Good day and welcome to the Progress Software Corporation Q1 Investor Relations conference call. At this time I would like to turn the conference over to Mr. Brian Flanagan. Please go ahead, sir.

Thank you, Cassandra [ph]. Good afternoon everyone and thanks for joining us for Progress Software's fiscal first quarter 2016 earnings call. With me today is Phil Pead, President and Chief Executive Officer; Jerry Rulli, our Chief Operating Officer; and Chris Perkins, our Chief Financial Officer. Before we get started, I'd like to remind you that during this call we may discuss our outlook for future financial and operating performance, corporate strategies, product plans, cost initiatives, or 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. Please review our Safe Harbor Statement regarding this information which is available both in today's press release as well as in the Investor Relations section of our website at progress.com. Progress Software assumes no obligation to update the forward-looking statements included in this call whether as a result of new developments or otherwise. Additionally, on this call we may refer to certain non-GAAP financial measures such as revenue, operating margin and diluted earnings per share. You can find a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP numbers in our earnings release issued today. Today we published our financial press release on our website and also furnished the information to the SEC in an 8-K filing. These documents contain the full details of our financial results for the fiscal first quarter 2016 and I recommend you reference these documents for specific detail. Today's conference call will be recorded in its entirety and will be available via replay on our website in the Investor Relations section. And with that, I'll now turn it over to Phil.

Thank you, Brian. Good afternoon everyone and thank you for attending our first quarter earnings call. We expected the first quarter of fiscal year 2016 to be a comparative bookings challenge coming off such a strong quarter in Q4. However, while there is definitely some seasonality in our business, December bookings were weaker than expected, particularly across our Telerik solutions. The Telerik bookings shortfall, coupled with the lower level of license sales to our OpenEdge direct and Pros customers resulted in overall first quarter revenues that were slightly below our expectations. I'll address OpenEdge's direct enterprise sales in a few minutes, but let's start with a discussion of Telerik's bookings. Since acquiring Telerik, our objective has been to accelerate their bookings growth and scale their opportunities. By leveraging our strong partner base and enterprise sales knowledge, as well as our experience in driving a high level of maintenance renewals, we felt we could increase Telerik's growth beyond 20% over time. However, we decided not to integrate them immediately into our existing go-to market plans and operations since we wanted to better understand the rhythm of the business and we didn't want to interrupt the level of success they had achieved under their own operating model. As we've progressed through 2015 we identified opportunities for synergies and began taking steps to more fully integrate Telerik with our other go-to market initiatives, organizations, systems, and processes. This began in July with Jerry's appointment as COO and continued in Q4 with the organizational changes we made to enable stronger cost collaboration amongst product management and sales and a tighter integration of the product management and product development teams. While we retained the dedicated business unit sales teams for each of our products, most of the changes are organizational structure [inaudible] all of our…

Thank you, Phil, and good afternoon everyone. As Phil mentioned in his remarks, our revenues for the first quarter were slightly below our expectations, particularly in bookings of our Telerik products and in license sales to OpenEdge direct enterprise customers. Let's start by looking at each of our segments all on a constant currency basis. OpenEdge revenue was $67 million, down 3% for the quarter compared to last year. License revenue from our ISV partners were steady and actually above our expectations, but license sales to our direct enterprise customers were significantly lower compared to a very strong first quarter performance in 2015. As Phil noted, license sales to our direct enterprise customers tend to be larger and more difficult to forecast than sales to our ISV partners, and some of the opportunities we have targeted for Q1 and Q2 will instead likely close in the second half of this year. While the pipeline for these deals is consistent with prior years, we are taking a more cautious view on timing and also reducing our overall direct end-user license outlook for the year. The OpenEdge Q1 license decline was partially offset by an increase in maintenance revenue, driven by a renewal rate of well over 90% in the quarter. Our OpenEdge renewal rate continues to be very healthy and has in fact improved substantially over the past several quarters, a great indicator that our customer base is pleased with the new technology and support we have to offer and that they remain committed to their relationship with Progress. Corticon sales -- license sales decreased in the quarter. As I've mentioned in prior quarters, our strategy for this product is to broaden our sales efforts by establishing partnerships with systems integrators and consulting firms which will enable us to sell Corticon…

