Q4 2023 Progress Software Corp Earnings Call

Presentation

Operator

Good day and welcome to the Progress Software Corporation Q4 2023 earnings call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question. During the session you will need to press star one on your telephone. You will then hear an automated message advising your handouts. To withdraw your question, press star one advise that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Mike Mitchell, K. Senior Vice President of Investor Relations go ahead, sir.

Okay. Thank you, Sherri. It's nice to have you with us again. Good afternoon, everybody, and thanks for joining us for Progress Software's Fourth Fiscal Quarter 2023 financial results conference call. On the line with me this afternoon are Yogesh Gupta, President and CEO, and Anthony Folger, our Chief Financial Officer.
Before we get started, let's go over our state Safe Harbor statements. During this call, we will discuss our outlook for future financial and operating performance, corporate strategies, product plans, cost initiatives, 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 for a description of the risk factors that may affect our results, please refer to the risk factors in our filings with the Securities and Exchange Commission. Progress Software assumes no obligation to update the forward-looking statements included in this call and Additionally, please note that all the financial figures or figures referenced on this call are non-GAAP measures. Unless otherwise indicate indicated, you can find a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP figures in our financial results press release, which was issued after the market close today and is on our website. This document contains additional information related to our financial results for the fourth quarter of fiscal 2023, and I recommend that you reference it for specific details, but we've also prepared a presentation that contains supplemental data for our fourth quarter 2023 results providing highlights and additional financial metric. As I mentioned, both the earnings release and the supplemental presentation are available on the Investor Relations section of our website at investors dot 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.
So with that, with that out of the way, Yogesh, I will turn it over to you.

