Clarke Jeffries

Clarke Jeffries asked for clarification on Kratos' hypersonic guidance philosophy, comparing the current expectations to a quarter ago and distinguishing between base case and non-included revenue areas. He also inquired about the number of tactical drone opportunities in the pipeline, specifically framing Group 3 versus Group 4, and Kratos' interest in investing more capital in Group 1 and 2 opportunities, given the Drone Dominator program.

Answer

Eric DeMarco, President and CEO, Kratos Defense & Security Solutions, explained that comfort with hypersonic guidance stems from 120 engine/motor orders (Zeus and Oriole) ramping deliveries from Q2/Q3 2026, long-lead carbon-carbon materials for glide vehicles arriving from Q3, and the recent appropriation bill. He noted that a potential $1 billion sole-source opportunity, if secured by year-end, could be additive to 2027. For tactical drones, he stated Kratos' strategic focus and investment are on Group 5 (Valkyrie, Mighty Hornet, etc.), which is their sweet spot. While they won a slot in Drone Dominance (Group 1/2), it's not Kratos' primary strategic investment focus.

Clarke Jeffries asked for confirmation on whether the Texas contract rolled off mid-quarter or at the end of Q4, and for rough expectations regarding merchant fees within the transactions revenue guidance for the upcoming year.

Answer

CFO Brian Miller clarified that the Texas contract wound down throughout 2025, not abruptly, with Q4 revenues from the contract being approximately $3 million, totaling $36 million for the full year. He added that merchant fees are expected to grow, driven by an expansion of the gross model for integrated payment services and increased volumes from existing arrangements.

Clarke Jeffries highlighted that the 2025 free cash flow guidance is significantly above the original Analyst Day target and asked what drove this outperformance and why long-term 2030 margin targets are not being raised.

Answer

CEO H. Moore acknowledged the strong performance but stated he is not ready to raise the 2030 targets, preferring to focus on execution. CFO Brian Miller attributed the outperformance to a combination of factors, including better-than-expected operating margins, effective working capital management, and some cash flow being pulled forward. He said this progress increases their confidence in achieving the long-term goals.

Clarke Jeffries asked about the pace of SaaS revenue growth, noting that Q3 has shown the highest sequential increase for two consecutive years and questioning if this indicates an emerging seasonality in go-lives.

Answer

CFO Brian Miller suggested the timing was 'more circumstantial' than seasonal. He explained that the sequential growth pattern is likely driven by the variable timing of go-lives for larger, more complex customer projects rather than a specific Q3 characteristic. He contrasted this with the schools market, which does exhibit clear seasonality tied to the academic calendar.

Clarke Jeffries inquired about the rank order of appropriation bills that would most significantly impact Deltek's GovCon business and asked about Roper Technologies' expectations for M&A deployment in 2026, considering past deployment levels.

Answer

Neil Hunn, President and Chief Executive Officer, stated that the Omnibus appropriation, being heavy on Defense, Department of War, Department of Defense, and DHS funding, is a tailwind for Deltek's customers due to higher contractor spend. Regarding M&A, Neil Hunn and Jason Conley, Executive Vice President and Chief Financial Officer, highlighted over $6 billion in capacity but emphasized disciplined allocation based on business quality and price, noting an expected pickup in the M&A market and a more predictable pace for tuck-in acquisitions.

Clarke Jeffries from Piper Sandler asked about the impact of appropriation bills on Deltek's GovCon exposure and the expectations for M&A deployment in 2026, including scenarios for higher or lower capital allocation.

Answer

Neil Hunn, President and Chief Executive Officer, explained that the Omnibus appropriations, heavy on Defense and DHS funding, are a tailwind for Deltek's federal contractor customers. He also noted that Roper has over $6 billion in capital deployment capacity for 2026, emphasizing discipline in acquiring high-quality businesses and the increasing number of tuck-in acquisitions. Jason Conley, Executive Vice President and Chief Financial Officer, added that the M&A market is ripe for more assets.