Thank you, Jerry, and good afternoon everyone. As we mentioned in our earnings release, we were below the low end of our guidance range for the quarter, reporting total non-GAAP revenue of $90 million compared to $95 million in Q1 2015, a decrease of 5%. On a constant currency basis, revenue decreased by 2%, due to a $3.2 million negative year-over-year impact from currency translation due to the strengthening of the U.S. dollar versus the prior-year first quarter. Our first quarter non-GAAP earnings per share was $0.27, down $0.02 when compared to the first quarter of 2015. In addition to lower revenue, the decrease was also due to a $0.02 impact from a foreign exchange transaction gain in Q1 of 2015 realized on certain intercompany balances related to the Telerik acquisition structure, and a $0.01 negative impact from currency translation, both of which we discussed during our Q4 2015 earnings call. Excluding the impact of the foreign exchange gain in Q1 of 2015 and the impact of currency translation, growth in non-GAAP earnings per share was 4% for Q1. Non-GAAP revenues include acquisition-related revenue adjustments for Telerik, totaling approximately $1 million. As I discussed in our January guidance call and consistent with previous quarters, GAAP rules require us to eliminate certain pre-acquisition revenue classified by Telerik as deferred revenue. But we include this revenue on our GAAP quarterly reporting to better reflect our true business performance on a normalized basis. The year-over-year revenue decrease was primarily due to license revenue which was $24 million for the quarter. This represents a decrease of 17% at actual exchange rates and 14% on a constant currency basis. The license revenue decline was primarily due to the decreases in sales of OpenEdge direct enterprise customer licenses and to the shortfalls in Corticon licenses and…

Thank you, Chris. Although we've lowered our revenue guidance for the year based on our Q1 results and our expectations for Q2, we feel positive about our growth in the second half. We believe we'll be able to meet our bookings goals for Telerik for the rest of this year and we continue to be engage in larger sales opportunities, particularly with our OpenEdge direct enterprise customers. I want to emphasize that these opportunities could have a meaningful impact on our revenue expectations, but given their size and the typically less predictable nature of large opportunities, we're taking a more cautious view. Earlier today we announced that Chris Perkins will retiring after a transition period while we search for his replacement. While this decision is difficult for me personally and professionally as I've worked with Chris for more than 15 years, I completely understand his strong desire to spend more time with his family. I'll now hand it back to Brian to open it up for questions and answers.

Thank you, Phil. That concludes our formal remarks for today and I'd now like to open up the call to your questions. I ask that you keep your remarks to your primary question and one follow-up. I will now hand over to the operator to conduct the Q&A session.

Thank you. [Operator Instructions] We'll take our first question from Greg McDowell of JMP Securities. Mr. McDowell, your line is open.

Hi, this is Richard Deloria dialing in for Greg McDowell. Thank you for taking my questions. So, first, looking at OpenEdge, you had mentioned that there were some deals that you had expected to close in Q1 that didn't materialize. What were the kind of major contributing factors here? Was it sales execution, competition, a weak spending environment, or were there other factors at play here?

This is Jerry. It wasn't so much competition. It's just that these are transactions that, you know, are long in nature. I mean these discussions have been going on and will continue to go on. So there's no -- there was no competition involved at all and we feel positive about these transactions in our pipeline. There's just, I used gnarly, just have a lot of negotiations going on and they take a little longer sometimes.

Got it, got it. And on Telerik, I know in the past you had mentioned one of the challenges was a mismatch in the calendars between Progress and Telerik, and I know you've been talking on this call about some of the integration issues you've been facing. Has this been one of the issues that's been faced or is this something that's still, you know, coming to line those up?

