. All in all, I’m once again very proud of our results and grateful to the whole Progress team for another outstanding performance. We remain very positive about our outlook, even as we carefully watch the global events. As always, we thank our customers and investors for their continued loyalty. And I personally want to thank the whole Progress team for their commitment and efforts.

I will now turn it over to Anthony to provide more detail on our results and guidance. Anthony?

Anthony Folger — Chief Financial Officer

Thank you, Yogesh. Good afternoon, everyone, and thanks for joining our call. As Yogesh mentioned, we’re very pleased with our Q1 results, which again exceeded the high end of our guidance range on revenue and earnings per share. We’re also very pleased with our integrating Kemp, which delivered results in line with our expectations in the first full quarter since the acquisition closed. Turning to the numbers; our revenue for the quarter of a $147.5 million was well above the high end of the guidance range we provided back in January and represents 12% growth on a year-over-year basis.

The better than expected performance in the quarter was driven by multiple products, including OpenEdge, Corticon, DataDirect. Consistent with our growth in revenue, we also saw a growth in ARR to close the first quarter with $479 million in ARR to represent 12% growth on a year-over-year basis and 3.5% growth on a pro forma year-over-year basis. To be clear, the pro forma results include Kemp in both periods. In addition to our strong ARR growth, our net retention rates showed continued strength in the first quarter, once again exceeding 100%.

Before moving on, I’d like to take a moment to highlight the fact that we report ARR in constant currency using our current year budgeted exchange rates and apply those rates to all periods presented. As a result of operating expense base to our 2022 budgeted rates, the ARR reported proprietary has changed slightly. However, the change is immaterial and doesn’t alter the trend in ARR growth or the net retention rates that we’ve been reporting over the past several quarters.

To illustrate this point, we’ve included a slide in the supplemental presentation filed with our press release. Turning now to expenses, our total costs and operating expenses for the quarter were $88.8 million, up 18% compared to the prior year and right in line with our expectations. The year-over-year increase was driven by the acquisition of Kemp and to a lesser extent, an expected increase in compensation costs across the rest of our business. Operating income was $58.7 million, up $2 million compared to the prior-year quarter and our operating margin was 40% compared to 43% in the first quarter of 2021.

On the bottom line earnings per share of $0.97 for the quarter represents growth of 0.02 year-over-year and is $0.12 above the high end of our guidance range. This over-performance relative to our bottom line expectations was driven by our strong top line performance, coupled with good cost management across the business including Kemp where our integration is running right on plan. Our outlook for the Kemp integration is unchanged, and we expect to recognize all synergies by the end of this fiscal year. Moving on now to a few balance sheet and cash flow metrics, we ended the quarter with cash, cash equivalents and short-term investments of $173 million and debt of $633 million or a net debt position of $460 million.

I’d like to mention that during the first quarter, we amended our credit facility to expand liquidity, lower costs and provide greater flexibility to grow as we execute our total growth strategy. The amended facility provides an aggregate amount of $575 million in capital, including $275 million in senior secured term loans and an untapped $300 million revolving line of credit. This new credit facility replaces our 2019 facility and more mature on January 25, 2027, subject to certain conditions. DSO for the quarter was 52 days, an improvement of eight days when compared to the fourth quarter of 2021 and an improvement of one day when compared to the first quarter of 2021.

Adjusted free cash flow is $45 million for the quarter, a decrease of $2 million compared to the prior year quarter. The decrease in free cash flow was attributable to bonus and commission payments made to our employees in the first quarter of 2022 that were approximately $10 million higher than bonus and commission payments made in the prior year quarter. During the first quarter, we repurchased 551,000 shares of Progress stock at a total cost of $25 million, and at the end of the quarter we had $130 million remaining under our current share repurchase authorization.

