Fatima Boolani: Fair enough. Anthony, just shifting gears to the cash flow. I appreciate some of the commentary you’ve shared about some of the tax and regulation changes on R&D expensing. But I wanted to ask about potentially other impacts of the cash flow inclusive of, if there is a linearity or collections consideration for MarkLogic. And then just generally, I think you called out sort of back end loaded performance. So, just curious as to why you did see linearity shift to the back end of the quarter and how that should sever into our cash flow expectations, considering the R&D expense and dynamic and potentially what we need to stay mindful of on MarkLogic’s impact to the cash flow. And that’s it for me. Thank you.
Anthony Folger: All right. Yes. So, there’s a lot there sort of packed into that question. And I guess, the largest item in terms of the ’23 cash flow to call out, really is that $15 million in incremental cash payments that we’ll make under Section 174. And like I said, it doesn’t affect our rate in any meaningful way. So, it really just is an acceleration of cash out to the IRS. So, that has an impact in ’23. I think MarkLogic, for sure, when they’re booking, let’s say, a third of the business in December and January, that certainly will impact sort of the linearity or seasonality of cash flow. We won’t realize the benefit of that, I think, until we roll into to next year into our fiscal ’24. But certainly, along with the top-line seasonality and the amount of activity that’s packed into December and January, we should see something similar from a cash flow standpoint.
And then the last comment, I think, that you were sort of driving at was the year-over-year for the fourth quarter and now we’ve had pretty good looking for.
Fatima Boolani: Thank you.
Operator: Thank you. One moment for our next question. And that will come from the line of Harshil Thakkar with Oppenheimer. Your line is open.
Harshil Thakkar: Hi, guys. This is a Harshil on for Ittai. Can you hear me?
Anthony Folger: Yes.
Yogesh Gupta: Yes, we can.
Harshil Thakkar: Great. Thanks for taking the questions. So, Yogesh, you’ve talked about previously how there are parts of the portfolio that kind of operating these price-competitive markets where you’re a bit careful on conducting price increases. And then there are other parts where you’ll be a bit more proactive. Can you just describe where you think MarkLogic fits within that spectrum and how we should be thinking about price increases for that business going forward? And then as you look at the renewal pipeline for 2023, how are you thinking about price increases there?
Yogesh Gupta: Yes. Absolutely, Harshil. Happy to do that. So, Harshil, again, MarkLogic has by and large a business that, as Anthony mentioned, is multi-year term licenses that renew, let’s say, three years at a time of somewhere in that range. And so, you end up with, again, only about a third of the business coming up for renewal in any given year. So, that’s point number one. Point number two, based on what we know, and our due diligence, the – not every one of their contracts has the ability to have meaningful price increases in it. As you know, they have a significant government business and there are limits to how much you can do in terms of price changes with the government – federal government contract. So, it is – again, it is, I would say, given the fact that it is only about three quarters of the business in terms of three fiscal quarters, given the fact that it’s only about 70% or even slightly less than 70% of their overall business and the one third of the business doesn’t come in, in FY ’23, and given the fact that only about a part of the business will be up for renewal, I don’t think it is a very large number.
I would say, maybe on an annualized basis, it would be about 20% of their revenue for MarkLogic, where I think there’s an opportunity to do some price increases. The product is very strong and is excellent. So, I think in those cases, we may be able to do some reasonable price increases. Again, the goal, Harshil, for us is customer retention matters more than the actual price increases. So, that’s our philosophy. It has always been. And we will continue to focus on that. Going back to the rest of our portfolio, again, oh, gosh, about, I think going back to this, right, that more than a third of the business – of the core business, pre-MarkLogic business that Progress has, is such that it’s OEM and – or it is based on sort of royalties or revenue-sharing, etc.
So, those things, there are really no price increases that are in our control. Where there is price increase opportunity, obviously, in across two-thirds of the portfolio as you yourself said, right, there are some products that are extremely competitive markets where we don’t see much either, so – much opportunity either. So, that leaves probably about half our business. And in about half our business, maybe somewhat less of our original business, again, you’re looking at sort of three-year renewal cycles. So, you can do the math yourself and you end up with, again, less than sort of 20% of our overall revenue, you can have some price increase. So, overall, by the way, Harshil, price increases are not a big component of our business stability.
Our business stability is primarily driven by the fact that we have very, very high – and an increasing, by the way, right, gross retention rates. We – every single acquisition we do, or we have done so far, we have increased the gross retention rate, and thereby increased the net dollar retention rate as well. And so, to me, that’s sort of what drives the stability in the business.