Let me take that and I'll hand it over to Jerry for some more color on that. The timing of yearends obviously, as I mentioned before, impacted us, especially when it comes to sales organizations being compensated to drive as much revenue for the end of the year and the end of the quarter. And we have essentially resolved that as we moved through the integration. But we've done an enormous amount of work on ensuring that the renewals part of our dev tools business scales to the much larger revenue growth that we're expecting from that business. There's a lot of work that was involved in that. There was a lot of infrastructure replacement. There were additional new hires to be made, training, a much more rigorous process for lead follow-up. All of these things were necessary because, when we acquired Telerik, we've now added significantly larger amount of revenue, and as we look to grow this business, as we mentioned earlier, 20% over time, we needed to make these foundational changes to accomplish that. That's a lot of change. It did in fact affect our productivity. We did expect that for Q1. But clearly it impacted us to a higher level than we expected, particularly in December. I can say though, however, since then, January, February and of course now that we're into March, we're seeing bookings levels that are much aligned with our expectations. We're not there yet but I'm very confident that, with the process that we've put in place and the changes that we made to the systems to monitor and ensure that the lead follow-up is strong, that those bookings will eventually return to the level that we expect through the balance of this year and meet our bookings expectations. I don't know, Jerry --

I think you [inaudible] I was kind of just emphasize that we, as Phil mentioned, we did plan on some integration issues [inaudible] the year, they were a little bumpier than we thought. We've worked through them. I think we have a very good plan identifying, expecting [ph] all those issues going forward, so --

Okay. And then last question for me and I'll jump off. But just in general in terms of the selling environment. Are you seeing any signs of a spending slowdown on software, specifically here in the U.S.?

I think that, you know, we, you know, at the macro level, I think that that's definitely something that we believe could impact us for the balance of this year. I hope that we guided appropriately. I also think that our revenues are somewhat hedged by the fact that a substantial portion of them are also derived internationally, outside of the U.S. But I think that the macro environment for these kinds of expenditures we do believe that there could be some headwinds this year.

Okay, great. Thanks a lot guys.

And we'd go next to Steve Koenig of Wedbush Security.

Hi, gentlemen. Thanks for taking my question and thank you to Chris for all your help these last few years. And we wish you luck in your next stage here.

Thank you, Steve.

I want to do a housekeeping question for you guys and then get to another question. So you gave the bookings numbers out for I think a couple of the businesses, we can calculate the third one. Do you -- can you give us a notion of the comparison or the percent or the prior-year bookings, or do you have that and I missed it?

It's posted on the website, if you want to check it out there.

Right. Okay, perfect. That's right, you guys started doing that last quarter. Okay.

Yes.

Thank you. Great. And then, you know, I wanted to ask you, so a little bit about the guide for Q2 and then the full year. So you've explained the same factors that hit you in Q1 are responsible for taking the full year guide down. Any sense of like which of the two factors is bigger in terms of taking the full year guide down, the OpenEdge direct or Telerik bookings and revenue? And then kind of the second part of that question, if you will then, is, you know, now that we look at the Q2 guide versus the full year guide, there's a real -- you took the full year guide down quite a bit but there's a very big ramp now from Q2 then to the back half of the year. So, can you give us a little color on what drives that ramp, what are the biggest drivers, and any sense of the timing of DataDirect connect OEM renewals, how do they play and sort of how the cadence for the year flows?

Sure. Yes, the reduction in the guidance was driven certainly by a larger component of it was related to the OpenEdge direct enterprise license sales, which we pulled down and took a cautious view on timing as well. So that was certainly the larger portion of the impact. The secondary impact was related to the Telerik bookings miss in the early part of the year that has an impact because all the revenue is recognized ratably. As bookings continue to improve or their trajectory improves, it doesn't develop into revenue immediately at the time of booking. So, clearly it's OpenEdge direct end-user license as the largest impact.

Okay. And then the ramp, yes, go ahead. I'm sorry, Chris.

