Good day, and welcome to the Progress Software Corporation Q2 Investor Relations Conference Call. At this time, I’d like to turn the conference over to Brian Flanagan. Please go ahead.

Thank you, Melissa. Good afternoon, everyone, and thanks for joining us for Progress Software’s fiscal second quarter 2017 earnings call. With me today is Yogesh Gupta, President and Chief Executive Officer; and Paul Jalbert, 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 Web site, 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, the revenue, operating margin and diluted earnings per share and adjusted free cash flow amounts we refer to are on a non-GAAP basis. 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 Web site. This document contains the full details of our financial results for the fiscal second quarter 2017, and I recommend you reference it for specific details. Today’s conference call will be recorded in its entirety and will be available via replay on our Web site in the Investor Relations section. And with that, I’ll now turn it over to Yogesh.

Thank you, Brian, and good afternoon, everyone. Welcome and thank you for attending our second quarter earnings call. I’m very pleased that we delivered another solid financial performance in Q2 due to the strength of our core business. We also made further progress in our growth strategy with the acquisition of Kinvey, the leading back end-as-a-service platform, but more on that later. First a bit about our Q2 results. Our revenue of $93.4 million exceeded the high-end of our guidance range, primarily due to the timing of revenue from our OpenEdge segment. Our earnings per share of $0.42 was well above our guidance range, partially due to the higher revenue I just mentioned and partially due to delays in some of our growth investments and prudent discretionary spending. Our adjusted free cash flow was $27.9 million, another strong performance which was in large part attributable to a lower cost profile resulting from our recent restructuring efforts and to our continued strong collections. Although we are not raising the high-end of our annual revenue guidance, we're narrowing the range by raising the low-end of our revenue projections. We’re also substantially increasing our annual guidance for EPS, operating margin, and free cash flow. Paul will provide more detail on our financial results and guidance, but I would like to focus my remaining remarks on the progress we’ve made towards executing on our strategy since our last call. As I’ve previously mentioned, we are executing on a two-pronged strategy. The first prong of our strategy is to strengthen the core of our business, which consists primarily of our OpenEdge, DCI, and Dev Tools products. The second leverages our core business to create the platform of the future for developers to build modern, next generation apps, including cognitive business application. I’ll talk about our…

Thank you, Yogesh, and good afternoon, everyone. As Brian mentioned, all revenue operating income, earnings per share, and adjusted free cash flow amounts that I will be referring to in my remarks are on a non-GAAP basis. For our GAAP results, please refer to the earnings release. For our second quarter, total revenue was $93 million, a decrease of 3% at actual exchange rates compared to Q2 of last year. However, this was above our guidance range primarily due to the timing of revenue from OpenEdge segment into a favorable FX impact from the weakening U.S dollars which we provide in our revenue guidance back in March. Second quarter EPS was $0.42, an increase of 27% versus Q2 of last year. This was also well above the high-end of our guidance range due to the high revenue and lower expenses. The lower expenses were due to a slower ramping of investments in some of our growth initiatives, as well as prudent discretionary spending. Our Q2 2017 results compared to last year also reflect a negative year-over-year impact from currency translation due to the stronger U.S dollar, which was $1 million on revenue and $0.01 on EPS. On a constant currency basis, revenue decreased 2% while EPS increased 30%. As expected, license revenue was $26 million for the quarter, a decrease of 11% at actual exchange rates and 10% on a constant currency basis. The decrease was primarily due to lower license revenue from our DCI segment due to the timing of certain OEM renewal agreements. Maintenance and service revenue was $68 million for the quarter, flat the last year with actual exchange rates and up 1% on a constant currency basis. The increase in constant currency basis was primarily due to higher maintenance and services revenue from our Dev Tools…

Thank you, Paul. That concludes our formal remarks for today. 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 will take our first question from Steve Koenig with Wedbush Securities.

Thank you, gentlemen. Nice quarter and nice to see you guys be more consistent since new management took over. I want to ask you maybe two questions, if I may. The first one is about OpenEdge. So you talked about the revenue beat as partially stemming from OpenEdge results from partners and you referenced the timing, I believe. And so I’m trying to understand that a little bit better. My understanding of the partner revenue has always been, it’s kind of earned as the partner sell licenses and generate maintenance and the SaaS stuff they’re doing is probably ratable as well. And so it's kind of a stream of revenues, and so -- maybe enlighten me as to how timing can affect the partner revenues here and how that might have helped in the quarter?

Sure, Steve. Thank you for those kind words. The -- you’re absolutely correct as to how the partner revenue comes in. So the SaaS part of it is actually as you said, very predictable as is usually the maintenance. The part that is a little less predictable is the perpetual license. What happens is that if a partner of ours has a new customer to whom they sell a perpetual license that have been -- and that the deal happens to close in Q2 versus Q3 or a different quarter than initially expected, we get the benefit of the license revenue fraction that they gave us – that they pay us for that. So that’s how the -- that needle moves back and forth, Steve. So, we have visibility when we work with our partner organization and our partner organization works with our partners, we’ve visibility into sort of approximately when what kind of business they might expect. But it is much less than sort of having visibility into our own deals, right. So …

Yes.