Thank you, Mike, and good afternoon, everyone, and thank you for joining our Q4 '23 financial results conference call for fiscal '23 was another great year for progress. I'm extremely proud of everything we accomplished and how all our teams performed. I'll quickly take you through some highlights from the past year and then provide a look at the year to come.
The fourth quarter was another strong one marked by ongoing stable demand for many of our products, especially OpenEdge, DataDirect and Sitefinity. Top line revenues of $178 million remained robust. ARR grew 17% year over year. Our net retention rate was a solid 100% and operating margins were well above our expectations. For the year, we generated over $175 million of adjusted free cash flow on revenue of $698 million and finished the full year with operating margins of 39%.
Perfect. As you recall, we began 2023 with the announcement in January of Tamar QLogic acquisition. At that time, we said that the mark Logic acquisition would add over $100 million in annual revenue and would take about a year to fully integrate. I'm delighted to share that virtually every milestone for the month logic integration was completed before the end of fiscal 2023. This faster integration was a direct result of the continuous improvements we have made in our integration costs. As always, we gained new learnings from the mark Logic acquisition that will help us further improve for the future for instance, we have to maintain a separate entity to accommodate the unique requirements of the various US federal agencies, who are our customers. Now that we have this entity, we see it as a vehicle not only to serve these existing customers, but to expand our relationships by addressing a wider set of their needs through our broader product portfolio.
In addition to our M&A efforts in FY23. We also executed well on the other two pillars of our total growth strategy, which are sustained innovation and an unrelenting focus on customer success. So turning to product innovation and FY23, we added AI capabilities to our products, improve the time to value for our customers and made our products even more easy to use. For example, we incorporated Gemini indoor Sitefinity product to enable content creators to rapidly scale content production and to improve targeted marketing by personalizing content to suit the needs of various personas. We deliver the high-power contextual Ventana image analysis in the latest release of our flow manpower, which provides our customers faster, automatic meaningful insight into possible malicious network activity. We launched Shell SaaS, which enables DevOps and SecOps to rapidly realize value. And we have received very positive reaction from our early customers. We launched loan master 360, which provides administrators the ability to manage the performance and availability of their entire environment from a single user interface. And we released new and updated versions of our desktop products with a whole host of new capabilities. These include new components to rapidly build embedded data driven applications and the support for new accessibility standards. Among other features, some have more and more sequel database products. We acquired with Mark logic, our leading product for semantic metadata analysis and for making sense out of structured and unstructured data as organizations embrace all kinds of AI exponentially, expanding the sources and scale of data necessary for RBS is now better positioned to help them develop and deploy their mission critical applications and experiences as well as effectively manage their data platforms, cloud and IT infrastructure in addition to M&A and innovation.
The third pillar of our total growth strategy is an unrelenting focus on customer success in FY23 after a couple of years of slow in-person activities, we hosted numerous live in-person customer events. These included more than 20 local engagement events across the globe for our OpenEdge customers called the OpenEdge World Tour well over 3,000 attendees joined us to hear what was new in our portfolio and how the OpenEdge platform and the broader product portfolio is continuing to deliver increasing value to help propel that business forward.
We also held well attended conferences for our debt to essential customers. We have promise and the user community shared innovative ideas and best practices in rapidly developing engaging digital experiences and efficiently scaling DevOps and SecOps efforts across on-prem, hybrid and multi-cloud environments.
In 2023, we also dealt with the sophisticated multi-stage attacks on our customers' move IT environments by a cyber criminal group. We issued a match within 48 hours of discovering the zero day vulnerability in molded and proactively engaged with our customers to help them hard and they are moving environments. We continue to cooperate with regulatory authorities who are investigating the attacks, and we'll provide updates regarding the impact of the movement incident on our business and operations in our upcoming Form 10-K. And I want to thank the teams across our business for the amazing way. They have come together to help our customers and to continue to move our business forward. Because of our employees' hard work and dedication, our customers have remained incredibly loyal and continue to work closely with them. Our employees are at the center of everything we do, they build our products, sales service and support our customers and run our operations in 2023. We continue to sustain a thriving employee culture evidenced by our employee Net Promoter Score or NPS, which is in the mid 30s for by the way, this is in the same league as Microsoft and Google, once again, employee turnover process for the industrials hitting mid-single-digits in the second half of the year. Our employees are energized by our mission, vision and values, and they continue to share that with the world, helping us win numerous awards for being the best place to work. For example, Boston Globe again selected Provost as one of the top places to work in Massachusetts. This time 3rd year in a row, we ranked number six for 2023, moving up five spots from '22 and now the highest ranking software company on the list, I am delighted that we accomplished. All this continue to improve our internal processes and systems to become even more efficient, integrated our largest acquisition to date and delivered outstanding results for 2023 now looking forward towards FY24, I'm incredibly excited about what lies ahead. We foresee sustainable demand for our products in FY24, and it will be the first full fiscal year of revenue contribution from MarketWatch. As Anthony will explain in his guidance, we expected to propel us to over $7.5 million in revenue and to also help expand our operating margin. We remain focused on our proven total growth strategy to create shareholder value the same way we have for the last several years. Our capital allocation policy continues to prioritize M&A because we see it as the best way to generate sustained shareholder return for our investors. We are, therefore, extremely active in the M&A market. And as we have previously noted, market factors continue to shift and often competitively and financially, we are as well positioned for M&A as we have ever been. And our reputation as an acquirer of choice among the sellers continues to grow. I also want to reiterate that we are unwavering in our strict discipline when it comes to M&A. First, we will continue to pursue companies that are good fit in terms of technology, size and culture. We're looking for companies with great products and customers, high recurring revenues and retention rates. As I like to say, well, I'm not looking for unicorns, they're looking to buy great workforce. Second, we will be extremely disciplined about what we pay for these businesses and how we finance it to ensure that we create meaningful shareholder value.
And lastly, as we have repeatedly demonstrated, we will rapidly integrate acquired companies using the knowledge experience and best practices we have accumulated and drive higher margin during the year, we expect to use excess cash flow to repay debt whenever possible, and we will continue to repurchase shares to offset dilution from our equity programs under our existing share repurchase authorization.
In addition to our efforts around M&A, we will also continue to execute on the other two pillars of our total growth strategy, innovation and customer success through investment in innovation and customer success. We will continue to drive strong operating margins, higher ARR and high retention rates.
To conclude, I am extremely pleased with our FY performance, and I'm even more excited about what is to come in FY24.
With that, I'll turn it over to Anthony to provide additional details around our results and guidance. Anthony?