Yeah, it is ramp, but I'll let Jerry comment some as well. But as we described, again it was primarily related to the direct end-user licenses. And we've got a number of opportunities and some large opportunities in our pipeline that we're working very actively. And we, because of we saw that we missed or some of those that timing didn't work out in Q1, we actually took a very cautious view on Q2 and the rest of the year and pushed from a guidance perspective most of that license business. We reduced it and we also put what we will achieve and have some confidence in achieving in the second half of the year. Jerry, I don't know if --

No, I think that's very accurate, Chris. I think the statement [inaudible] that we also discussed is that we have confidence in the business. The OpenEdge ISV business is very solid, the renewal rates are very strong. And it comes down to the ongoing discussion with some of these larger opportunities and making them feather in [ph]. I've been doing this a long time and sometimes you wish you could control the purchasing cycles of other companies and you can't. But the good news is we do have -- the pipeline has been consistent and the deal structures that are out there. So that's why, like Chris said, we have confidence, but we did move those transactions in the second half of the year.

And last, again, we do have very good visibility into our data connectivity and integration OEM license renewals, which is a meaningful driver of the license revenue there, and again as I mentioned, I think we will see growth in the future quarters as well as on a full year basis based on our view of that pipeline of renewals.

And just for clarifications, is there any -- is there going to be any -- do you expect any lumpiness in those renewals, like certain quarters or the back half benefit, you know, more than, say, Q2 or is it the renewal cadence be pretty even?

There are some lumpiness. Q2 will be positive year-over-year growth. But there is lumpiness. It just depends on the timing of when those renewals happen. So we've seen that in the past, but Q2 will be positive year over year and that will continue for the rest of the year, to the back half.

Got it. Okay. Very well. Thanks very much for taking my questions. And farewell, Chris.

Yeah. Thank you.

[Operator Instructions] And we'll go next to Glen Mattson of Ladenburg Thalmann.

Hi, good afternoon. Just curious about, you know, going back to Analyst Day and comparing some of the more recent results with some of the long-term targets, particularly app dev space. I mean I think you guys forecasted growth of 20% to 30% in that area and I think you're targeting bookings to be getting back to just 15% I think this year. So, do you still stand by those longer-term Company targets that are heavily reliant on that segment?

Yeah, we do, Glen. This is Phil. Clearly the -- we believe that the productivity impact in Q1 was and is temporary, that the changes that we make as we go along here are part of the necessary changes that sometimes don't necessarily provide for the greatest quarterly results, but we're building a company for the long term here and it's really important that the foundation is strong. And the fact that we have seen the level of bookings move substantially up to where we are expecting them to be, as I said they're not where they need to be just yet but we have every confidence that we'll reach that. And if that continues throughout the balance of this year, then the revenue growth targets and the bookings growth targets that we expect from that business will absolutely materialize.

Just to dive a little deeper on that, is the, maybe for Jerry, is the Sitefinity growth rate holding? I mean that was one of the larger segments that was growing quite nicely from what I recall, is that, you know, north of 50%, is that still the case?

No. I would say that it met our expectations in Q1 and we're on target for the growth rate for the year. So we have a high degree of confidence. One think I was going to mention, Glen, on top of what Phil said, is that the investments we made were some internal but there were some external investments in the sense of adding headcount and opening up channels. We made some really good progress in Q1, a little bit in Q4, of channel improvement [ph] and channel recruitment, which will manifest in the Sitefinity and Telerik platform sales. I expect that to be a little bit second half just from a normal channel growth. We have some of that built into our growth opportunities, but I would say Telerik and -- Telerik platform and Sitefinity were right on the number that we expected in Q1, which bodes well for the rest of the year.

Okay. And last, if I could squeeze one more, on OpenEdge. Are these large direct deals larger than in the past or is this of a typical size for a larger deal in that area?