And one of the other interesting things is that our quarters end on the second and fifth etcetera month of the year, and most of our partners are on calendar quarters. So, we will sometimes expect something to be in June and they might close the deal in May and now of course that ends in Q2 for us, even though it’s the same quarter for them. So it's kind of a -- it makes it a bit of a challenge for us to estimate these things, but that's why you sometimes see this. But in general you’re absolutely correct. That's why from an overall annual perspective, we don't see anything different than we previously expected.

Okay. So as my follow-up, but maybe I will also throw in maybe a clarification question, I will call it that on the OE revenue question. So, the -- when you talk about those transactions that were in the pipe that might have closed earlier than expected, are we talking about just a handful of transactions that you were tracking or more generally from several partners, better revenue and they're telling you that it's timing, but may in fact be demand conditions?

So they were primarily small transactions, Steve. They’re telling us it’s timing, we believe they are timing and I think we have no reason not to believe their timing, right. So, we have a good relationship with our partners. They -- I mean, obviously it could be demand and that will be a wonderful surprise for all of us, but at this point we don't think so.

Got it. Okay. And then, if I may, before I pass the baton, I want to ask you about one follow-up and feel free to -- if you want to expand on that one any further, but on the margin side, your restructuring is delivering higher margins, delivering outperformance. It looks like you’re tracking to more like a 35% margin now, and I’m just kind of wondering what's your approach here and how you want to handle your margins and what kind of operating leverage we could see in the future?

So, I will let Paul add to this, but from my perspective, couple of points, right. We obviously didn't ramp up our investment expenses the way we had initially planned that you know was an impact on the positive side on Q1, that was an impact on the positive side on Q2. The Kinvey acquisition closed after the quarter ended, so the operating costs didn’t come in. So in general, I think even though we've had higher than what we’ve expected on margins, I think that our guidance is a fair reflection of what we expect for the remainder of this year. Overall, in terms of philosophy, we want to invest to grow our business, but we want to do it in a prudent lean manner, Steve. We’ve talked about that before. We are big believers that we can keep our margins north of 30%, which has been our goal historically as well I believe. But I will let Paul speak to that and I think we can do that and stabilize revenue and start growing it, while maintaining 30% plus margin. That is sort of the philosophy. And I will let Paul add to that.

Yes, okay. I think Yogesh you’ve covered most of it. I think Steve when you look we got 30% margins in Q1, 35% -- 32% on a year-to-date, and we’re comfortable driving at 30% -- 33% to 34% for the full-year, and based on the guidance that we’ve given for, the full-year and the third quarter I think you can get the math and we’re happy with the margins that the business is generating. And just one point of clarification, Steve, on the revenues, part of the beep [ph] I mentioned in my comments was due to our tax. So you shouldn’t think of the whole beat as just the open hand. Some of that was FX favorability from the weakening U.S dollars.

Yes.

Yes.

Very good. Yes, great. Thanks so much, gentlemen.

Thank you, Steve.

Thanks, Steve.

Thank you. We will take our next question from Mark Schappel with Benchmark.

Hi, good evening, and nice job on the quarter.

Thank you, Mark.

Thanks, Mark.

Yogesh, starting with you with respect to Kinvey, is it Kinvey or Convey, anyways, could you just give an example or two of how the -- that acquisition or their technology will complement the DataRPM technology you acquired last quarter, as well as how it just fits in with a broader cognitive app strategy?

Yes, Mark, definitely. Yes, so I think they pronounce it Convey. So the Kinvey technology is a back-end platform which allows for any kind of -- what in the old days we used to be called application modules or business logic. Nowadays it's called services or micro services based on the size of and amount of code that is running there. So it is a back-end of the service platform. So what happens if you think about an application you have a front-end piece that’s running let's say for example on the mobile app or mobile app running on your mobile phone or a tablet or something like that, that talks to some business logic that is running on something in the clouds that happens to be in this case Kinvey. That been connects to a back-end data set -- a set of data sources which could be systems of record that are in the cloud or on-prem, Big Data or not. In the middle where the services run, you could have services that are being built by development organizations who license the technology or partners or they could be some services that we offer. Services that we could offer and this is where DataRPM fits or things like machine learning services or predictive maintenance. So, people -- an organization may use DataRPM, they come up to figure out what the predictive maintenance models are for their environment and for their industrial equipment, they take those models and now they need to run it at one time in real-time to -- for that model to track what's going on and send alerts. And that would run and would sit on top of the Kinvey platform, for example. We have a -- a set of rule based services using our Corticon…

Great, thank you. And then, so this is the second consecutive quarter that plan investments that you’re expecting to make have kind of lagged expectations and was wondering if you could just go a little bit into why that is, I mean, were you just a little bit too aggressive on your initial plans for hiring up, or you have been trouble finding people, or -- was the attention being given to the acquisitions just taking away from management time for hiring, maybe just address a little bit.