I’d also like to mention that in the first quarter, we adopted ASU 2020-06, the new convertible debt accounting standard, using the modified retrospective method. On our balance sheet, the new standard simplifies the presentation of our convertible notes by increasing their carrying value can be equal to the principal value plus any unamortized debt issuance costs. In our income statement the new standard will have the effect of reducing our GAAP net interest expense, but will have no impact on our reported non-GAAP net interest expense, net income or cash flow from operations. Finally, I’d like to point out that we recently classified land and building assets totaling $15.3 million as assets held for sale in our consolidated balance sheet.

This classification reflects an active program to sell corporate office space in Bedford, Massachusetts, which is part of a broader initiative to consolidate office space and provide a more flexible work environment for our employees by supporting a mix of remote and in-office work. We expect the sale of our corporate offices to be complete in the first half of 2022 and expect net proceeds to exceed the carrying value of the assets held for sale on our balance sheet. Okay. Now I’d like to turn to our outlook for Q2 and the full year 2022.

For the second quarter of 2022, we expect revenue between $145 million and $148 million and earnings per share of between $0.94 and $0.96. When considering our outlook for the full year, it’s important to note that we continue to see strength in the demand environment for our solutions. As a result, we are increasing our full year outlook on almost every metric, and we expect revenue between $609 and $617 million and that’s an increase of $3 million from the midpoint of our prior year guidance.

I’d like to highlight the fact that this $3 million increase to our revenue guidance includes the negative impacts of movements in foreign exchange rates and the removal of previously forecasted business activity in Russia, which together totaled approximately $4 million. We expect an operating margin of between 39% and 40%, an increase of 50 basis points from our prior guidance. Adjusted free cash flow between $185 million and $190 million, consistent with our prior guidance and earnings per share between $4.01 and $4.09, an increase of $0.05 from the midpoint of our prior guidance.

Our annual EPS estimate contemplates a tax rate of 20%, approximately 44.5 million shares outstanding and the impact of $50 million of share repurchases we are targeting to complete by the end of 2022. And that’s a total of $50 million, not an incremental $50 million. In closing, we’re truly excited to deliver strong financial results across the board in the first quarter. A continuation of the trend that we saw for much of 2021. The integration of Kemp is tracking the plan, and we believe we’re very well-positioned to deliver strong results for the remainder of 2022.

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

Questions and Answers:

Operator

[Operator Instructions] And our first question comes from Ittai Kidron from Oppenheimer. Go ahead with your question.

Ittai Kidron — Oppenheimer & Co., Inc. — Analyst

Thanks. Nice quarter, guys. I guess I wanted to Yogesh first, perhaps touch on Kemp, nice to see that the Progress, there is kind of moving on track. Can you though elaborate how much of the synergies from Kemp are at this point more top-line driven than bottom line? You’ve kind of evolve you’ve reached a 40% kind of margin target, I’m just kind of wondering if there’s more to squeeze here in Kemp or from this point, it’s more top-line. And if so, maybe you can talk about progress you’ve made so far in cross-selling camping to existing customers or upselling you any of your existing solutions into Kemp customers?

Yogesh Gupta — Chief Executive Officer

All right. Ittai, thanks and — let me share sort of the way, we’ve looked at any acquisition including Kemp when we did the acquisition, right. So our acquisition model that contemplates — shareholder value creation does not take into account potential cross-sell opportunities. We are intentionally conservative about that. And so when we talk about synergies or synergies on plan, we’re primarily talking about expenses. We expect to take 12 months from the time of acquisition to fully realize the expense synergies.

That said, I think a significant amount of those synergies are all well baked in and taken care of as we exited Q1, right. So, yeah, if you noticed it was only one month before the — before the end of the year that we had our — when we actually did the Kemp acquisition. So we only had one month. So it took us — in the first quarter, we were a significant period during which we were continuing to get the expense synergies. Anthony, did I miss something?

Anthony Folger — Chief Financial Officer

No, no. I think that’s right, Yogesh. I think we’re — I think we’ve made very good progress I think that’s right, Yogesh. I think we’re — I think we’ve made very good progress on the integration and capturing synergies. There’s always more work to do from sort of a systems and process standpoint, but as you mentioned, we’re on track, I think we feel pretty good about our ability to get this completed, certainly within 12-month timeframe we had mentioned previously.