Thanks, Yogesh, and good afternoon, everyone. Thanks for joining our call. As Yogesh mentioned, our Q4 results were strong across almost every metric, and we're very pleased to deliver such a strong close to fiscal 2023 diving right into the numbers. I'd like to start with ARR, which we believe provides the best view into our underlying performance. We closed Q4 with ARR of $574 million, which represents approximately 17% growth on a year-over-year basis and 1% pro forma growth on a year-over-year basis. To be clear, the pro forma results include mark logic in both periods. The growth in ARR was driven by multiple products, including OpenEdge, Mark logic, Sitefinity, our DevTools products and move it. And ARR was again bolstered by strong net retention rates of 100%. In addition to the strength in ARR, revenue for the quarter of $178 million was just above the high end of the Q4 guidance range we provided back in September and represents approximately 12% growth on a year-over-year basis. Our strong revenue performance in the quarter was driven by multiple products led by OpenEdge, which continues to outperform our expectations. For the full year, revenue of $698 million grew by $88 million and represents 14% growth over the prior year. This growth was driven by Mark Logic's top line contribution combined with growth across multiple other products, most notably OpenEdge load Master, Sitefinity Moovit and our dev tools products with customer retention rates remaining strong throughout 2023 and a strong demand environment fueling growth for a number of our products. We're thrilled with our top line results for the year.
Turning now to expenses. Our total costs and operating expenses were $115 million for the quarter, up 18% over the year ago quarter and $428 million for the full year, up 16% compared to fiscal 2022. The year-over-year increase in expenses for both the quarter and the full year was driven almost entirely by the addition of Mark logic to our business.
Operating income for the quarter was $63 million for an operating margin of 35%, handily exceeding our internal expectations the better than expected operating performance was the result of overperforming on the top line while managing our expenses to plan on the bottom line, our earnings per share of $1.2 for the quarter were $0.09 ahead of the high end of our guidance range. This overperformance relative to expectations was again driven by strong top line performance, coupled with solid cost management across the business with virtually all planned synergies achieved on the integration of mark logic during fiscal 2023. Our Q4 results position us very well for the upcoming year.
Moving on to a few balance sheet and cash flow metrics. We ended the quarter with cash, cash equivalents and short-term investments of $127 million and debt of $731 million for a net debt position of $604 million. This represents net leverage of approximately 2.2 times on a trailing 12 month EBITDA basis.
I'd also like to highlight that during the fourth quarter, we again paid down $30 million against the revolving line of credit that we used to partially fund the acquisition of mark logic, bringing the outstanding balance on that revolving line of credit, $110 million at the end of the fiscal year. Dso for the quarter was 62 days or flat compared to the year ago quarter. However, it was well above the 49 days we reported in Q3 of 2023 The reason for this sequential increase in DSO is the timing of our bookings and billings in the quarter with a significant portion coming later in the quarter and pushing the related cash collection into early 2024. Deferred revenue was $295 million at the end of the fourth quarter, up by approximately $15 million on a sequential basis reflecting our strong top line performance in the fourth quarter. Adjusted free cash flow was $33 million for the quarter, which was slightly less than we expected, but was entirely driven by the timing of billings.
As I mentioned in my discussion on DSL, during the fourth quarter, we repurchased $4 million of progress stock, bringing our annual total to $34 million and ending our fiscal year with $194 million remaining under our current share repurchase authorization.
Okay. Now I will turn to the outlook and when considering our outlook for 2024. It's important to keep in mind the following first, 2023 was a year of top-line growth across many of our product lines in 2024, we expect the demand environment for our products to remain stable.
Next, Mark logic contributed to our 2023 results for approximately 10 months. However, due to the seasonality in the market logic business, that 10 month contribution represented roughly 70% of mark LOGICS annual top line in 2024. We expect the incremental contribution from our logic that 30%. We didn't see in 2023 to occur in our first fiscal quarter and to a lesser extent in our second fiscal quarter. Also, Mark Logic's revenue model is comprised mostly of term-based licenses when combined with some of our other products, which employ a similar revenue model, most notably Chef & Data Direct, it's fair to say that approximately one-third of our product revenue will be recognized under an on-prem term-based license model. As a result, the timing of contract renewals, especially multi-year contracts, will have a more significant impact on our revenue in any given quarter and could skew results higher or lower. We will therefore continue to focus on ARR as a way to cut through the noise in 2024 and we expect ARR will continue to grow at a level that's generally consistent with 2023.
The final point I'd like to highlight is that absent any acquisitions we anticipate we'll continue to aggressively repay the revolving line of credit that was used to partially finance the MARC Logic acquisition. And by the end of fiscal 2024, we expect that we will fully repay that revolving line of credit, driving our net leverage ratio down to approximately 1.5 times.
With all that said, for the first quarter of 2024 we expect revenue between $180 million and $184 million and earnings per share of between $1.12 and $1.16 for the full year, we expect revenue of between $722 million and $732 million, representing between 3% and 5% growth over 2023. We anticipate an operating margin for the year of 39% to 40%. We are projecting adjusted free cash flow of between $202 million and $212 million and we expect earnings per share to be between $4.58 and $4.68. Our guidance for the full year EPS assumes a tax rate of 20%, the repurchase of 45 million in progress shares and approximately 45 million shares outstanding. Our share buyback and activity in 2024 is meant to address potential dilution from our equity plans. And while we believe that share buybacks and dividends can provide shareholders with a good return, our M&A track record over the past three years has delivered superior returns for our shareholders. And for that reason, disciplined accretive M&A will continue to be the top capital allocation priority of our total growth strategy.
In closing, we're excited to deliver strong financial results across the board in the fourth quarter, a continuation of the trend we saw for all of 2023. We're thrilled with the integration of mark logic and how it positions us for the future, and we believe we're on track to deliver a great 2024 and beyond.
With that, I'd like to open the call for questions.