Well, I think that we -- part of the new budget, you want to be prudent in terms of your hiring plans and make sure that you intend to hire people, but you don't want to get into a situation where your hiring gets ahead of your budget, and so we knew that after the restructuring we would be hiring people, yes we’ve been -- our hiring has been slower than expected. It isn't anything unusual in terms of difficulty in finding people. I think everybody knows that folks are difficult to find. So nothing unexpected there, but just -- its ramping up slower than we thought. The second part is the acquisition. So we expected DataRPM in our earlier plans to close earlier. We expected Kinvey, so we had actually planned on the acquisition to have a operating impact in Q1 and -- two acquisitions to have an operating impact in Q2 possibly, right. And so, again, from a budgeting perspective that’s the way we’ve laid it out, because we knew these were the two areas where we needed potentially some help. And so, when the acquisitions actually landed makes it also that our operating RAM got delayed on that front as well. We also, I mean, there is a third component, right. We have been prudent about our expenses in general, we like to run a tight ship and that has also helped us as well.

Okay. Thank you.

Thanks, Mark.

We will take our -- and the next question is from Glenn Mattson with Ladenburg Thalmann.

Hi. Good afternoon. Also on the acquisitions, maybe you could talk about how you determine the price being that there -- it doesn’t sound as any revenue associated with it and what it will take for these business to start producing revenue there with impressive customer list as it is, so what is the factor that’s going to help them become revenue producers?

Yes. So, Glenn, a couple of things, I think you've two questions at least maybe more rolled into that one. In terms of the purchase price, obviously as you know with a private company several factors come into play. You know how much capital has been invested in it, what is the appetite of the sellers, what is the market like, the company, actually Kinvey was in the middle of raising its second round. So that obviously also comes into play in terms of at what price they are able to buy somebody. So, a number of factors, right from figuring out what price the deal can be done. Obviously, we then look at it and say if that’s the price of the deal is likely to happen, does that make sense for us from our expectations of what the business will be and how it will deliver returns to our shareholders. And so, again, that that's how we got to that. So, a whole host of inputs, whole number of inputs and horse trading and a deal gets done. In terms of what will it take to generate revenue, I think as I said with DataRPM, we need to continue to win new logos, and we’ve really modest goals for DataRPM in terms of revenue, in terms of Kinvey, again they are a -- as you are aware, a 100% cloud subscription business. They do have a very impressive list of customers and again our goal is to accelerate the go-to-market efforts. And from our perspective the integration with our DCI product, the capability and ability for us to potentially sell and license other add-ons as well and offer both front-end offerings and the services in the back-end, additional services in the back-end around intelligence, I think all of those things can also potentially increase the deal sizes. But I think it's a matter of execution, I think it's a matter of us continuing to win more new logos and build out a strong a business. And I think as we do that over the coming quarters, we will share -- we will be completely transparent and share with you how that is doing and [technical difficulty] and how it will impact us going forward.

Okay, thanks. And Paul, the -- on the tax rate for the non-GAAP adjustments, can you go over what went on there, it seems lower than the tax rate of the firm overall or last quarter's tax rate on the adjustments?

We are at 34% for Q2. I think I had mentioned that our Q3 rate should be in line with our Q3 -- this is non-GAAP tax rate, our Q3 2016 rate.

Okay. With just regards to adjusted earnings per share table and it's just $0.04 provision of income tax on $0.25 of adjusted -- of adjustments which is only in the mid teens or something. Can we -- Glenn, can we take that offline. I’m not quite sure.

Yes. We will [indiscernible]. That’s it for me. Thanks, guys.

Thanks, Glenn.

All right.

That concludes today’s question-and-answer session. I would like to turn the call back to 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 third quarter of 2017 on Wednesday, September 27, 2017 after the financial markets close and holding the conference call the same day at 5 PM Eastern Time. I'll now turn the call back to Yogesh for his closing remarks.

Thank you, Brian. I'd like to wrap up by reiterating that I truly am excited about the progress we’ve made so far to transform ourselves into a much stronger and much more innovative company. Our results for the first half of the year were solid as we operated our business efficiently and coupled with the progress on DataRPM and our acquisition of Kinvey, we’re positioning ourselves for future growth. Thank you for your continued support. I look forward to continuing our dialog in the coming days and weeks. Thank you all and have a great evening. Bye, bye.

That concludes today’s conference, and thank you for your participation.