Ittai Kidron — Oppenheimer & Co., Inc. — Analyst

Okay. Maybe as a follow-up, you guys, you’ve talked about how Russia is not a material part of your business and that’s good to hear or maybe you can talk about Europe as a whole what percent of revenue does it account for? And there are already data points that show significant deceleration in macroeconomic activity in Germany, and it’s starting to kind of move into other adjacent countries. So I guess the question is what have you seen from a pipeline from a renewal rate specifically in that region? Are there any signs of a change in behavior in customers that are based in Europe?

Yogesh Gupta — Chief Executive Officer

So Ittai right now, we feel good about the way performance is in Europe. We continue to see solid performance literally, we are not seeing the potential impact that others might be seeing. I can’t speak for others, with Europe performed really well in Q1, and the European business leaders and our folks in Europe are confident about the rest of the euro as well. Our business may be — may be somewhat different, I don’t know whether that’s what we are saying is applicable to everybody else. Anthony, do you know what percentage of our business, I know it’s in the upper 30s, but I don’t know the exact percentage of Europe business.

Anthony Folger — Chief Financial Officer

Yeah, Yogesh, I think that’s right. As we look at, say, the full year of 2022 — in terms of the percentage. Bear with me, but yeah, I think we’re about 34%, so a third or a little bit more than a third is based in EMEA. And to your point, Yogesh, the majority of that is maintenance. So there’s big maintenance base over there. There’s a lot of subscription or coming in from that region as well. And so I think we tend to see reasonable stability there, maybe less of a dependence on net new customer acquisition, maybe compared to some other folks.

Ittai Kidron — Oppenheimer & Co., Inc. — Analyst

Got it. Maybe last one for me. You talked about your intention to raise prices, just making sure Anthony did nothing, and the guide includes the but can you be a little bit more specific on timing and magnitude and it is just across the portfolio or specific products or specific regions, any color on that?

Yogesh Gupta — Chief Executive Officer

So I can start and Anthony. Go ahead, Anthony.

Anthony Folger — Chief Financial Officer

Yeah. No, I’m just going to say I think the first the first point is there’s nothing baked into our outlook that contemplates increase in prices. And the way I would characterize our perspective on this is we’ve got to look region by region, product by product and even channel by channel in some cases and figure out what’s appropriate. There may be some instances where there are contracts up for renewal, whether they’re maintenance or subscription, and perhaps price increase is warranted. We’re evaluating those opportunities.

There are other parts of our business where perhaps the best way to achieve an increase in price is to reduce discounting. And we’re evaluating those opportunities. But I think because we’ve got such a broad product portfolio and different routes to market that we leverage, it’s not sort of that simple approach where we can press a button and drive a 5% price increase across the board for our entire installed base, I think we’re going to have to be, we’ll be selective, we’ll look at price increases where it’s appropriate. And I think we’re going to have to be thoughtful as to region channel and product.

Ittai Kidron — Oppenheimer & Co., Inc. — Analyst

Very good. Appreciate it, thanks.

Operator

And our next question comes from Pinjalim Bora from J.P. Morgan. Go ahead.

Pinjalim Bora — J.P. Morgan Securities LLC — Analyst

Oh, great. Hey, guys, thank you for taking my questions and congrats on the quarter. I want to talk about OpenEdge, seems like it was outperformer in the quarter. Could you maybe update us on what is the OpenEdge mix at this point in time and what’s driving the performance? Is maintenance renewals ticking higher, are you seeing just the second derivative of some of your ISV partners doing well seems like?

Yogesh Gupta — Chief Executive Officer

Yeah. So, Pinjalim, thank you. The biggest driver for the OpenEdge business, is — and has always been the ISV business, right? Our ISV partners are the lion’s share of that business. And, with them it’s when you have these revenue share models where we get APs for their business. And over time, they have continued to do well. They have modernized their applications on top of our OpenEdge platform.