These are fairly significant transactions that we've had in the past. Some of them may get larger. The situation with some of the OpenEdge direct account is they become somewhat fluid, as we discussed, the growth opportunities for these accounts and how much of a technology stack [ph] they're going to consume. So it's not uncommon for these opportunities to start at one size and over the course of 90 days grow substantially. So I would say these transactions are in line with what I've seen in the last 18 months to two years and some might get a little bit bigger than that.

Okay. So there's really no sort of to pin a reason other than just kind of a longer sales cycle on the slower version. Okay.

Yeah.

All right, thanks.

And we'll go next to Mark Schappel of Benchmark.

Hi, good evening. Thanks for taking my question. Chris, starting with you, I suppose, congratulations is in order for your upcoming retirement. You'll be missed out here though. So, congratulations. Is there, Chris, is there a specific date associated with your retirement?

No. No. I'm going to be focused on continuing to work with the Company. Phil and Jerry and the entire team and I will make sure that the Company gets the right financial oversight. And I'll be available to help them work through the transition to a successor. So there is not a specific timeframe.

Okay, thanks. And then, Phil, in your prepared remarks, if I recall correctly, you noted that the combined Progress, Telerik CRM system that you were implementing caused a few of the stumbles. I was wondering if you could just provide much more color or details around.

Yeah. Let me pass that over to Jerry who was instrumental in driving that.

Yeah. I think sort of an interesting, this is my third what I would call significant CRM transition in my career in the last probably 10 to 12 years, and no matter how we plan these things, some of the areas get a little bit more broader. I think I would focus it on two main areas that we've overcome. But they're mainly in I would call a training/workflow, the processes that the Telerik team were used to and employed were slightly different, and we recognized that going into it, but it was all -- some of it was the way they consume their leads and the implementation of our current system was slightly different than that, so that slowed and clogged the system. And the second area is an area that we knew would happen and we're, you know, we've got plans around that. This is data cleansing and data integrity that manifests itself into sort of account assignments and stuff. I think those are two key areas. And the third I'd say [ph] would just be normal training, getting people used to new system and getting up and running and continuing. Those are the areas that we addressed in the quarter.

But Mark, this is Phil, just to add to Jerry's comments. These kinds of infrastructure changes are absolutely necessary if we're going to scale this business. They had a system that was just not capable of doing that and they had a methodology that would not have allowed us to see the growth in that particular segment of the Telerik business. So, while, you know, we have to go through these -- we have to go through these changes, and they're not necessarily pleasant as we go through them, they're absolutely vital if we're going to continue to grow this business.

Okay, thank you. And then with respect to Corticon, I realize that Corticon revenue is relatively small compared to the rest of the products, but Phil, could you just review one more time what it was with Corticon that didn't meet expectation?

Yeah, we actually moved to a different go-to market, Mark, that we've discussed, I think we definitely discussed it at the Investor Day and talked about it subsequent to that, where we're going to be using a much more of a channel approach for Corticon rather than a direct enterprise sales approach. And we've made really good progress. This is, you know, it takes a while to build channel relationships, and while again we estimated that that would be the case, taken a little longer than we expected because we got to build the relationships, then we have to build the pipeline, and we don't always control the timing of that and the opportunities, and we always try and estimate what that would be, and we didn't exactly match [ph] it up in Q1. But we're very encouraged by the relationships we build, the pipelines that we have. And especially in some of our regional areas like EMEA and Latin America, we think there's some opportunities there for us to realize some nice deals, particularly as we move towards the second half of the year, which is why we're bullish on the growth that we see for the second half of 2016.

Okay, thank you.

You're welcome.

And this concludes today's question-and-answer session. At this time I will turn the conference back to Mr. Brian Flanagan for any additional or closing remarks.

Thank you all for joining the call today. As a reminder, we plan on releasing financial results for our fiscal second quarter of 2016 on Wednesday, June 29, 2016, after the financial markets close, and holding the conference call the same day at 5:00 p.m. Eastern Time. We look forward to speaking with you again soon. Have a good day.

And this does conclude today's conference. We thank you for your participation. You may now disconnect.