Clarke Jeffries with Piper Sandler asked about the impact of recent changes to missile technology control and UAS treatment on AeroVironment's current and future product portfolio, specifically if these changes directly affected the $870 million IDIQ contract's Counter UAS focus, and sought other key policy changes crucial for international business growth.

Answer

Chairman, President, and CEO Wahid Nawabi stated that the new policy and definitions for drones, loitering munitions, and one-way attack systems are very favorable, as they differentiate them from true missiles, which will significantly help over the next two to three years. He confirmed the nearly $900 million IDIQ is directly related to this, as the U.S. DoD anticipates high demand from allies for AeroVironment's solutions, including Counter UAS. He expects overall strong international demand across multiple product lines.

Clarke Jeffries inquired about the dynamics of deal structures in the recent quarter, specifically whether customers were pushing for ramping deals or longer-duration agreements due to a desire for certainty amidst potential macro uncertainty.

Answer

CEO Neil Barua clarified that the large Q4 transactions, including ramp deals, represent committed and contracted elements, not a reflection of customer uncertainty. He emphasized that capturing this customer demand and securing a significant amount of deferred ARR for Fiscal 2026 and beyond was a positive outcome for the business.

Clarke Jeffries asked about the dynamics of deal structures in the quarter, specifically whether customers were pushing for longer duration or ramping deals due to a desire for certainty amidst macro uncertainty.

Answer

Neil Barua, CEO of PTC, clarified that the large Q4 deals were committed, contracted ramp deals, resulting in a significant amount of deferred ARR. He emphasized that capturing this customer demand and commitment was a positive outcome, despite the variability in immediate ARR recognition.

Clarke Jeffries noted the commentary on 'green shoots' in win rates and asked about future expectations for sales rep growth, questioning if growth would come more from wallet share gains or increased hiring.

Answer

Chief Revenue Officer Robert Dahdah and President and CEO Neil Barua responded. Mr. Dahdah explained it's a balance between optimizing productivity and adding headcount, but noted there is an opportunity for growth next year and he has support to add reps responsibly. Mr. Barua added that the go-to-market transformation was designed to fund more customer-facing technical and sales specialists to drive growth.

Clarke Jeffries asked about the evolving wallet opportunity with AI projects, particularly concerning custom bespoke technologies like chiplets and custom memory, and whether this presents challenges to profitability or requires changes in Cadence's investment or selling strategies.

Answer

President and CEO Anirudh Devgan acknowledged the significant trend of custom silicon design, with 45% of Cadence's business coming from system companies. He noted the acceleration of custom silicon driven by high AI compute demand, offering substantial financial and customization benefits to customers. Devgan stated that profitability questions remain similar, with a focus on pricing discipline, and that the trend is healthy for investments in EDA, IP, and hardware.

Clarke Jeffries asked how the wallet opportunity is changing with AI projects, particularly regarding potential growing pains or lower profitability when serving the industry's increasing demand for custom technologies like chiplets and custom memory designs.

Answer

President and CEO Anirudh Devgan noted the acceleration of custom silicon design by system companies, which now account for 45% of Cadence's business. He explained that the high demand for AI compute drives significant investment in EDA, IP, and hardware for custom silicon, offering substantial financial and customization benefits to customers. He affirmed that Cadence maintains pricing discipline, ensuring similar profitability despite the shift to custom designs.

Clarke Jeffries of Piper Sandler asked for clarification on the $140 million tax benefit and whether it changes the company's appetite for R&D investment.

Answer

SVP & CFO John Wall confirmed the $140 million is a one-time cash tax benefit for fiscal 2025 due to the restoration of immediate R&D expensing. He stated unequivocally that this does not change the company's R&D investment strategy or appetite. The benefit is already factored into the annual cash flow guidance, and the non-GAAP tax rate remains 16.5%.