They have cloud allowed enable their products and actually offer cloud offerings, folks like QAD do. And so, as their business performs better — we get a piece of that, that business as well. So when you look at some of the examples I gave in my prepared remarks, QAD, COINS, Revolution, etc, these folks are all seeing, interesting increasing opportunities in the market, their businesses are doing well. And as a result of that, we are seeing increasing royalties from them. So that’s the primary driver with the OpenEdge business Pinjalim.

Pinjalim Bora — J.P. Morgan Securities LLC — Analyst

Got it. And do you understand the mix?

Anthony Folger — Chief Financial Officer

Yeah. I’ve just going to add to that, Yogesh. Thinking about the business for the full year 202, Pinjalim, OpenEdge is right around 40% of our total business. And then that, as you might expect, this come down over the past several years as we’ve seen a little bit of growth in other product lines and we’ve acquired a bunch, the mix really has come down there, but it’s the business nonetheless is very stable. But as a percentage of the whole, it’s around 40%.

Pinjalim Bora — J.P. Morgan Securities LLC — Analyst

Got it. Very helpful. And then the last question for me. Yogesh, I think during the Kemp acquisition, you had highlighted an aspect of kind of leveraging Kemp’s go to market motion. I think you had yet said they had kind of a tier sales motion and you were looking to kind of expand that to other parts of Progress, Progress’s portfolio? What have you learned so far? It’s been six months, seven months. Have you started rolling that out towards the some of the parts of the business yet?

Yogesh Gupta — Chief Executive Officer

So, Pinjalim, we spent the first few months primarily making sure that things were on track with the business and it’s the Kemp business itself and making sure that we got off synergies in-place and so on. We have begun to, to see what products we can actually play through the two-tier channel. But I think we’re early through the two-tier channel. But I think we’re early, Pinjalim, to speak to it at this point. So I would not conclude anything meaningful at this point about us leveraging that channel for other products. There is definitely that opportunity, but we have not made significant progress in that area at this point.

Pinjalim Bora — J.P. Morgan Securities LLC — Analyst

Understood. I’ll get back in the queue. Thank you.

Yogesh Gupta — Chief Executive Officer

Thanks, Pinjalim.

Operator

Okay. Our next question comes from Tyler Radke from Citi. Go ahead, Tyler.

Tyler Radke — Citi — Analyst

Yes. Thanks for taking the question. I wanted to just clarify your comments on some of the challenges you’re seeing on the inflation side. Is that just kind of the general observation on the macro environment or is this manifesting itself through specific headwinds, either in customer negotiations or on certain costs or payments that you’re having to make? Just help expand on that a little bit. Thank you.

Yogesh Gupta — Chief Executive Officer

Yeah. So I’ll start and Anthony, please add to it as well. Tyler, the main — so there are no — from a customer perspective, absolutely nothing. In fact, as we said, I think there might be some opportunities for us because of the inflationary environment to potentially even raise prices in certain cases with certain customers, depending on timing of contract renewals and so on. So that’s not where we would see the impact for us. The challenge arises from the combination of employees. The retention is a large — huge thing right now for software companies or companies of any stripe, to be honest.

And so wage pressures, I think is the primary challenge that we are observing and we’re watching carefully. We, however, to-date feel very good about where we are and I don’t think that this is in any way shape or form going to be something that is unmanageable. And I in fact think that so far we have a good handle on it and we continue to be vigilant around it. So, but we wanted to make sure that we understood that this is an area that is something that that we are watching closely. Anthony, did you want to add something?

Anthony Folger — Chief Financial Officer

No, I would just say, Yogesh that we’ve — I don’t think we’ve seen too heavy an impact in our Q1 numbers from inflation. We have baked incremental impact into the rest of the year and even with that to Yogesh’s point, we feel as though it’s a manageable problem right now but certainly one we’re keeping an eye on.

Tyler Radke — Citi — Analyst

Great. And maybe just a follow-up to that, I mean, obviously, the margin performance in the quarter-end and guide look pretty, pretty strong. Is there a philosophically if wage pressure tracks ahead of your expectations, are you kind of offsetting that with cuts to other areas of the budget and then just had one follow-up on the M&A strategy?