Question and Answer Session

Operator

Thank you. As a reminder, to ask a question, please press star one on your telephone and wait for your name. To be withdraw your question, press star one and restraints we ask that you please limit yourself to one question and one follow-up question. You may then return to the queue. Please standby while compile the Q&A. First question will come from the line of Pinjalim Bora, JPMorgan. Your line is open.

Great, guys. Congrats on the quarter on the Q, but I wanted I wanted to ask you on Mark logic now that you have integrated mark logic. What are you hearing from the mark logic customer base in terms of innovation that they would like to see? And I know you don't focus on cross sell as much, but is there any opportunity for cross-sell that you're seeing in that base? And one for Anthony, what is the dollar contribution from our QLogic business?
Yes, for the full year.

So I'll take the first part and then Anthony can talk about the revenue contribution in FY23. So our opinion at a couple of interesting things. One that has come out loud and clear is that the mark logic product and by QLogic and some of our combine, it's really designed as a underlying database system and it really requires a fair bit of it was to start getting value out of it. The time to value is a bit longer than we would like to see. So we've actually been working on throughout this past year and the team has been and we've just sort of in the process of coming out with a fast-track option as an add-on to the product to really accelerate the ability for folks to add be able to create a data driven applications rather than start from scratch. So that's something that we're tremendously excited about in terms of the type of innovation, the other type of innovation that they request that we have gotten that we're actually already addressed was how can they use more logic and some of the Board to take their existing data and potentially augment. And to be honest, you know, maybe gentlemen may I answer strong standard of generative AI tools that are out there to be specific to their business, how do they make it without having that data go out of their environment. And so we have created sort of additional offerings around that to make it easy for folks to leverage their internal data and therefore create in context of relevant to their business.
Our non-exclusive journey at JGPT. type of answers. So that that is those are two of the things that we've already done in terms of cross-sell, Benjamin, you know, as you know, when we build our business model for these things we do not take into account a cross-sell because we want to make sure that the business we will be able to generate shareholder value without relying on that. That said, we do see cross-sell opportunities. I think that, you know, our digital experience products can truly help, but logic customers a better job of presenting the information and creating data-driven applications much more easily are, in fact, a fast-track offering leverages some of those some of the others.
In addition to that, we see opportunities for these environments, which are large-scale environments and these applications that are complex applications to have in our dev ops and tech ops capabilities from partners like Chef. We also see a product like Corticon, which is our decisioning engine that can also be used by these companies and these organizations to further augment the kind of business logic that they need to apply. So they are not logic data. So there are some opportunities. But the pendulum I want to sort of be a bit careful. We are just starting that effort of going, I know going into that customer base and offering that those will also have just started bringing the value of HeartLogic and some of our to our other customers. I think 2024 will be a year for us to see those cross-sell opportunities materialize in something that is worth talking about on this call. So up. So we are early in the time.