Clarke Jeffries asked for clarity on the Q4 IP business outlook following its strong Q3 performance and whether revenue from a large contract was pulled forward. He also inquired about the drivers of the quarter's operating margin outperformance.

Answer

CFO John Wall confirmed the IP business has strong momentum that should continue into Q4, noting that some milestones from a large multi-year contract were recognized in Q3 with more to come. CEO Anirudh Devgan added that the IP business is in its strongest position ever. Wall attributed the strong margin performance to the business's natural scalability, where revenue growth flows efficiently to profit.

Clarke Jeffries inquired about the success rate of the proactive renewal effort with large contracts this year and the size of the renewal cohort in the second half. He also asked for the catalyst behind a large ticketing merchant moving its remaining volume to Riskified and whether upsells are driven more by volume or Policy Protect.

Answer

CEO Idogal reported a 100% success rate on renewals, attributing it to delivering unmatched value for merchants. Regarding the large upsell, he explained the merchant first saw success with Riskified automating a small segment of its manual review queue. The full upsell was driven by higher approval rates, cost savings, and the deployment of Policy Protect to block fraudulent brokers, which was a key consideration for the merchant.

Clarke Jeffries sought clarification on whether the new 'Adaptive Checkout' feature is an optional product or a standard functionality, and asked about the projected adjusted EBITDA margin exit rate for the business in the second half of 2025.

Answer

Eido Gal, CEO, clarified that Adaptive Checkout is a new functionality within the core Chargeback Guarantee product, available to all clients. Both Eido Gal and CFO Aglika Dotcheva explained that while Q4 will see accelerated growth, a revenue recognition nuance will make reported revenue growth appear lower than billings growth, and that adjusting for this shows a double-digit exit growth rate for 2025.

Clarke Jeffries requested a pulse check on the current state of enterprise adoption for agentic AI, and asked about the primary barriers that still exist for customers.

Answer

CEO Mike Cannon-Brookes described the phase as 'extremely early days,' with enterprises experimenting but remaining cautious about their data and focused on ROI. He noted a gap between AI awareness and usage. He believes Atlassian's approach with Rovo—embedding it in subscriptions and designing agents to collaborate like human colleagues—resonates well and helps bridge this gap by reducing friction and building familiarity.

Clarke Jeffries sought to understand the drivers behind Olo Pay's margin improvement given its significant revenue growth, and questioned the strategy behind the 5,000 net new location target for 2025, asking if the company aims to accelerate this.

Answer

Peter Benevides, CFO, explained that Olo Pay's margin improves with scale in Card-Not-Present transactions and will be further boosted by the introduction of higher-margin Card-Present transactions. Regarding location growth, Benevides clarified that the 5,000 net new location forecast is a prudent guidance philosophy, similar to the initial 2024 target which was ultimately exceeded, rather than a reflection of a slowing pipeline.

Clarke Jeffries of Piper Sandler followed up on AI monetization, asking if there's an opportunity to charge for AI tools within the core website design process itself. He also asked about the confidence in future free cash flow margin progression and the ability to make incremental investments.

Answer

CEO Avishai Abrahami responded that the primary way to monetize AI during the build phase is by improving conversion—making it easier for users to create a site they are happy with, which leads to more paid subscriptions. CFO Lior Shemesh explained that future margin expansion will come from leveraging the existing cost structure, as top-line growth is expected to outpace expense growth. He noted this leverage would be particularly high in the Partners segment.

Clarke Jeffries asked about the broader benefits of the new EverPro organizational structure beyond customer awareness and sought details on the Net Revenue Retention (NRR) metric, including the impact of pricing headwinds and its historical range.

Answer

CEO Eric Remer stated the new structure provides benefits 'all of the above,' including dedicated marketing and R&D resources within the EverPro vertical, allowing for better resource allocation and focus. President Matt Feierstein explained that NRR was previously in the 99-100% range (ex-Marketing Tech) and the drop to 96% is due to anniversarying a large, non-recurring pricing action. He noted the metric is starting to rise again as the LTM impact wanes.