Anthony Folger — Chief Financial Officer

Yeah, short answer is yes. I mean, we’re — Yogesh mentioned in his remarks earlier that maintaining a best-in-class operating margins really is a hallmark for us and we’re going to look to continue to do that. I think we will be pretty thoughtful about trying to manage expenses across the business so that we can do the right Things for our employees retain our employees and make sure that we are competitive from a market perspective. So that is absolutely in our sight for sure.

Tyler Radke — Citi — Analyst

Okay, great. And just on the M&A environment, you talked about the I assume I think the result of the valuations coming down that making it more favorable. How should we think about that in terms of your M&A strategy, whether it’s the pace in which you’re pursuing these deals or are the volume, would you be opportunistic and maybe would accelerate the pace of M&A in the near term to take advantage of the improved environment?

Yogesh Gupta — Chief Executive Officer

Again, the short answer is yes, Tyler. The longer answer is, of course, opportunities come along when they come along and we’ve got to get the deals happening and making sure we do the deals. But yes, and I think that we have the ability to do that. We have the ability from an operational perspective. And of course, we have the ability from a financial perspective. But I think, to me, I’ve always looked at this as what can we operationally absorb and run well and integrate well once we do the actual transaction. And so I — we absolutely are looking to accelerate the pace of M&A given where the market is.

Tyler Radke — Citi — Analyst

Thank you.

Yogesh Gupta — Chief Executive Officer

Thanks.

Operator

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

Anja Soderstrom — Sidoti & Co. LLC — Analyst

Hi, thank you for taking my questions. A lot of my questions have been asked and answered already, but can you just speak a little bit to the organic growth you see. It seems like that has picked up a little bit in the past quarters how did you see that in this quarter and how do you expect that to play out in the coming quarters?

Yogesh Gupta — Chief Executive Officer

So Anja, thank you. It has picked up and it continues to do well. As you can see in this quarter, really the primary outperformance really was on the organic side. The vast majority of the outperformance was on the organic side. So, we feel really good about what is happening with our organic business. Our ARR is up apples to apples 3.5% year-over-year in 12 months. So that gives you a feel for what is going on in the business. So we feel really good about this. We feel really good that we have a 40% operating margin business with an organic growth that on the ARR side, that is looking like we’ve done 3.5% to twice now in a row and that has steadily picked up over the last couple of years. So, we continue to feel confident and we think we have a strong business with good solid dip in the market.

Anja Soderstrom — Sidoti & Co. LLC — Analyst

Thank you. And I just wanted to also ask you — you said you might offset inflationary pressures with price increases. What’s the history of the price increases?

Yogesh Gupta — Chief Executive Officer

So Anja, interestingly enough, right, there’s a part of our business that is royalty based and I was mentioning that for an earlier question that I was asking as well, when you look at the royalty-based businesses, there is really no opportunity to change prices because it’s a percentage of their revenue, right. So that doesn’t really change unless we can put more products into that same particular IFC partner.

But with everybody else, historically we have not raised prices in quite some time. We’ve actually been good about that from the perspective of our customers. So I think that if we were to find the right products and the right opportunities and raise some prices, I don’t think we would get pushback in any more meaningful way than usual. So we are looking at that. And as Anthony pointed out — we’ll have to be selective both in terms of opportunities as well as geographies and products and channels. So this is not a broad brush across the board, let’s raise prices by X percent, so.

Anja Soderstrom — Sidoti & Co. LLC — Analyst

Okay, thank you. That was all for me.

Yogesh Gupta — Chief Executive Officer

Thank you, Anja.

Operator

We have no more questions at this time. I’ll turn it back to Yogesh for closing comments.

Yogesh Gupta — Chief Executive Officer

Well, thank you everyone for joining our call, and we look forward to speaking with all of you again. Thank you.

Operator

[Operator Closing Remarks]