And to take the second question, Pinjalim, when we acquired mark logic, we had mentioned that it was roughly $100 million business, maybe a little bit more on and we thought they would do probably $70 million for the year in 2023 and the business came in just slightly ahead of that. So just north of $70 million in fiscal '23 was the number.
Got it. Thank you very much.

Operator

Thank you. One moment, Brian question and that will come from the line of Ittai Kidron with us. Oppenheimer. Your line is open.

Thanks, guys. Maybe I saw a few Yogesh, our next call, you sounded very upbeat on the potential for M&A. Sounds like that valuations are finally starting to come in the direction you want them to come and we're now nearly a year since Mark logic, maybe you can give us an update on what you see out there and how would you rate the odds of a nother acquisition in in '24.

So you're right, you're absolutely right. We have been very active in the M&A on space. We are we are we are looking at companies, we are competing for them. We're actually, interestingly enough, we have said no to a lot of them because we felt that it just did not meet our criteria of being really solid businesses that we wanted to own at any price, to be honest. And given where we are and given what we are seeing, I feel truly confident that we will do an acquisition in FY24 now lead with that. I also want to make sure people do understand that, you know, it takes two to tango as they say, right? And so the sellers have to align with us as well. But yes, we feel good. We feel really good about the pipeline. We feel really good about the activity. We feel really good about the conversations we've had over the last second half of FY23 to feel that, you know, whenever we have engaged, they have been meaningful and they have been something that that we've been to the middle of and think of things. So, you know, I am confident that we will do something in FY20.

Okay.
And then on the financial side, Adam, you gave a quite interesting review on the enhancements you've made to the portfolio, but tying this to Anthony's comments on the year, it sounds like there's literally zero core growth that you're expecting with the business outside of the incremental contribution from our QLogic that Dan was not caught in '23. So sort of the guide me to we really assumes zero growth in the core I'm just trying to think why with all the changes in the portfolio, there's no better opportunities for you to monetize these.
Maybe going back to the first question, I'll degenerative VI. enhancements are none of them revenue-generating cardiologist experience enhancing? Is there no better way to squeeze a little bit more out of this?

Yes, hi, it's Anthony. And it's a good question. Part of this really is and I mentioned a little bit the timing of contract renewals within the business and '24 on. We do have a lot more term based sort of the on-prem term-based subscription model. And so the timing of when those contracts renew or when they're set to renew will influence the revenue quarter to quarter on. But again, I also alluded to the fact that we had pretty good ARR growth last year. Multiple products contributed to that growth, and we expect stability in the demand environment. So you know, again, quarter to quarter, things may move a little bit, but over the course of the year, I would expect to see ARR growth that's relatively consistent with '23.

Very good. Thank you. Good luck.

Thank you enough.

Operator

Thank you. One moment for our next question will come from the line of Fatima Boolani. Sidney, your line is open.

Good evening, gentlemen. And thank you for taking my questions. Either for Anthony or Yogesh. It was interesting from the here that move it had a strong performance in the quarter was enough for you to call it out in your prepared remarks and appreciating that it was an incident for the business. I'm very curious as to on how customers have responded. I mean, it seems almost counterintuitive that the contributing factor to some of the strength you saw. So I just wanted to unpack that a little bit because it seems counterintuitive on the surface and then I have a follow-up, please.

So well, you know, it was good to hear from you, Fatima. I'll answer part of it. Maybe Anthony can add as well. You know, from my perspective, right? We have actually done everything in our power to help our customers hard in that environment deemed with the incident that they faced and move forward. And we continue to do. So, you know, I am really proud of what the team has done, and we're really proud of being able to keep our customers and the customers have been loyal to us and it's been and it's been a really wonderfully positive set of outcomes. Obviously, your challenge and it's still a lot of in all unresolved legal issues and deliberations. But from a customer perspective, we continue to be very positive about move it on. Anthony, you want to ask that?

So I would agree. I think there's a movie performed well, certainly in the first half of '23 arm and it held up in the second half of '23. I would say on we keep an eye on the pipeline Com and we want to make sure that we can continue to close deals on and retention rates of have, I think, remained fairly strong, but we'll measure that over the course of a year right. And we want to we want to see how the retention plays out over time.
So all in all, dialed back, Yogesh a little bit. I'll be I'll be the conservative one to say, yes, it was a very good year, and I think we're very pleased with the outcome and the top line. But we're still cautious and we're still I would say, very focused on where our customers are at and wanting to understand renewal trends and also wanting to make sure that we can continue to build the pipeline. So I think it's a it held up well, for sure.
Yes.