Clarke Jeffries of Piper Sandler sought clarification on the strong sequential net new ARR, asking if it was driven by a meaningful contribution from the Cesium acquisition or by underlying strength in bookings and contract structures.

Answer

Executive Chair Greg Bentley stated that while Cesium's ARR contribution was not financially material in magnitude, it is strategically meaningful. CFO Werner Andre added that the underlying performance was strong, with organic ARR growth of 11.5% (12% ex-China), which was at least in line with the prior year's performance, indicating strength in the core contract base.

Clarke Jeffries asked about the durability of margin expansion in the Transportation segment and the composition of the strong organic ARR growth within the AECO segment's various components (A, E, C, and O).

Answer

Executive Phil Sawarynski stated that following the mobility divestiture, the remaining T&L businesses are expected to continue delivering growth and margin expansion. Executive Robert Painter detailed that while all AECO components are balanced and above $200M in ARR, the architecture and design business has been the fastest-growing part of the portfolio.

Asked about the durability of margin expansion in the Transportation segment and the composition of the strong organic ARR growth in AECO, questioning if it was balanced across its sub-segments.

Answer

Margin expansion in Transportation is expected to continue as the remaining businesses (Maps and Transporeon) are performing well. The AECO ARR growth is varied, with the architecture and design business growing the fastest. The portfolio is well-balanced across A, E, C, and O, with different growth rates but no overdependency on any single part.

Clarke Jeffries of Piper Sandler asked about the durability of the significant margin expansion in the Transportation and Logistics segment and the composition of the strong organic ARR growth within the AECO segment's various components.

Answer

Executive Phil Sawarynski stated that with the mobility divestiture, the remaining Transportation businesses are performing well, and he expects continued growth and margin expansion going forward. Executive Robert Painter explained that while all AECO components are balanced and sizable, the architecture and design business (SketchUp) has been the fastest-growing part of the portfolio, a trend he expects to continue.

Clarke Jeffries asked for clarification on the 'high gross margin proprietary solutions' driving A&C profitability and for commentary on a recent public dispute within the WordPress ecosystem.

Answer

CEO Aman Bhutani confirmed that internally developed products like Websites + Marketing are the primary high-margin drivers. Regarding WordPress, he affirmed GoDaddy's commitment and position as a top contributor to the community, stating their focus is on building value-add layers like their upcoming 'conversational WordPress' feature to make the platform's power more accessible to all users.

Clarke Jeffries of Piper Sandler asked for clarification on the increased float revenue guidance, questioning if it was related to customer payment modality preferences or other factors.

Answer

CFO Joel Wilhite explained the $4 million increase in float revenue guidance (to $49 million) was driven by two main factors. First, the company reduced its assumption for interest rate cuts in the back half of the year. Second, they have observed marginally higher customer fund balances throughout the year and have projected that trend to continue, noting it's not due to underlying operational changes.

Asked if delayed deals were lost to 'no decision,' if the 5% attrition rate is still accurate, and if there has been a definable improvement in business activity in April/May. Also asked for the proportion of business that typically closes in the last month of a quarter.

Answer

The executive confirmed deals are pushed to a later decision, not lost, and that the ~5% attrition rate is in line with expectations. They noted that while some deals were pushed, E&C customers are actually expanding their spending, suggesting the issue is a temporary pullback on OpEx, not CapEx. They confirmed good business was closed in April, much of it from Q3's pipeline, and that like a typical software company, a majority (50-75%) of business closes in the last month of the quarter.

Asked about the specifics of the sales capacity expansion (which business units benefited) and whether the company is still hiring or now focused on ramping the productivity of new hires.

Answer

The sales expansion was broad but focused on DGM, the high-velocity sales team, and Heritage AspenTech solution consultants. The hiring for FY24 is complete, and the focus is now on productivity and conversion, with some further targeted investment planned for FY25.