Okay.
Okay.
That's helpful.
And I'm since you brought up retention rates, good data segue into my question around what you're thinking about net retention rates are underneath the hood. As you tell us and talk to us about consistent, they are your ARR growth trends consistent with this year and the spirit of the question really is we did see that retention rate this quarter dipped about 100 basis points.
So it's not dramatic. I think you've been operating 1 to one oh two zip code pretty consistently. So maybe to ask the prior different lens, we expect some of those innovations in the portfolio and pull up the stock, so to speak on net retention rate or any of our commentary you might be able to share as you think about net retention rate trajectory in 2024?

Yes, sure, Tim. I can I can take that I think I think in the back half of '23, we do have churn from time to time. And I think Yogesh has mentioned this before. Sometimes it's factors that are outside of our control, like M&A. And so I think any slight dip we saw in the back half of the year was associated with a very small number of contracts and one in particular, where there was a to two global financial institutions merged and the party that was using our technology did not come out on top in the integration. And so sometimes those things happen and we measure net retention rates on a trailing 12 month basis. So, you know, I think as we move through the first half of 2024, we would expect retention rates to be maintained and then start to sort of normalize and improve in the back half of the year. Again, I think that would be a projection on where the estimate would be there?
I don't want to guide to a specific number. We still are happy, not 100% or better for us as great. Um, you know, I still think for the full year of 2024, there can be some improvement there.

Terrific. Thank you so much.

Operator

You one moment for question and that will come from the line of Brent Thill with Jefferies. Your line is open.

Thanks, I'm curious if you could just address the demand environment and how you would characterize how customers are fueling today versus six months ago year ago, what are you seeing in terms of their overall attitude to spending, how you're feeling about the pipeline.

But then you know, we continue to see as we even said in our prepared remarks, like sort of stable continued demand, it is it is a we have a product portfolio that is and very much relevant to the businesses even more so today than it was a year ago, which was even more relevant than the year before. And so on, right, as we pick up these new products that address, as you know, additional areas that we can help them with. So demand remains good. We are not seeing any sort of meaningful change up or down, right. I want to be careful about that. I don't think that people are suddenly going all. You know, maybe there will be no recession and therefore, let's not spend money like drunken sailors. I think we are not we're not seeing that. We're not expecting that. I think budgets continue to be our watch. I think people are cautious about their spend but because of our product portfolio, which helps people optimize expenses, run things better, improve efficiency of engineering and development organizations, improve IT operations in Q2, improved security, improved the development life cycle, all those things actually play towards there. So I think we see more of the same in '24 as we did in 2020 at this point time.

And then on M&A and a number of your peers are seeing kind of the same things you're saying. I'm curious, is there one or two points that you would add to what's enabling this M&A environment to pick back up? Is it just more reasonable valuation? Is that, hey, we've had such a stall out for so long that's just kind of natural pent-up demand like what do you think is causing this now?

I think, Brent, it's all of the above. I think that, you know, when you look at is one of the examples of VC-backed companies. If you look at VC-backed companies there, I mean our plan is ideal exit rate. And you look at enterprise software IPO exits over the last 24 months. And boy, it is sparse, right? So if you have a business and you already see and you have a business that is absolutely not a rock star business, you're not thinking IPO in '24, right? So the question is, what do you do? You've got you've had two years behind you and you know, '22 and '23 were disasters from an IPO perspective. Now '24 U.S. looks like it's gone for that kind of a business. And it's unclear whether a business that is growing, let's say, single digits in revenue is ever going to be able to IPO. So what do you do? I think people are beginning to get there. And I think the founders who work with these leases and these leases work with Founders a slowly sort of saying, look, we really don't want to fund your next ground and those businesses that need to raise around, I think, are potentially out coming to market. And I think they are they are they are opportunities. So that's one category. And then the other category is even other businesses that have been owned by sponsors or other entities for a significant period and they kind of look at it as a can we get some liquidity. So I think it is a time it is a time issue for the investors after we see that as a matter of focusing on their winners and not worrying too much about this, also Ram's from where is in the case of sponsors, it is still some pressure from LPs around liquidity and so on. So I think those are the pressures that are bringing the size of businesses. We are looking at it into the market. And you know, we're not really looking at extremely large businesses. We look at businesses in general, you know, plus or minus 20% of our size right, we'd ideally 15% to 25% of our sizes. The sweet spot will go somewhat smaller. We've got some more bigger, but that's what we like and end up and so that's in that range. We are seeing quite a bit of activity.

And then one quick clarification for ANTHONY. I mean, your margins the last four or five years have been pretty much a cruising altitude, high, high 30s, low 40s. Is that is that still kind of the ranges of how you're thinking about running the business, not maybe not too high so you get growth, is the high 30 low, low 40 kind of the right framework think about the next couple of years?

Yes.
I mean, we're 39 to 40 for this coming year on, we're not expecting a material change in the margin profile of the business. We've always said we'll maintain margins better than 35% on I think being in the high 30s is certainly something that is that is manageable for us and it's sort of part of our part of our playbook.

Thank you.

Operator

Thank you. One moment for Quest.
And that will come from the line of Ray McDaniel with Guggenheim. Your line is <unk>.

Great.
Thanks for taking the question. Anthony, you mentioned billings timing was more back-end loaded this quarter. Has that been a trend or was it driven by a few deals in the quarter? And how do you think about that in '24 as your business becomes more term license related and more dependent on renewals?

Yes, it's a good question, Ray. I think it was more a small number of deals. We tend to do. They're lumpy deals in any given quarter. And certainly in Q4, I think the Q4 dynamics around the timing of bookings and billings, they usually are different than any other quarter just because it's you know, we've got sales incentives that are that are sort of focused around that Q4 timeframe and a lot of customers in year end are at their Q4 and they're doing a lot of budget work and negotiation around the quarter. So I think Q4 tends to be some more challenging just in terms of forecasting the timing of when things are going to come in and we overachieved on the top line, which we're thrilled about. It was a little bit later in the quarter. And so that cash pushes into the following year. But I think you're right also that as we go into '24, there's more parts of our business now that are on term base subscriptions from to the extent that that more multiyears come into play or the timing of certain contracts moves from quarter to quarter, it will have an impact on revenue. Things may be may be lumpy from quarter to quarter on, I think it will impact cash flow to a lesser extent. You know, we could have a situation like we had in Q4 where there's a little bit of a timing issue, but I think it's more of a revenue impact. The way I think about it pay us some cash flow impact, but probably a little bit less.

That makes sense. And then maybe another one for Anthony and Yogesh, if you want to comment that would be helpful as well. So as we think about just kind of where interest rates have gone and where most, I think are expecting them to go, which is down next year.
You talked a little bit about absent an acquisition, you'll get your net leverage down to about 1.5 times. What do you view as an appropriate level of leverage if you do find the right business and I know it might be deal dependent but just kind of where your guardrails in this interest rate environment around leverage?

Yes.
I think that the interest rates drive a lot in our model, right? And the leverage levels are sort of the governor on in terms of how fast and how big we can go. And so I would say in our 3.5 times net income, we can creep a little bit higher than that to get a deal done. I think we'd be comfortable doing that 3.54. I don't think we'd go much above that. And I think if we were to take leverage up that high for the right deal, we would probably the same as we did from arc logic. We'd probably start to delever pretty quickly after the deal closed. If you look back on the mark logic deal, we probably taken more than a half a turn of net leverage this year, and we started paying it back in Q2, right? We closed it in Q1. We started paying down our revolver in Q2. And by the end of '24, that revolver would be gone. And I think if we were to take on a little more debt to do our next deal, I think it'd be a similar playbook where we may lever up to that 3.5 times net or a little higher. And once the deal closes and the integration starts, we start delevering probably pretty aggressively.

Makes sense. Thanks for taking the questions.

Operator

Thank you.
I'm showing no further questions queue at this time. I would now like to turn the call back over to Mr. Yogesh Gupta for any closing remarks.

And thank you, everyone again for joining us, and we look forward to talking to you again soon. Have a wonderful evening, good night.

Operator

Thank you all for participating. This concludes today's program. You may now disconnect.